Kalange v. Rencher

• Decision Date: 14 August 2001
• Docket Number: No. 26097.,26097.
• Citation: 30 P.3d 970,136 Idaho 192
• Court: Idaho Supreme Court
• Parties: Thomas E. KALANGE and Marilyn E. Kalange, Plaintiffs-Appellants, v. Craig RENCHER, Defendant-Respondent, and Michael E. Farnsworth, Patricia G. Farnsworth, Twin Falls Athletic Club, Inc., Roland E. Huggins and Magic Valley Refrigeration, Inc., Defendants.

30 P.3d 970

136 Idaho 192

Thomas E. KALANGE and Marilyn E. Kalange, Plaintiffs-Appellants, v. Craig RENCHER, Defendant-Respondent, and Michael E. Farnsworth, Patricia G. Farnsworth, Twin Falls Athletic Club, Inc., Roland E. Huggins and Magic Valley Refrigeration, Inc., Defendants.

No. 26097.

Supreme Court of Idaho, Twin Falls, March 2001 Term.

August 14, 2001.

Cosho, Humphrey, Greener & Welsh, Boise, for appellants. Thomas G. Walker, Jr. argued.

Richard D. Greenwood, Twin Falls, argued for respondent.

WALTERS, Justice.

This appeal deals with the priority of conflicting secured interests on property owned by Twin Falls Athletic Club, Inc., that was foreclosed upon to satisfy debts owing to Thomas and Marilyn Kalange. The district court determined that the Kalanges' interest was subordinate to the interest of the respondent, Craig Rencher. We affirm.

FACTUAL AND PROCEDURAL HISTORY

In 1991, Michael and Patricia Farnsworth (Farnsworth) purchased all of the outstanding stock in the Twin Falls Athletic Club, Inc. (TFAC) from Thomas and Marilyn Kalange (Kalange). Farnsworth executed a promissory note to Kalange for the unpaid balance of $138,564.32, which was secured by a stock pledge agreement and some personal property. Farnsworth executed a deed of trust in 1991 bearing a recording date of October 15, 1993, however, it was reconveyed of record in January of 1995.

In 1994, Farnsworth borrowed additional monies from Kalange and executed a promissory note for $65,000. TFAC guaranteed the note, which was secured by deed of trust for the benefit of Kalange, granting a lien on the real estate owned by TFAC. Farnsworth and Kalange at that time also entered into a detailed loan agreement dated October 31, 1994, which expressed the terms and conditions of the parties' financial relationship and provided that Farnsworth and TFAC would actively promote and market the property and business owned by TFAC with the objective of selling the property by December of 1996. The agreement specified that Kalange would share in the proceeds of the sale beyond the amount of the loans made to Farnsworth and in the event the sale did not take place, Farnsworth would be obligated to pay Kalange an additional $50,000, which sum was referred to as the "alterative performance payment." The deed of trust securing the $65,000 note was recorded on November 2, 1994.

In order to seize upon an opportunity to purchase exercise equipment for TFAC at a very attractive price, Farnsworth borrowed money in 1995 from Craig Rencher, a local dentist and patron of TFAC. Farnsworth provided Rencher with a security interest in the equipment being purchased, a blanket lien on the operating assets of TFAC and a deed of trust on the real property of TFAC. This deed of trust was recorded on November 21, 1995. Farnsworth subsequently borrowed additional funds from Rencher, and to secure his investment, Rencher obtained a promissory note, an all-inclusive deed of trust, and a loan agreement from Farnsworth. The all-inclusive deed of trust, which included the indebtedness of the November 21, 1995, deed of trust, was recorded on March 19, 1996.

Farnsworth failed to make payments on the 1991 and 1994 notes to Kalange in April of 1996 and defaulted on the loans. Kalange brought suit against Farnsworth seeking in part to foreclose on the 1994 deed of trust. In particular, Kalange sought a determination from the court that under the deed of trust, there was a lien not only for $65,000, as recited on the face of the 1994 deed of trust, but also for the balance due on the 1991 note and the $50,000 alternative performance payment that were specifically mentioned in the 1994 note and loan agreement, all of which were prior in time to Rencher's liens.

