Turner v. Wells Fargo Bank, N.A. , 366 Mont. 285 ( 2012 )

September 25 2012
DA 11-0678
IN THE SUPREME COURT OF THE STATE OF MONTANA
2012 MT 213JOHN DUNCAN TURNER, CHRISTINA TURNER
and SANDY COUCH,
Plaintiffs and Appellants,
v.
WELLS FARGO BANK, N.A.,
Defendant and Appellee.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and For the County of Yellowstone, Cause No. DV 10-1343
Honorable Ingrid G. Gustafson, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
John R. Christensen, Timothy A. Filz; Christensen Fulton & Filz, PLLC;
Billings, Montana
For Appellee:
Thomas E. Smith, Emily Jones; Moulton Bellingham PC;
Billings, Montana
Submitted on Briefs: July 11, 2012
Decided: September 25, 2012
Filed:
__________________________________________
Clerk
Justice Beth Baker delivered the Opinion of the Court.
¶1 Appellants John Duncan Turner, Christina Turner, and Sandy Couch (“the John
Turners”) appeal an order of the Thirteenth Judicial District Court, Yellowstone County,
denying their motion for summary judgment and granting summary judgment in favor of
Appellee Wells Fargo Bank, N.A. (“Wells Fargo”). We affirm.
¶2 We address the following issues on appeal:
¶3 1. Whether the District Court correctly concluded that Wells Fargo was not
contractually obligated to release the Deed of Trust the bank holds on real property
owned by the John Turners.
¶4 2. Whether the District Court correctly concluded that the doctrines of
promissory estoppel and equitable estoppel do not require Wells Fargo to release the
Deed of Trust.
PROCEDURAL AND FACTUAL BACKGROUND
¶5 In 1977, James Duncan Turner and his wife Suzanne K. Turner built a home
located at 6543 Frey Road in Shepherd, Montana (“the Shepherd property”). James later
divorced Suzanne and the Shepherd property was titled solely in his name. On April 30,
2005, James married Julie A. Viers, and Julie’s home in Montana City served as the
couple’s principal residence. That fall, James and Julie decided to “upgrade” and then
sell the Shepherd property.
¶6 To finance the upgrade, James and Julie opened a line of credit with Wells Fargo.
On December 13, 2005, they signed an agreement to use a financial product called a
SmartFit Home Equity Account (“credit line agreement”). James alleges that they met
with Wells Fargo agent Deborah Brown, with whom Julie was friends, and informed her
that the credit line agreement would serve as a “bridge loan” until he sold the Shepherd
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property. That same day, James and Julie granted Wells Fargo a Deed of Trust as
security for the line of credit, which Wells Fargo recorded on January 23, 2006. Wells
Fargo then loaned James and Julie $169,540—the maximum allowed under the credit line
agreement—on January 26, 2006.
¶7 On August 4, 2006, the John Turners allegedly purchased the Shepherd property
by depositing $322,000 into James and Julie’s shared bank account. Later that day,
James and Julie met with Deborah Brown, informed her that the Shepherd property had
been sold, and requested that the sale proceeds be used to pay off their outstanding
balance under the credit line agreement. Wells Fargo debited the outstanding balance
from James and Julie’s shared bank account and Deborah Brown wrote that the charges
reflected a “mortgage payoff.” For summary judgment purposes, the District Court
assumed that James and Julie paid off the entire outstanding balance.
¶8 On September 11, 2006, unbeknownst to James or the John Turners, Wells Fargo
advanced Julie, pursuant to her request, another $120,000 under the credit line agreement
secured by the Shepherd property. James and Julie formally conveyed title to the
Shepherd property to the John Turners by executing a quitclaim deed on October 11,
2006, which the John Turners recorded two days later. On November 21, 2006, Julie
requested an additional sum of $42,459 under the credit line agreement and Wells Fargo
granted that request. Including other lesser loans that Wells Fargo made, Julie borrowed
a total of $169,090.65 under the credit line agreement secured by the Shepherd property
after she and James had paid off the balance of that account using the proceeds from the
sale of the property to the John Turners.
