Insight LLC v. Gunter

• Decision Date: 16 April 2013
• Docket Number: No. 38158.,38158.
• Citation: 154 Idaho 779,302 P.3d 1052
• Court: Idaho Supreme Court
• Parties: INSIGHT LLC, an Idaho limited liability company; Donald F. Hutton, an unmarried man ; HLT Real Estate LLC, an Idaho limited liability company; The Earle–Henrion Trust dated January 27, 1998, the sole and separate property of Daniel C. Earle; and Independent Mortgage Ltd. Co., an Idaho limited liability company, Plaintiffs–Appellants, v. Patrick GUNTER and Monica Gunter, husband and wife, Defendants–Respondents, and Summit, Inc., an Idaho corporation; Ron Hazel, an individual; Sarah Hazel, spouse of Ron Hazel; Darren Brott, an individual; and Susan Brott, spouse of Darren Brott, Defendants.

154 Idaho 779

302 P.3d 1052

INSIGHT LLC, an Idaho limited liability company; Donald F. Hutton, an unmarried man ; HLT Real Estate LLC, an Idaho limited liability company; The Earle–Henrion Trust dated January 27, 1998, the sole and separate property of Daniel C. Earle; and Independent Mortgage Ltd. Co., an Idaho limited liability company, Plaintiffs–Appellants,

v. Patrick GUNTER and Monica Gunter, husband and wife, Defendants–Respondents,andSummit, Inc., an Idaho corporation; Ron Hazel, an individual; Sarah Hazel, spouse of Ron Hazel; Darren Brott, an individual; and Susan Brott, spouse of Darren Brott, Defendants.

No. 38158.

Supreme Court of Idaho, Moscow, September 2012 Term.

April 16, 2013.

Rehearing Denied April 10, 2013.

Dean & Kolts, Coeur d'Alene, for Appellants. Charles R. Dean argued.

Ramsden & Lyons, Coeur d'Alene, for Respondents. Marc A. Lyons argued.

SUBSTITUTE OPINION,

THE COURT'S PRIOR OPINION DATED JANUARY 24, 2013 IS HEREBY WITHDRAWN.

W. JONES, Justice.

I. NATURE OF THE CASE

This is an appeal from a district court trial regarding a dispute over two liens on real property: a deed of trust and a mortgage. Appellants ("Insight") are assignees of a mortgage secured by 160 acres of real property owned by Summitt, Inc. ("Summitt"), which includes an 18–acre parcel of land that Summitt purchased from the Respondents ("the Gunters"). The Gunters hold a deed of trust on the Gunter property.

II. FACTUAL AND PROCEDURAL BACKGROUND

Summitt owned a 142–acre parcel of land that it intended to develop into a residential subdivision. Respondents, Pat and Monica Gunter owned an 18–acre plot of land that adjoined Summitt's 142 acres ("the Gunter property"). Not wanting to live next to a residential development, the Gunters solicited Summitt's president, Ron Hazel, to purchase the Gunter property; the parties agreed to a price of $799,000. On April 21, 2006, the Gunters and Summitt, through its president, Hazel, entered into a purchase and sale agreement for the Gunter property. The agreement, prepared by Summitt, identified EasyWay Escrow ("EasyWay") as the closing agent for the transaction. The agreement provided $1,000 earnest money and the balance of the purchase price was to be paid in "cash at closing." Possession of the land was to be delivered at closing on June 19, 2006.

After executing the purchase and sale agreement, Hazel contacted Independent Mortgage Ltd. Co. ("IM"), seeking a loan of $799,000. IM agreed to loan Summitt $616,000 so long as Summitt's principals executed personal guarantees and secured the mortgage with 160 acres of land including both the 142 acres already owned by Summitt and the 18 acres comprising the Gunter property.

Shortly after the execution of the agreement, Hazel contacted Monica Gunter and revealed that Summitt was unable to come up with the full amount of the purchase price. Hazel informed her Summitt could pay $599,000 and asked the Gunters to finance the remaining $200,000 of the purchase price, which the Gunters agreed to do. This conversation was documented by notes taken by Monica Gunter and delivered to EasyWay. These notes do not mention any other loan or financing contemplated by Summitt for the purchase of the Gunter property.

Sandpoint Title was responsible for recording and providing title insurance for both the IM mortgage and the Gunters' deed of trust. Stephanie Brown prepared the documents related to the IM/Summitt mortgage. Carol Sommerfeld, owner of EasyWay Escrow, prepared the documents related to the Gunter/Summitt deed of trust. The district court found that Sommerfeld was not aware of the mortgage executed between IM and Summitt. The district court also found that the Gunters lacked knowledge of the IM/Summitt mortgage at the time of the closing, because they were never informed of any financing by Summitt other than their own deed of trust. Also, there was no reference to the IM mortgage in any part of the closing file. As to the dispute of whether Hazel informed the Gunters or Sommerfeld of the IM/Summitt mortgage, the district court found credible Sommerfeld's and Monica Gunter's testimony that they were not informed of the IM/Summitt mortgage. It also found that IM knew of the Gunters' deed of trust because IM considered seeking a subordination agreement from the Gunters.

