Pioneer Builders Co. of Nev., v. K D A Corp.

• Decision Date: 02 November 2012
• Docket Number: No. 20110050.,20110050.
• Citation: 292 P.3d 672,720 Utah Adv. Rep. 43
• Parties: PIONEER BUILDERS COMPANY OF NEVADA, INC. aka Pioneer Builders of Nevada aka Pioneer Builders, Plaintiff and Appellant, v. K D A CORPORATION aka KDA Corporation aka K.D.A. Corporation aka The K.D.A. Corporation aka K.D.A. Corporation, Inc.; et al., Defendants and Appellees.
• Court: Utah Supreme Court

292 P.3d 672

720 Utah Adv. Rep. 43

PIONEER BUILDERS COMPANY OF NEVADA, INC. aka Pioneer Builders of Nevada aka Pioneer Builders, Plaintiff and Appellant,

v.K D A CORPORATION aka KDA Corporation aka K.D.A. Corporation aka The K.D.A. Corporation aka K.D.A. Corporation, Inc.; et al., Defendants and Appellees.

No. 20110050.

Supreme Court of Utah.

Nov. 2, 2012.

Attorneys: ¹Bradley L. Tilt, Salt Lake City, for appellant.

Miles P. Jensen, Logan, for Anderson appellees.

Josh M. Chambers, Logan, for appellees Taylor and Jensen.

Chief Justice DURRANT, opinion of the Court:

INTRODUCTION

¶ 1 This case requires us to consider what constitutes constructive notice of unrecorded interests in real property under section 57–3–103 of the Utah Code (Recording Statute). Pioneer Builders (Pioneer) financed the purchase of an RV park (Property). At that time, the Property was subject to several existing recorded leases. But the Property was also subject to several unrecorded leases. When Pioneer attempted to foreclose on the property, some of the owners of the unrecorded leases (Defendants ²) argued that Pioneer could not foreclose on their lots because their interests in the Property were superior to Pioneer's.

¶ 2 The district court granted the Defendants' motions for summary judgment in their entirety and granted Pioneer's motion for summary judgment in part. The court found that, although Pioneer was entitled to foreclose on its loans, Pioneer had actual and constructive notice of the unrecorded leases. Accordingly, the district court concluded that Pioneer's interest in the Property was inferior to the interests of the Defendants. Pioneer argues that the district court incorrectly applied the standard for constructive notice and asks us to reverse the district court's decision. Pioneer also argues that the district court erred in concluding that Pioneer's interest in Parcel 25, ³ which is part of the Property, is inferior to the interests of the Defendants. Further, Pioneer asks us to conclude that language in some of the Defendants' purchase contracts prevents them from having an interest in the Property until their contracts are paid in full. And finally, Pioneer asks us to reverse the district court's findings because the Defendants made references in their pleadings to Pioneer's possible insurance coverage.

¶ 3 We reverse the district court's grant of summary judgment in favor of the Defendants and remand for further proceedings. First, we conclude that the district court applied an incorrect legal standard regarding constructive notice and conflated the issue of whether Pioneer had notice of any recorded leases with whether it had notice of the unrecorded leases at issue. Accordingly, we remand this case so that the district court may conduct further proceedings consistent with the legal standard we clarify in this opinion. Second, although we agree with much of the district court's analysis regarding Parcel 25, we conclude that further proceedings are required to determine whether any of the Defendants have interests in Parcel 25 that are superior to Pioneer's. Third, we conclude that, regardless of the language in some of the Defendants' purchase contracts, the Defendants obtained an interest in the Property even though their contracts have not yet been paid in full. And fourth, because Pioneer failed to show any prejudice resulting from the Defendants' references to Pioneer's insurance coverage, we decline to reverse on that basis.

BACKGROUND

¶ 4 The parties in this case have competing interests in the Property. The Property consists of forty acres of real property near Bear Lake in Rich County, Utah. It is divided into four parcels, which we refer to as Parcel 25, Parcel 36, Parcel 37, and Parcel 38.⁴ In 1988, KDA Corporation (KDA) owned the Property and converted it into Sunrise Village RV Park. KDA filed various documents for its park (Sunrise Village Documents) with the Rich County Recorder. The Sunrise Village Documents include regulations, maps of the Property, and rules about membership in the park, and specifically state that the Sunrise Village RV Park is “an integrated development with multiple lot owners or leaseholders.” Consistent with these documents, KDA sold several one-hundred-year leases on the Property. Each of these leases describe the leased property by site number, and some of them were recorded.