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¶9 James did not discover that Wells Fargo still held a Deed of Trust on the Shepherd
property until he completed a lien search as part of his bankruptcy proceedings in
December 2008. James and John Turner met with Wells Fargo banker Brian Kimble on
July 19, 2009, to discuss the Deed of Trust. Kimble initially informed James and John
that, in his opinion, Wells Fargo should have closed James and Julie’s account when they
paid its balance down to zero. Wells Fargo, however, refused to release the Deed of
Trust. The John Turners filed a complaint to quiet title to the Shepherd property on
August 3, 2010. James and Julie are now divorced and, according to the terms of their
divorce settlement, Julie is responsible for the debt she incurred under the credit line
agreement.
¶10 On October 11, 2011, the District Court denied the John Turners’ motion for
summary judgment and granted Wells Fargo’s motion for summary judgment. The court
concluded that the John Turners could not enforce the terms of the credit line agreement
because they were not intended beneficiaries of the agreement. The court concluded
further that the John Turners had failed to establish a prima facie case for either
promissory or equitable estoppel. The John Turners appeal.
STANDARD OF REVIEW
¶11 We review a district court’s ruling on motions for summary judgment de novo,
applying the same M. R. Civ. P. 56(c) criteria as the district court. Ternes v. State Farm
Fire & Cas. Co., 2011 MT 156, ¶ 18, 361 Mont. 129, 257 P.3d 352. Summary judgment
is appropriate only when the moving party demonstrates both the absence of any genuine
issue of material fact and entitlement to judgment as a matter of law. Parish v. Morris,
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2012 MT 116, ¶ 10, 365 Mont. 171, 278 P.3d 1015. A district court’s conclusion that no
genuine issue of material fact exists and that the moving party is entitled to judgment as a
matter of law is a legal conclusion we review for correctness. Parish, ¶ 10.
DISCUSSION
¶12 1. Whether the District Court correctly concluded that Wells Fargo was not
contractually obligated to release the Deed of Trust the bank holds on real property
owned by the John Turners.
¶13 The John Turners contend on appeal that the terms of the credit line agreement
establish that Wells Fargo has a “direct contractual obligation . . . to release the Deed of
Trust” and that the John Turners can enforce that obligation as third-party beneficiaries.
The John Turners argue that there are “no provisions in the [Deed of Trust] stating how to
go about obtaining a release” of the lien on the Shepherd property. In the “face of a clear
lack of clarity or specific instructions in the Wells Fargo drafted documents pertaining to
the procedure to get the Deed of Trust released,” the John Turners argue that when James
and Julie “d[id] it the old-fashioned way” and made an in-person, oral request to have
their outstanding balance paid off, Wells Fargo became contractually bound to release the
Deed of Trust.
¶14 Wells Fargo counters by asserting that James and Julie failed to terminate the
credit line agreement in accordance with the specific procedures outlined in the
agreement and, alternatively, that the John Turners lack standing to enforce the credit line
agreement. Wells Fargo points out that Section 29 of the Deed of Trust provides that
“[a]lthough the Secured Debt may be reduced to a zero balance, this Security Instrument
will remain in effect until released.” It therefore argues that an oral request that the
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outstanding balance be paid down to zero was not sufficient to secure the Deed of Trust’s
release. Wells Fargo instead argues that, under Section 18 of the credit line agreement,
James and Julie were required to send a signed letter to the Bank requesting that their
account be closed and that neither did so.
¶15 We conclude that, even if a colorable claim exists that Wells Fargo was
contractually obligated to release the Deed of Trust, the John Turners are not the ones to
make such a claim since they had no contractual relationship with Wells Fargo. A
stranger to a contract “lacks standing to sue for breach of that contract unless he is an
intended third-party beneficiary of the contract.” Kurtzenacker v. Davis Surveying, Inc.,
2012 MT 105, ¶ 20, 365 Mont. 71, 278 P.3d 1002 (citing Dick Anderson Constr., Inc. v.
Monroe Constr. Co., LLC, 2009 MT 416, ¶ 46, 353 Mont. 534, 221 P.3d 675). If anyone
was wronged by Wells Fargo’s handling of this matter, it was James Turner, the Bank’s
client, who is not a party to the case. We agree with Wells Fargo that the John Turners
lack standing to enforce the contract.
