Israel Pagan Estate v. Cannon

• Decision Date: 16 November 1987
• Docket Number: No. 860072-CA,860072-CA
• Citation: 746 P.2d 785
• Parties: ISRAEL PAGAN ESTATE and Leonor C. Pagan, Personal Representative, Plaintiff and Respondent, v. Joseph N. CANNON, Dorius Black, Alpha Leasing Company, a partnership; Robert D. Apgood, Joseph N. Cannon, Dorius Black, and Richard McKean, doing business under the name and style of Alpha Leasing Company; Bill Brown Realty, Incorporated; Scott Peatross, personally; Stewart Title Company of Utah; Tommy W. Sisk; Capitol Thrift and Loan, a financial corporation; and Merlyn Hanks, Defendants and Appellant.
• Court: Utah Court of Appeals

Page 785

746 P.2d 785

ISRAEL PAGAN ESTATE and Leonor C. Pagan, Personal Representative, Plaintiff and Respondent, v. Joseph N. CANNON, Dorius Black, Alpha Leasing Company, a

partnership; Robert D. Apgood, Joseph N. Cannon, Dorius

Black, and Richard McKean, doing business under the name and

style of Alpha Leasing Company; Bill Brown Realty,

Incorporated; Scott Peatross, personally; Stewart Title

Company of Utah; Tommy W. Sisk; Capitol Thrift and Loan, a

financial corporation; and Merlyn Hanks, Defendants and Appellant.

No. 860072-CA.

Court of Appeals of Utah.

Nov. 16, 1987.

Rehearing Denied Dec. 2, 1987.

Kay M. Lewis, Salt Lake City, for appellant.

Mark S. Miner, Salt Lake City, for respondent.

Before BENCH, GARFF and JACKSON, JJ.

OPINION

GARFF, Judge:

Defendant Capitol Thrift and Loan (Capitol) appeals from a jury verdict finding it liable to plaintiff Israel Pagan Estate for damages arising out of Capitol's alleged conspiracy with defendants Stewart Title Company (Stewart Title) and Joseph Cannon (Cannon) to defraud Pagan of his home. We reverse.

Pagan, a native of Puerto Rico, was unable to speak or understand English, and had subnormal mental capacity due to injuries suffered in an industrial accident. On July 30, 1980, with the help of his friend and interpreter, Emilio Ortiz, he listed his home for sale with Century 21 Real Estate. Ortiz, with a tenth grade education, was unsophisticated in real estate transactions.

On occasion, Cannon, who was a partner in defendant Alpha Leasing, worked with Dorius Black, an independent businessman. Black, as part of a business arrangement with Cannon, signed an earnest money agreement with Century 21 on July 30, 1980, and executed a $1,000.00 promissory note for the purpose of purchasing Pagan's home. This earnest money agreement specified that Black was the purchaser of the home, ¹ that he deposited $1,000.00 earnest money in the form of a promissory note, and that the purchase price of the house was $44,000.00. Of this price, $20,000.00 was payable as a down payment at closing, and the remaining $24,000.00 balance was payable as follows: payments were to be deferred for the first year; on August 1, 1981, a $2,630.88 interest payment was due; and on September 1, 1981, monthly payments of $242.67 were to begin, which were to be paid until August 1, 1982 when the balance was to be paid off with a balloon payment.

Stewart Title, acting as the escrow agent for this transaction, drew up the following documents: an escrow agreement, a trust deed note for the $24,000.00 balance bearing the same terms as the earnest money agreement, a request for reconveyance, copies of the buyer's and seller's closing statements, and a trust deed. Pagan and Cannon each paid $25.00 to set up this escrow account. Nothing in any of these documents indicated the existence of any other trust deed.

Black, who owed Capitol $4,848.75 at the time, referred Cannon to Capitol to obtain a loan for the $20,000.00 down payment. Although Cannon testified that he never actually applied for or negotiated with Capitol for this loan, Merlyn Hanks, a loan officer with Capitol, testified that Cannon had requested such a loan. The record indicates that Cannon filled out an application with Capitol for a $32,325.00 loan on August 13, 1980, five days prior to the closing; submitted to Capitol a signed personal financial statement, an Alpha Leasing financial statement, and a signed borrower's statement that the loan was to be used for strictly business purposes; and signed a business promissory note and security agreement for a $32,325.00 commercial loan from Capitol at 22% interest, payable in five monthly payments of $668.15, beginning September 18, 1980, with a balloon payment of $32,518.72 due on or before February 18, 1981. This loan was to be secured by a first trust deed against the Pagan property. These documents were not available to the parties during closing.