¶ 5 In the meantime, United West was considering purchasing the Property. Steve Baugh, an agent of United West, commissioned an appraisal report on the Property. Mr. Baugh commissioned the report to induce Ralph Call, who is Mr. Baugh's brother-in-law and the president of Pioneer, to finance the purchase.⁵ The final appraisal report (Appraisal Report or Report), dated December 29, 2000, is fifty-seven pages long, including a two-page cover letter. Additionally, twelve pages of addenda are attached. But Pioneer asserts that it only received the first two pages of the Report.

¶ 6 The cover letter of the Report states that “[t]his letter of transmittal is only that and should not be used as a letter appraisal,” and concludes that “as of November 14, 2000,” the value of the property was $6,630,000. On page six, the report explains that a particular part of the Property “consists of 52 lots ... sold on a membership in an owners' association that will take control after the sale of all the middle lots—there are 24 lots remaining unsold (the land is on a 99 year lease).” Further, a site map within the addenda (Site Map) is titled “Sunrise Village R.V. Park” and shows “SOLD” stamped across twenty-eight sites.

¶ 7 On October 17, 2000, KDA and United West executed a “purchase and sale agreement” conveying three of the four parcels of the Property to United West. The fourth parcel of the Property, Parcel 25, was not included in the agreement, and the parties dispute whether this was an accidental oversight. On November 13, 2000, KDA conveyed the three parcels to United West via warranty deed (Warranty Deed). The Warranty Deed states that KDA conveyed the three parcels “[s]ubject to all ... agreements, memberships, leases and right of ways [sic] of record.”

¶ 8 In connection with this conveyance, Pioneer made its first loan to United West. As security for repayment of this loan, United West executed a “Trust Deed with Assignment of Rents” (Trust Deed; together with the Warranty Deed, Original Deeds), dated November 13, 2000, under which United West is the trustor and Pioneer is the beneficiary. The Trust Deed includes a copy of the legal description of the Property conveyed by the Warranty Deed, which conveyed only three parcels. On November 17, 2000, Pioneer recorded its Original Deeds.

¶ 9 In April of 2001, Mr. Call and Mr. Baugh personally visited the Property. The Defendants state that, by that time, the Defendants had made a variety of visible improvements to the Property. But Pioneer asserts that very few of those improvements were visible on that visit. Specifically, Mr. Call stated that there was snow on the ground when he visited the Property, and that he saw only “four or five” recreational vehicles and a “few concrete slabs in scattered places.”

¶ 10 On about August 13, 2001, Pioneer loaned additional money to Pine Ridge, a successor to United West. As security for this additional loan, Pine Ridge executed a “Modification of Trust Deed” in favor of Pioneer, which stated that it was “made ... for purposes of changing the named trustor and amount secured,” and a second “Trust Deed” (together, Modification Deeds). The Modification Deeds conveyed the three parcels that KDA had previously conveyed to United West, and additionally purported to convey Parcel 25, even though KDA had not yet conveyed Parcel 25 to United West or Pine Ridge. Pioneer recorded its Modification Deeds on August 14, 2001.

¶ 11 On September 24, 2002, Laren Nalder, an employee of the title company that was a party to the Original Deeds, recorded an “Affidavit Concerning Recorded Instruments” (Nalder Affidavit). The Nalder Affidavit purports to “correct” the Original Deeds by retroactively including Parcel 25 in the legal description of the property conveyed. More than two years later, on March 9, 2005, KDA conveyed Parcel 25 to Pine Ridge through a quit claim deed (Quit Claim Deed) as part of a settlement in this case. Pine Ridge recorded the Quit Claim Deed on March 14, 2005.

¶ 12 Meanwhile, at various times since 1989, the Defendants purchased their interests in the Property. Some of them purchased their interests before Pioneer recorded its Original Deeds. Others purchased their interests after Pioneer recorded its Modification Deeds, but before the Nalder Affidavit was filed. Some of the Defendants (Parcel 25 Defendants) purchased interests in Parcel 25. And some of the Parcel 25 Defendants (Payment Defendants) purchased their interests under purchase contracts providing that they would “receive a certificate of ownership when [the] contract is paid in full.” Although none of the Defendants recorded their interests in the Property before Pioneer initiated the foreclosure proceedings, many of the Defendants have recorded their interests since then.

¶ 13 Ultimately, Pine Ridge failed to make its payments under the Trust Deed and Pioneer initiated an action to foreclose on the Property. Pioneer moved for summary judgment on its attempted foreclosure against the Defendants, asserting that, because it recorded its Original Deeds before any Defendant recorded its interest, Pioneer's interest in the Property is superior to the Defendants' interests. Pioneer also noted that the Payment Defendants' purchase contracts provide that they will “receive a certificate of ownership when [the] contract is paid in full” and argued that the Payment Defendants do not have any interest in the Property because they have not yet paid in full. The Defendants filed cross-motions for summary judgment, asserting that their rights in the...