¶16 The John Turners admit that they were not parties to the credit line agreement
when it was signed. They maintain instead that they became third-party beneficiaries of
the original contract when James and Julie paid the outstanding balance on the credit line
agreement and Wells Fargo debited James and Julie’s shared bank account for “mortgage
pay off” purposes. As Wells Fargo points out, that argument does not accurately reflect
our jurisprudence on third-party beneficiaries. We emphasized in Dick Anderson that a
person must be an intended beneficiary in order to seek enforcement of a contract to
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which it is not a party. Dick Anderson Constr., Inc., ¶ 46 (quoting Palmer v. Bahm, 2006
MT 29, ¶ 13, 331 Mont. 105, 128 P.3d 1031).
¶17 This Court, relying upon the Restatement (Second) of Contracts § 302 (1981), has
described an intended third-party beneficiary as follows:
(1) Unless otherwise agreed between promisor and promisee, a beneficiary
of a promise is an intended beneficiary if recognition of a right to
performance in the beneficiary is appropriate to effectuate the intention
of the parties and either
(a) the performance of the promise will satisfy an obligation of the
promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the
beneficiary the benefit of the promised performance.
Diaz v. Blue Cross & Blue Shield, 2011 MT 322, ¶ 18, 363 Mont. 151, 267 P.3d 756(quoting Restatement (Second) of Contracts § 302(1)(a)-(b)).
¶18 “There is a plain distinction between a promise, the performance of which may
benefit a third party, and a promise made expressly for the benefit of a third party.” Diaz,
¶ 19. A plaintiff cannot merely assume that he is an intended third-party beneficiary to a
contract; rather, “he must show from the face of the contract that it was intended to
benefit him.” Kurtzenacker, ¶ 20 (citing Klingman v. Mont. Pub. Serv. Commn., 2012
MT 32, ¶ 40, 364 Mont. 128, 272 P.3d 71). We held in Kurtzenacker that a purchaser of
property was not an intended third-party beneficiary of her predecessor’s survey contracts
even though the surveys were done in contemplation of future sales. Rather, at most, the
future purchasers were “incidental beneficiaries” of the survey contracts, a status
insufficient to give them standing to seek the contracts’ enforcement. Kurtzenacker, ¶ 22.
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¶19 The John Turners allege that they have satisfied the requirements for an intended
beneficiary because “James Turner intended to give the John Turners the benefit of the
promised performance,” which allegedly occurred when James and Julie paid the
outstanding balance on their credit line agreement. They claim that “as the purchasers
and the ones providing the pay off funds,” the John Turners were third-party beneficiaries
of the agreement. Their argument overlooks the first prong of § 302 of the Restatement
(Second) of Contracts, which provides in part that a third-party beneficiary designation is
recognized only when “appropriate to effectuate the intention of the parties.” That
concept is reflected in the holdings of Kurtzenacker and Klingman, cited above. Because
the John Turners do not, and in fact cannot, show from the face of the credit line
agreement entered into by Wells Fargo and James and Julie that the contract was intended
to benefit them, we hold that they are not third-party beneficiaries and they therefore lack
standing to enforce James and Julie’s contract with the Bank.
¶20 2. Whether the District Court correctly concluded that the doctrines of
promissory estoppel and equitable estoppel do not require Wells Fargo to release the
Deed of Trust.
¶21 As a preliminary matter, the John Turners invite us to reject the distinctions
between promissory and equitable estoppel and merge those doctrines by adopting what
they characterize as the “modern rule with regard to estoppel”—the Restatement (Second)
of Contracts § 90. Comment a of § 90 provides that this section “is often referred to in
terms of ‘promissory estoppel.’” Restatement (Second) of Contracts § 90 cmt. a (1981).
¶22 This Court has recognized at least three legally distinct estoppel claims—equitable
estoppel, promissory estoppel, and estoppel by silence—even as we have recognized that
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“the lines separating all three kinds of estoppel are blurry at best.” C B & F Dev. Corp. v.
Culbertson State Bank, 256 Mont. 1, 7, 844 P.2d 85, 89 (1992) (citing Northwest Potato
Sales, Inc. v. Beck, 208 Mont. 310, 316-17, 678 P.2d 1138, 1141 (1984). We have
created multi-factor tests for each of those three distinct estoppel claims. In re Estate of
Stukey, 2004 MT 279, ¶ 38, 324 Mont. 241, 100 P.3d 114 (equitable estoppel); Keil v.