Hazel signed the IM/Summitt mortgage on June 19, 2006, at IM's offices in Sandpoint, Idaho. Later that same day Summitt executed a deed of trust in favor of the Gunters at EasyWay's office. All of the documents were delivered to Sandpoint Title by IM and EasyWay for recordation. IM instructed Sandpoint that the IM/Summitt mortgage was to be recorded first. The deed from the Gunters to Summitt was recorded on June 20, 2006, at 4:16 p.m. The IM/Summitt mortgage was recorded that same day at 4:17 p.m., and the Gunter/Summitt deed of trust was recorded at 4:18 p.m.

In 2007, Summitt defaulted on its obligations to both IM and the Gunters. Insight¹ filed a Complaint on August 27, 2008, naming Summitt, Summitt's principals, and the Gunters as defendants. On November 26, 2008, the Gunters answered and denied that their deed of trust was junior to the IM/Summitt mortgage. On February 17, 2009, Insight filed a motion for summary judgment. The district court denied the motion because there was an issue as to who was the initial encumbrancer. Insight filed a motion for reconsideration, which the district court denied. The case was tried to the court on June 28, 2010, and the court issued its final order on August 2, 2010. A final judgment accompanied by a Rule 54(b) certificate was entered on August 6, 2010. An Amended Judgment and Rule 54(b) certificate was entered on August 17, 2010. The Notice of Appeal was filed on September 17, 2010. An Amended Notice of Appeal was filed on October 28, 2010.

After trial, the district court found that the closing of the Gunter/Summitt deed of trust was a separate and independent transaction from the IM/Summitt mortgage. The court found that the separate closings were not part of "one continuous transaction." The district court further found that the Gunters' deed of trust effectively encumbered the Gunter property at the time the transaction between Summitt and the Gunters closed. However, it found the IM mortgage on the combined 160–acre parcel of land did not create an encumbrance on the Gunter property until after the Gunter/Summitt transaction closed. The rationale was that the mortgage could not encumber property that is not owned by the mortgagor. As a result, the Gunters' deed of trust was determined to be the "first encumbrance" on the Gunter property. The court also found that IM was not a good faith purchaser—even though it recorded first—because it was aware of the financing agreement between Summitt and the Gunters.

On appeal, Insight argues that the IM mortgage has priority as a matter of law because it was a purchase money mortgage that was first recorded thus rendering its "good faith" irrelevant. Insight also contends that the Gunters were not good faith purchasers and had imputed knowledge of IM's mortgage through the escrow agent, EasyWay. Respondents counter that the Gunters' deed of trust was the first encumbrance on the Gunter property; the IM mortgage was not a purchase money mortgage; and even if it was a purchase money mortgage, the Gunters' deed of trust effectively encumbered the land first and therefore had priority.

III. ISSUES ON APPEAL

1. Whether the district court erred in concluding IM had notice of the Gunters' deed of trust.

2. Whether the district court erred in finding the IM mortgage was not a purchase money mortgage.

3. Whether the district court erred in finding the Gunters' deed of trust had priority.

IV. STANDARD OF REVIEW

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), but will not set aside a finding of fact unless it is clearly erroneous. Idaho R. Civ. P. 52(a). When a case is tried to a court, determinations as to the credibility of witnesses, the weight of their testimony, their probative effect, and inferences drawn from that testimony are the province of the district court. Estate of Skvorak v. Security Union Title Ins. Co., 140 Idaho 16, 19–20, 89 P.3d 856, 859–60 (2004) ; Idaho Power Co. v. Cogeneration, Inc., 134 Idaho 738, 746, 9 P.3d 1204, 1212 (2000).

On review, the interpretation of a statute is an issue of law over which this Court exercises free review. Idaho Fair Share v. Idaho Public Utilities Comm'n, 113 Idaho 959, 961–62, 751 P.2d 107, 109–110 (1988), overruled on other grounds by J.R. Simplot Co. v. Idaho State Tax Comm'n, 120 Idaho 849, 820 P.2d 1206 (1991). The primary function of the Supreme Court when interpreting a statute is to give effect to the legislative intent, which should be derived, where applicable, from the clearly expressed intent of the legislature. Payette River Prop. Owners Ass'n v. Bd. of Comm'rs of Valley Cnty., 132 Idaho 551, 557, 976 P.2d 477, 483 (1999) ; George W. Watkins Family v. Messenger, 118 Idaho 537, 539–40, 797 P.2d 1385, 1387–88 (1990).

V. ANALYSIS

Idaho is a race-notice recording state: "Every conveyance of real property ... is void as against any subsequent purchaser or mortgagee of the same property, or any part thereof, in good faith and for a valuable consideration, whose conveyance is first duly recorded." I.C. § 55–812. A purchase money mortgage "has priority over all other liens created against the purchaser, subject to the operation of the recording laws." I.C. § 45–112.

A. The district court's finding that IM had notice of the Gunters' Deed of Trust is Clearly Erroneous.

The district court found that IM had actual notice of the Gunters' deed of trust, because IM considered a subordination agreement and instructed Sandpoint Title to record the IM mortgage first. This finding is clearly erroneous.

The district court found that Summit executed the IM mortgage on June 19, 2006. The...