Kalange filed a motion for summary judgment for entry of a decree of foreclosure; and the parties stipulated to entry of a decree and a sheriff's sale, reserving the issues of priorities and attorney fees for determination by the district court. The district court rendered a memorandum opinion awarding partial summary judgment to Kalange, holding the contract term for the alternative performance payment to be valid. The district court then awarded summary judgment to Rencher on Kalange's claim that he was entitled as a matter of law to priority status. In support of its conclusion, the district court found that the 1996 all-inclusive deed of trust from TFAC to Craig Rencher took priority over the unpaid balance of Kalange's 1991 note and the $50,000 alternative performance payment. The district court also found that Rencher did not have constructive notice of the 1991 security interest or of the $50,000 alternative performance payment and therefore took his interests as a bona fide purchaser.

The district court's memorandum decision dated December 9, 1997, resolved the priority questions and concluded that "the only remaining issue of fact is whether all the attorney fees awarded to Kalange are reasonable; and, if not, what portions are not." On March 9, 1998, the district court entered an order approving the parties' stipulation resolving that final issue. Because of counsel's inadvertence in failing to prepare the order, the date of entry of the order granting summary judgment in part and denying it in part was October 15, 1999.¹

On his motion to reconsider, Kalange submitted Rencher's deposition as a basis for the district court to review its decision subordinating Kalange's 1991 note and the $50,000 alternative performance payment to Rencher's all-inclusive deed of trust. Kalange asserted that the deposition showed that Rencher had notice of the unrecorded security interests held by Kalange. Finding that the evidence was substantially the same as that presented at the original summary judgment hearing, the district court denied Kalange's reconsideration motion.

On appeal from the district court's summary judgment decision, Kalange challenges the priority scheme reached by the district court that subordinated the debt owing to Kalange under the 1991 note and the $50,000 alternative performance payment to Rencher's all-inclusive deed of trust. Kalange argues that the district court erred in finding that Rencher was not required to inquire further as he had no notice of the 1991 unrecorded security interest or of the $50,000 alternative performance payment and therefore did not take his interest subject to those amounts. Both parties request attorney fees on appeal based upon provisions included in their respective loan agreements.

STANDARD OF REVIEW

Summary judgment is proper when the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. I.R.C.P. 56(c). In considering a motion for summary judgment, both trial and appellate courts liberally construe the record in favor of the party opposing the motion, and draw all reasonable inferences and conclusions in that party's favor. Sun Valley Potatoes, Inc. v. Rosholt, Robertson & Tucker, 133 Idaho 1, 981 P.2d 236 (1999). A motion for summary judgment will be denied where the court determines that reasonable people could reach different conclusions or draw conflicting inferences from the evidence. Id.

The party moving for summary judgment initially carries the burden to establish that there is no genuine issue of material fact and that he or she is entitled to judgment as a matter of law. Eliopulos v. Knox, 123 Idaho 400, 404, 848 P.2d 984, 988 (Ct.App.1992). If there exists a genuine issue of material fact with respect to respondent's knowledge of an unrecorded encumbrance, then summary judgment was improperly granted. See Farm Bureau Finance Co., Inc. v. Carney, 100 Idaho 745, 747, 605 P.2d 509, 511 (1980)

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ANALYSIS

The deed of trust from TFAC to Kalange was recorded as stated on November 1, 1994, securing payment of a promissory note "in the sum of $65,000, final payment due December 1996." Kalange argues that the duly recorded deed gave constructive notice to Rencher of Kalange's unrecorded 1991 note and the obligation to remit the $50,000 alternative performance payment because these obligations were clearly mentioned in the promissory note secured by the 1994 deed of trust and in the loan agreement that was prepared at the same time as the note and deed of trust. If as Kalange asserts Rencher was required to ascertain by inquiry outside of the record the full nature and character of Kalange's claim, Rencher was chargeable with knowledge of the unrecorded security interests; and his all-inclusive deed of trust must be subordinated to the full extent of Kalange's interests. If, however, the record of the deed imports notice of nothing more than the security for a...