Glacier Park, 188 Mont. 455, 462, 614 P.2d 502, 506 (1980) (promissory estoppel); and
Northwest Potato Sales, Inc., 208 Mont. at 317, 678 P.2d at 1142 (estoppel by silence).
¶23 Stare decisis “is a fundamental doctrine which reflects our concerns for stability,
predictability and equal treatment.” Formicove Inc. v. Burlington Northern, Inc., 207
Mont. 189, 194, 673 P.2d 469, 472 (1983). Because this Court previously has treated
promissory estoppel and equitable estoppel as legally distinct claims, we decline to use
this case as a vehicle to merge those claims together under the Restatement (Second) of
Contracts § 90. Instead, we apply the established multi-factor tests for promissory
estoppel and equitable estoppel and hold that the District Court correctly concluded that
the John Turners failed to establish a prima facie case for either promissory or equitable
estoppel.
¶24 To establish a prima facie claim, the party asserting promissory estoppel must
establish the following four elements: “(1) a promise clear and unambiguous in its terms;
(2) reliance on the promise by the party to whom the promise is made; (3) reasonableness
and foreseeability of the reliance; [and] (4) the party asserting the reliance must be
injured by the reliance.” Keil, 188 Mont. at 462, 614 P.2d at 506. The District Court
concluded that “at no time did a Wells Fargo agent make . . . a ‘clear and unambiguous’
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promise to [the John Turners]” and therefore, the John Turners’ promissory estoppel
claim failed.
¶25 The John Turners object to that conclusion on appeal and argue that they have
satisfied the first element of promissory estoppel. The John Turners allege that the
“promise clear and unambiguous in its terms” occurred when James and Julie paid the
outstanding balance on their line of credit down to zero and Wells Fargo wrote that the
payment reflected a “mortgage payoff.” That writing, the John Turners allege, was
“sufficient for James Turner to assume the SmartFit Loan would be released . . . .”
¶26 Although Wells Fargo’s statement might, in theory, satisfy the first element of
promissory estoppel as applied to James Turner, the statement does not satisfy the first
element as applied to the John Turners. The second element of promissory estoppel
makes clear that only “the party to whom the promise is made” may assert reliance on
that promise.
¶27 The John Turners argue that this Court abrogated the second element of
promissory estoppel in Tynes v. Bankers Life Co., 224 Mont. 350, 730 P.2d 1115 (1986)
(superseded by statute on other grounds). The defendant in Tynes, Bankers Life Co., was
an insurance company that had provided coverage to the plaintiffs, Walter Tynes and his
son Kelley. Tynes, 224 Mont. at 353-54, 730 P.2d at 1117-18. In 1977, Kelley
developed schizophrenia and Walter had Kelley admitted to the Constance Bultman
Wilson Center, a hospital in Minnesota that required “verification of 100% financial
coverage” prior to admission. Tynes, 224 Mont. at 354, 730 P.2d at 1118. The Tynes’
promissory estoppel complaint “allege[d] that Bankers Life promised [the] Wilson Center
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and Walter they would cover Kelley’s expenses.” Tynes, 224 Mont. at 359, 730 P.2d at
1121.
¶28 The Court in Tynes began its promissory estoppel discussion by citing Keil for the
four elements required for a prima facie promissory estoppel claim. Tynes, 224 Mont. at
362, 730 P.2d at 1123. The Court then determined that the first and second elements of
promissory estoppel were met in two different ways: (1) when “Bankers Life treated
Kelley as an insured when it paid his medical bills in April of 1978”; and (2) when
Bankers Life “represented to [the] Wilson Center that Kelley was an insured.” Tynes,
224 Mont. at 362, 730 P.2d at 1123. The John Turners contend that if the first and
second elements of the Tynes’ promissory estoppel claim were met when Bankers Life
made a promise to the Wilson Center, then Tynes must stand for the proposition that
“someone other than the person who received the promise [is] entitled to assert the
doctrine” of promissory estoppel. Tynes, however, did not change the elements of
promissory estoppel as established in Keil and is factually distinguishable from this case.
