Treasure Valley Bank v. Butcher, 17763

Decision Date24 May 1990
Docket NumberNo. 17763,17763
Citation793 P.2d 206,117 Idaho 974
PartiesTREASURE VALLEY BANK, Plaintiff-Counterdefendant-Respondent, v. Donald P. BUTCHER and Helen Butcher, Husband and Wife, Defendants, and Harmon H. Johnson and Elizabeth Johnson, Husband and Wife, Defendants-Counterclaimants-Appellants. Harmon H. JOHNSON and Elizabeth Johnson, Husband and Wife, Third-Party Plaintiffs-Appellants, v. David L. DYKSTRA and Jackie K. Dykstra, Husband and Wife, Third-Party Defendants.
CourtIdaho Supreme Court

Hamilton, Clark, Michaelson & Drescher, Nampa, Idaho, for defendants-counterclaimants-appellants. Mark L. Clark, argued.

Uranga & Uranga, Boise, Idaho, for plaintiff-counterdefendant-respondent. Louis L. Uranga, argued.

McDEVITT, Justice.

This case arose out of a partnership buy out in which the buying partner issued a promissory note with a deed of trust to property held by the partnership. The issues involved pertain to a partner's conveyance of an equitable interest in real property owned by the partnership, the effect such conveyance has on a mortgagee of the property and the effect actual knowledge of a prior interest has on a subsequent encumbrancer. The trial court held that the plaintiff is the owner of certain property in fee simple and that the defendants have no right, title, lien or interest in or to the real property.

On November 30, 1975, Richard and Joyce Butler, husband and wife; David and Jackie Dykstra, husband and wife; and Merle and Laura Beckley, husband and wife, formed the general partnership of DB2 Enterprises ("the partnership").

On November 11, 1976, the partners executed a warranty deed transferring the real property on Holly Street in Nampa, Idaho, the subject of this litigation, to the partnership. The original partnership agreement required that all six (6) partners execute all securities, deeds, promissory notes and contracts on behalf of the partnership. The wives subsequently all executed general powers of attorney so that their respective husbands could sign on their behalf. On January 15, 1976, all of the partners executed an amendment to the partnership agreement which authorized execution of documents by the male partners only.

The Butlers withdrew from the partnership in 1980. On February 2, 1981, David L. Dykstra acquired the Beckleys' partnership interest. The price was $15,000, plus a $20,000 promissory note. The promissory note was secured by a deed of trust to part of the partnership's Holly Street property granted by Dykstra to Beckley. Dykstra executed the note and deed of trust in his own name without identifying the land as being owned by the partnership. The deed of trust was notarized and recorded in Canyon County on June 26, 1981. Chicago Title Company was the named trustee.

On June 26, 1981, Dykstra, on behalf of the partnership, entered into a loan agreement with Treasure Valley Bank ("T.V.B."). T.V.B. loaned the partnership $45,697.62. The loan was secured by a deed of trust on the Holly Street property in favor of T.V.B. The deed was executed by David Dykstra on behalf of the partnership, notarized and recorded on June 26, 1981. Pioneer Title Company of Canyon County was the named trustee. Prior to executing the deed of trust, Dykstra personally advised an officer of T.V.B. about the existence of the prior deed of trust in favor of Beckley on the same parcel and told them that it would be necessary for T.V.B. to obtain a subordination agreement from Beckley in order to have priority over Beckley's deed of trust. Notwithstanding this warning, T.V.B. went ahead with the loan agreement and did not contact Beckley.

On August 15, 1983, Merle W. Beckley assigned his interest in the deed of trust of February 2, 1981, to Donald P. Butcher and Helen L. Butcher of Othello, Washington. This assignment was notarized and recorded on August 15, 1983. In 1986, after the partnership defaulted on its promissory note to T.V.B., T.V.B. commenced statutory foreclosure against the partnership on the deed of trust to the Holly Street property. T.V.B. mailed notice of the pending trustee's sale to Donald T. Butcher and Helen L. Butcher.

On May 15, 1987, T.V.B. obtained a trustee's deed to the Holly Street property at the trustee's sale. The price was $40,000.

In November and December, 1987, T.V.B. negotiated for the sale of the property to the defendants in this action, the Johnsons.