Pagan's house was appraised at $43,100.00. Hanks testified that he normally made loans for between 65 to 85% of the appraised value of a house, and that the $32,325.00 loan fell within this range ($28,015.00 to $36,365.00). He also testified that he was aware that Black and Cannon had a working relationship, and that Black had referred Cannon to Capitol to obtain the loan. However, he was unaware of the $24,000.00 agreement between Cannon and Pagan.

Closing was originally scheduled to take place at Stewart Title on the morning of August 18, 1980. Because the documentation was not completed, the closing was delayed until that afternoon. Pagan, Ortiz, Black, and Cannon were present during the entire two-and-one-half hour afternoon meeting, but agents from Century 21 and Bill Brown Realty, representing Pagan and the buyers respectively, were only present during portions of the transaction.

Tommy Sisk, representing Stewart Title, presided over the closing. He conducted it slowly so that Ortiz, who was translating for Pagan, would not be rushed. He stated that Pagan asked him questions about the transactions through Ortiz, which he answered, that he explained the documentation prepared by Stewart Title to all the parties, and that he explained to Pagan the following changes from the earnest money agreement: the substitution of Cannon for Black as buyer; ² the existence of the Capitol trust deed; that the total loan amounts would exceed the $44,000.00 purchase price of the property; and that the trust deed in favor of Capitol securing the $32,325.00 commercial note would be recorded ahead of the trust deed in favor of Pagan which secured the $24,000.00 note. However, he also stated that he did not know at that time what the exact amount of the loan from Capitol would be. He further explained to Pagan that Pagan would be in a second rather than a first position, and if Cannon did not pay, Pagan would have to pay on the Capitol loan to avoid losing his house. Sisk stated that he went through the entire closing before Pagan executed any documents. At the end of the closing, the parties signed the documents and copies were distributed.

The seller's statement of account, naming Pagan as the seller and Cannon as the buyer, indicated that the sales price of the house was $44,000.00, that there was a deed of trust on the property for $24,000.00, and that the following closing costs were payable by Pagan from the $20,000.00 down payment: current taxes of $224.07, a title insurance fee of $211.00, an escrow fee of $37.50, a sales commission of $2,640.00, and a closing fee of $30.00. The balance due Pagan was $16,857.43, which he received.

Sisk stated that he did not review the disbursement checks, and that Cannon did not sign the note for $32,352.00, the accompanying trust deed in favor of Capitol, and the mortgage at the closing because these documents were delivered afterwards. He also indicated that the transaction between Pagan and Cannon was totally separate from Cannon's transaction with Capitol, that he had nothing to do with the transaction between Capitol and Cannon, that he had no knowledge that the closing involved Alpha Leasing, and that the substitution of Black for Cannon was not inconsistent with the terms of the earnest money agreement. He testified that the transaction did not close in accordance with the earnest money agreement because of last minute changes, but that such last minute changes were common.

The broker representing the buyers ³ believed that Black and Cannon were working together as partners, and that Cannon was a more qualified buyer than Black. He understood that Black was the buyer, and was using Cannon as a guarantor on the loan, but that, at closing, the parties decided to make Cannon the buyer of record because Cannon was more qualified and they did not want to complicate the transaction further by adding an additional buyer. He stated that he was aware that there would be a first mortgage ahead of Pagan's trust deed, and that it would be for more than $20,000.00, but was not aware of the exact amount or the terms of the Capitol note.

Cannon testified that he attended the closing at Black's request, believing that he was only to be a guarantor of the loan. He was induced to do so on the grounds that Black, who was in arrears on lease payments owed to Alpha Leasing, had projects which, if funded, might be made sufficiently profitable to enable him to make the lease payments. During closing, however, Cannon was substituted for Black as purchaser, and, consequently, signed the following documents as the only obligor: the trust deed in favor of Stewart Title for $24,000.00, the escrow agreement for this trust deed, and a statement of account naming him as the buyer of the property. None of these documents indicated that Cannon was a guarantor rather than the purchaser. Nevertheless, he testified that he did not know that he was the purchaser, stating that although he had an opportunity to read the documents, he did not do so. He also testified that he was not aware that Black had signed any of the documents. ⁴

The real estate agent representing Pagan at the closing indicated that he was aware that the $20,000.00 down payment would be borrowed, but did not know if it would be a first or second mortgage. He understood, however, that Cannon was financially stable, and believed that the documentation prepared by Stewart Title was exactly according to the earnest money agreement. He stated that he discussed the contents of the documents with Pagan, and that he was not aware of any misrepresentation made at the time. However, he never saw the documents brought over from Capitol after the closing and was not aware that more than $20,000.00 was to be placed against the home. He also believed that the terms and conditions had been significantly altered from the earnest money agreement because the loan was greater than $20,000.00, and that Pagan could not have understood the alterations unless they had been...