¶29 The John Turners’ interpretation of Tynes suggests that this Court implicitly
overruled Keil four paragraphs after the Court held that Keil correctly “defined the
elements of promissory estoppel.” Tynes, 224 Mont. at 362, 730 P.2d at 1123. We reject
that interpretation. A better reading of Tynes is that Bankers Life’s representation to the
hospital that Kelley was insured was not a promise that, standing alone, gave rise to a
promissory estoppel claim, but instead was additional evidence of the promises Bankers
Life previously had made to Walter and Kelley that it would cover Kelley’s medical
expenses. Tynes, 224 Mont. at 353-54, 730 P.2d at 1117-18. In contrast, the John
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Turners do not allege that Wells Fargo ever made a promise to them; therefore, we hold
that the District Court correctly concluded the John Turners failed to establish a prima
facie promissory estoppel case.
¶30 To establish a prima facie claim of equitable estoppel, the party asserting that
doctrine must allege the following six elements:
(1) the existence of conduct, acts, language, or silence amounting to a
representation or a concealment of a material fact; (2) these facts must be
known to the party estopped at the time of his conduct, or at least the
circumstances must be such that knowledge of them is necessarily imputed
to him; (3) the truth concerning these facts must be unknown to the other
party claiming the benefit of the estoppel at the time it was acted upon by
him; (4) the conduct must be done with the intention, or at least the
expectation, that it will be acted upon by the other party, or under
circumstances both natural and probable that it will be so acted upon;
(5) the conduct must be relied upon by the other party and, thus relying, he
must be led to act upon it; and (6) he must in fact act upon it in such a
manner as to change his position for the worse.
In re Estate of Stukey, ¶ 38. The District Court concluded that “at no time did a Wells
Fargo agent make any representations” to the John Turners, and therefore that they failed
to establish the first element of equitable estoppel. The only representation that Wells
Fargo made directly to the John Turners occurred when James and John met with Brian
Kimble, a banker at Wells Fargo. The meeting occurred in July 2009, almost three years
after Julie last borrowed against the credit line agreement. Kimble told James and John
that, in his opinion, Wells Fargo should have closed James and Julie’s account when they
paid its balance down to zero.
¶31 Kimble’s statement could not have given rise to a claim of equitable estoppel
because the John Turners’ allegations do not satisfy at least three of the remaining
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elements. They are unable to satisfy the fifth and sixth elements because they did not
rely on Kimble’s statement to their detriment, as evidenced by the fact that nearly three
years had passed since they purchased the encumbered Shepherd property.
¶32 Although the Dissent reflects a suspicion that, because Julie was friends with
Deborah Brown, the two colluded to conceal from James and the John Turners the
advances made to Julie under the credit line agreement, even the John Turners
acknowledge that “we do not know” whether any such collusion occurred after the
August 4, 2006 meeting. The Dissent faults Wells Fargo for failing to inform James
when Julie withdrew additional funds under the credit line agreement. The record shows,
however, that James was on notice, from his Wells Fargo Portfolio Management Account
statement for September 2006, that $120,000 had been advanced from the credit line
agreement to his and Julie’s joint checking account.
¶33 Wells Fargo, James and Julie agreed in Section 4 of the credit line agreement that
Wells Fargo would advance funds “when it receive[d] a request given by any person who
has signed this Agreement.” (Emphasis added.) James had the unilateral right under
Section 18 of the agreement to terminate the line of credit, as “[a]ny one Borrower can
close the Account by paying in full and sending a signed letter to the Bank requesting
that the account be closed.” (Emphasis added.) It is undisputed that neither James nor
Julie ever sent the Bank such a letter. When Wells Fargo made additional advances to
Julie, it did not wrong the John Turners; instead, the Bank acted in conformity with the
express terms of the contract to which James, Julie and Wells Fargo all agreed.