On February 25, 1988, T.V.B. filed its quiet title action against the Butchers. On March 10, 1988, the Butchers assigned the promissory note Dykstra had executed and delivered to Beckley, along with the deed of trust to the Johnsons. On April 15 1988, the Johnsons were joined as defendants in T.V.B.'s quiet title action. A hearing was held on T.V.B.'s motion for summary judgment on September 9, 1988. After consideration, the trial court granted the motion. The Johnsons appeal.

Both parties raise numerous issues on appeal, all of which pertain to the ultimate question, which is whether the trial court erred in ruling, on summary judgment, that T.V.B. was vested with title to the Holly Street property. This ultimate question is resolved by determining whether Dykstra's grant of the Holly Street property's deed of trust to Beckley conveyed a valid interest that encumbered the partnership's interest in the Holly Street property. If the deed of trust did not convey a valid interest, then T.V.B. has title; if it did, then we must address a second question. That question is whether the bank had actual notice of the prior encumbrance on the Holly Street property and the effect of that notice.

As a preliminary matter, we note that in summary judgment proceedings the facts are to be liberally construed in favor of the party opposing the motion, who is also to be given the benefit of all favorable inferences which might be reasonably drawn from the evidence. Doe v. Durtschi, 110 Idaho 466, 716 P.2d 1238 (1986).

I. GRANT OF THE HOLLY STREET PROPERTY

T.V.B. argues that the grant of the Holly Street property, which Dykstra alone executed in his personal capacity, was improper because the partnership agreement requires that all partners execute grants of partnership property, and, because I.C. § 53-308(3) requires that all grants of partnership property be made in the name of the partnership.

A. THE PARTNERSHIP AGREEMENT

The introductory clause to I.C. § 53-318 provides:

53-318. Rules Determining Rights and Duties of Partners.--The rights and duties of the partners in relation to the partnership shall be determined, subject to any agreement between them, by the following rules.... (Emphasis added.)

We read this provision to mean that any agreements made between the partners, pertaining to the rights and duties of the partners in relation to the partnership, are controlling as to the partners and the partnership.

The evidence is undisputed that as of January 15, 1976, the partnership agreement involved in these proceedings provided that only the male partners were required to execute documents conveying interest of the partnership.

In 1980, the Butlers withdrew as partners.

This left David Dykstra and his spouse and the Beckleys as partners in the partnership which owned the partnership property.

On February 2, 1981, Dykstra acquired the only other partnership interest remaining, that of the Beckleys. Concurrent with the purchase, at the closing of the conveyance of the Beckley partnership interest to Dykstra and in consideration of that purchase, Dykstra executed and delivered the promissory note and deed of trust, the subject of this action.

As of that moment, the only partner required to execute and authorized to execute on behalf of the partnership was David L. Dykstra. The Dykstras were the sole partners in the partnership; and the only evidence concerning the authorization of David Dykstra to execute the documents in question is the affidavit of David Dykstra wherein he affirmatively states that, "I was acting as an agent for DB2 ENTERPRISES with the authorization of Jackie K. Dykstra, the remaining partner, and Merle W. Beckley, the withdrawing partner, to execute and encumber the partnership property."

There can be no question that this act was authorized by the partnership agreement. There can be no question that the execution and delivery of the note and deed of trust, by the subject of these proceedings was authorized by the partnership agreement and by the partners therein at the time of the execution and delivery of those instruments.

B. STATUTORY REQUIREMENTS THAT THE PARTNERSHIP BE NAMED IN THE CONVEYING DOCUMENT

The note and deed of trust executed by Dykstra in connection with the purchase of the Beckley partnership interest, was executed by Dykstra in his own name, without identifying the property described in the deed of trust as being owned by the partnership. T.V.B. asserts, as it did to the trial court, that the failure of the deed of trust to comply with the requirements of I.C. § 53-308(3) invalidates the instrument. Idaho Code § 53-308(3) states:

53-308. Partnership property.--

* * * * * *

3. Any estate in real property may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name.

The Johnsons argue that I.C. § 53-310(2) authorized the conveyance of the real property. That section provides that:

[W]here title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of paragraph 1 of section 53-309.

The issue is whether or not the note and deed of trust executed by Dykstra to Beckley created a valid lien on the real property described in that deed of trust.

T.V.B. urges that the only possible interpretation of I.C. § 53-310(2) is that the deed would only be effective where the initial conveyance had been made in the partnership name but...

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