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¶34 Even if the advance to Julie could be characterized as “silence amounting to . . .
concealment of a material fact,” the John Turners cannot satisfy the third element. We
have held that “equitable estoppel requires that a complaining party must lack not only
the actual knowledge itself, but also lack a readily available means of knowledge as to the
true facts.” Cascade Dev., Inc. v. City of Bozeman, 2012 MT 79, ¶ 26, 364 Mont. 442,
276 P.3d 862 (quoting Elk Park Ranch v. Park Co., 282 Mont. 154, 166, 935 P.2d 1131,
1138 (1997)). It is undisputed that Wells Fargo recorded its Deed of Trust months before
the John Turners purchased the Shepherd property. It is also undisputed that the Deed of
Trust remained of record on the title when the John Turners recorded their quitclaim deed
more than two months after the property changed hands and the Turners assumed the debt
was paid. The John Turners could have learned that Wells Fargo retained its Deed of
Trust on the Shepherd property had they examined the title prior to closing the sale.
Because the John Turners are unable to satisfy all six elements, their equitable estoppel
claim fails.
¶35 Finally, James and Julie conveyed title to the Shepherd property—and the John
Turners accepted that title—via a quitclaim deed. Thus, the John Turners only received
whatever title James Turner held, and that title, unfortunately, was burdened with Wells
Fargo’s of-record security interest. “It is axiomatic that a ‘quitclaim deed transfers and is
designed to transfer only such title and interest as the grantor had when [the grantor]
delivered the title.’” Dew v. Dower, 269 Mont. 286, 290, 888 P.2d 421, 423 (1994)
(quoting Lodge v. Thorpe, 120 Mont. 226, 229, 181 P.2d 598, 599-600 (1947)). See also
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Gibson v. Morris State Bank, 49 Mont. 60, 72, 140 P. 76, 80 (1914) (even if paying full
value, the grantee under a quitclaim deed takes such title only as the grantor has).
¶36 We therefore hold that the District Court correctly concluded that the John Turners
were not entitled to judgment requiring Wells Fargo to release the Deed of Trust the bank
holds on the Shepherd property. The District Court also correctly concluded that the
John Turners failed to establish prima facie claims of promissory or equitable estoppel.
¶37 The District Court’s October 11, 2011 order granting summary judgment to Wells
Fargo is affirmed.
/S/ BETH BAKER
We concur:
/S/ MIKE McGRATH
/S/ JAMES C. NELSON
/S/ JIM RICE
/S/ BRIAN MORRIS
Justice Patricia O. Cotter dissents.
¶38 I dissent. I would apply the doctrine of equitable estoppel and conclude that Wells
Fargo Bank (the Bank) should be estopped from asserting a first position with respect to
its Deed of Trust, and that the Deed of Trust should be released as a lien on the Shepherd
property.
¶39 The following facts are uncontroverted. On March 14, 2003, James Turner took
title to the Shepherd property in his sole name via quit claim deed from Suzanne Turner.
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On December 13, 2005, “James Duncan Turner, a married person and Julie A. Turner, a
non-vested spouse” gave a Deed of Trust to the Bank secured by the Shepherd property
in return for a loan.1 On August 4, 2006, James and Julie met with Deborah Brown, their
Wells Fargo banker, and informed her that the Shepherd property had been sold. They
requested that Brown, a personal friend of Julie’s, apply the sale proceeds to pay off the
outstanding balance under the line of credit agreement. As instructed, Brown issued an
Account Charge Notice, reflecting that the Bank had charged the account of James
Turner the sum of $170,308.07. The stated reason for the charge was, in Brown’s
writing, a “mortgage payoff.” One week later, Brown issued a corrected Account Charge
Notice, reflecting a charge against James’ account in the sum of $170,405.61; again, she
noted that the reason for the charge was a “mortgage payoff.” Subsequently, at Julie’s
request and without James’ knowledge or agreement, and knowing that the property had
been sold, Brown advanced to Julie in separate transactions the approximate sum of
$170,000 on the line of credit. Brown knew that Julie was not a record owner of the
Shepherd property and that the advances would constitute a lien upon the sold property.
¶40 The Court correctly sets forth the elements of equitable estoppel, but then
proceeds to misapply the doctrine to the facts. The Court concludes that because the
Bank never made any “representations” to the John Turners, the first element of equitable
estoppel cannot be satisfied. To support this conclusion, the Court references a meeting
between banker Brian Kimble and James and John that occurred in 2009, during which
Kimble stated that the Bank should have closed the credit agreement account when James
1
A non-vested spouse is one who does not have an ownership interest in the property.
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and Julie paid its balance to zero. The Court reasons that because John did not rely on
this statement to his detriment given its timing, he cannot satisfy the fifth and sixth
elements of equitable estoppel. Opinion, ¶¶ 31-33. I submit that the Court has focused
on the wrong conduct in concluding that the John Turners fail to satisfy the first and
succeeding elements of equitable estoppel.
¶41 The first element of equitable estoppel is “the existence of conduct, acts, language,
or silence amounting to a representation or a concealment of a material fact.” Opinion,
¶ 36. Deborah Brown, a banker with actual knowledge that the property was sold and
that James Brown intended to “pay off” the mortgage, allowed her friend Julie to make
later draws against the paid credit agreement. Brown did not inform James of the
advances, nor did she even inquire whether—given the sale of the property—James
might want to alert the buyers of the new and accumulating lien against their property.
Clearly, the new lien is a material fact that Brown concealed from James, the sole owner
of the property, and by extension from the John Turners, the buyers of his property.
Brown’s conduct involving Julie and her ensuing silence under the circumstances
satisfies the first element of equitable estoppel. The remaining elements are also met,
given Brown’s knowledge of the sale and the undisclosed advances, and James and John
Turner’s complete lack of knowledge of the advances and lien accumulation when
undertaking the transfer of the property.
¶42 The Court and the concurring Justices fault the John Turners for not undertaking a
title search before closing. A title search is surely well-advised in an arms-length
transaction. Here, however, we have a transfer between brothers—brothers who
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evidently had no cause to distrust one another, and who had no knowledge for over 18
months after the sale of Julie’s clandestine actions. It makes perfect sense that one
brother buying property from another would not deem it necessary to first retain a lawyer
and secure title insurance. It is ludicrous to ascribe “folly” to them under these
circumstances.
¶43 In our recent Opinion in Cascade Development, Inc. v. City of Bozeman, 2012 MT
79, 364 Mont. 442, 276 P.3d 862, we said that equitable estoppel “prevents one party
from unconscionably taking advantage of a wrong while asserting a strict legal right, and
will be invoked where ‘justice, honesty, and fair dealing’ are promoted.” Cascade
Development, ¶ 23 (citing Selley v. Liberty Northwest Ins. Corp., 2000 MT 76, ¶ 11, 299
Mont. 127, 998 P.2d 156). The Court concludes that the Bank did nothing wrong.
However, the conduct in question need not be intentionally or morally wrong in order to
qualify for application of equitable estoppel. As we further noted in Cascade
Development,
The common law doctrine of equitable estoppel rests upon the
general principle that “[w]hen one of two innocent persons—that is,
persons each guiltless of an intentional, moral wrong—must suffer a loss, it
must be borne by that one of them who by his conduct—acts or
omissions—has rendered the injury possible.”
Cascade Development, ¶ 26.
¶44 The Bank and Brown are in the business of lending money, securing the payment
of loans, and releasing liens when loans are paid in full. James and John are not bankers.
The Bank and Brown could have easily released the Deed of Trust once paid, as James
expected (and as Kimble later corroborated to be the correct course of action). The Bank
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and Brown could have easily alerted James of Julie’s conduct, knowing full well that she
was not an owner of the property and that James had sold the property assuming the
mortgage had been paid and released. But the Bank did nothing. Instead, the Bank and
Brown fell back upon the requirement that the request to release the Deed of Trust should
have been in writing, thus asserting “a strict legal right” in refusing to release the Deed of
Trust. Whether one assumes the Bank took advantage of its own wrong or that it was
innocent, under Cascade Development, it is the Bank as the professional with actual
knowledge of the lien problem, not the John Turners—who clearly did nothing wrong—
who should suffer the loss. “Justice, honesty and fair dealing” compel such a result.
¶45 I would conclude that the John Turners have satisfied the six elements of equitable
estoppel. I would invoke the doctrine and direct the Bank to release its Deed of Trust as
a lien on the Shepherd property. I dissent from our refusal to do so.
/S/ PATRICIA COTTER
Justice Michael E Wheat joins the Dissent of Justice Patricia O. Cotter.
/S/ MICHAEL E WHEAT
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