Case Title: WYOMING BANK AND TRUST v. HAUGHT

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 2003-09-09T00:00:00Z

Document:
WYOMING BANK AND TRUST v. HAUGHT2003 WY 11176 P.3d 301Case Number: 02-115Decided: 09/09/2003
APRIL TERM, A.D. 2003

 

                                                                                                            

 

WYOMING 
BANK AND TRUST, a Wyoming

Corporation, 
as Assignee-Lienor of certain

Mechanics 
Liens, and as Mortgagee under

certain 
Mortgages,

 

Appellant(Plaintiff) 
,

 

v.

 

JANET 
HAUGHT, an individual,

 

Appellee(Defendant) 
.

 

Appeal 
from the District Court of Laramie County

The 
Honorable Nicholas G. Kalokathis, Judge

 

Representing 
Appellant:

Dale 
W. Cottam and Kathleen C. Yarger of Hirst & Applegate, P.C., Cheyenne, 
Wyoming.  Argument by Mr. 
Cottom.

 

Representing 
Appellee:

Michael 
R. O'Donnell and Rhonda Sigrist Woodard of Woodard & O'Donnell, P.C., 
Cheyenne, Wyoming.  Argument by Ms. 
Woodard.

 

Before 
HILL, C.J., and GOLDEN, LEHMAN, KITE, and VOIGT, JJ.

 

 

            
HILL, Chief Justice.

 

[¶1]      Wyoming Bank and 
Trust (the Bank) appeals an order of the district court awarding priority to a 
judgment lien creditor, Janet Haught (Haught), over its mortgages on two tracts 
of land owned by Joshua Guetzkow and used as collateral for a series of loans to 
GCI, Inc.  We conclude that the Bank 
was not on inquiry notice of any claims by Haught to the property, reverse the 
district court's decision, and remand to the district court for consideration of 
the effect of Wyo. Stat. Ann. § 1-17-302 (Michie 1997) (repealed in part by Wyo. 
Sess. Laws 1999, ch. 190, sec. 1) on Haught's claim.

 

[¶2]      In its appeal, 
the Bank states four issues:

Can 
a mortgagee be put on inquiry notice of a fraudulent conveyance when there is no 
indication of any title defects in the real estate records and the mortgagee has 
no actual knowledge of any adverse claim to the real 
estate?

 

When 
a judgment creditor voluntarily releases her judgment liens affecting real 
estate, has she waived her right to claim priority over a mortgagee who has 
properly recorded its mortgages?

 

Can 
a lender-mortgagee be charged with inquiry notice when such lender-mortgagee 
conformed to banking industry standards when investigating and extending the 
loans in connection with the mortgages?

 

Can 
a lender-mortgagee who has lent $420,000 for the improvement of real estate be 
denied the value of the improvements it funded, thus allowing a judgment 
creditor a windfall?

 

Haught 
phrases the issues before us in two, succinct questions:

1.      
Did 
the Judgment of the District Court correctly apply the standards of inquiry 
notice?

 

2.      
Are 
the factual findings of the District Court supported by substantial 
evidence?

 

[¶3]      The dispute in 
this case is over which creditor, the Bank or Haught, should be granted priority 
on their liens against two parcels (Tracts 3 and 4) of property formerly owned 
by GCI, a company owned and operated by Gerald Guetzkow and his son, 
Joshua.  In 1996, Haught obtained a 
default judgment for $55,591.83 against GCI based on claims that GCI had 
negligently constructed her house.  
Haught agreed to have the default judgment vacated in exchange for a lien 
against Tracts 3 and 4, which were located in a subdivision being developed by 
GCI.  On June 16, 1997, the parties 
entered into a settlement agreement wherein Haught agreed to release her liens, 
and GCI agreed to repair the construction defects in her house.  On June 2, 1998, Haught filed suit 
against GCI alleging that it failed to perform under the terms of the settlement 
agreement.  Twenty-four days after 
Haught's suit was filed, Gerald Guetzkow had GCI transfer ownership of Tracts 3 
and 4 to his 18-year-old son, Joshua Guetzkow.  After a trial, Haught obtained a 
judgment against GCI for $66,363.36, which was affirmed by this Court on 
appeal.  See G.C.I., Inc. v. 
Haught, 7 P.3d 906 (Wyo. 2000).  
With her trial judgment in hand, Haught filed suit against GCI and the 
Guetzkows in November of 1999 seeking to set aside the transfer of Tracts 3 and 
4 as fraudulent.

 

[¶4]      While the 
litigation with Haught was proceeding, GCI continued to develop its 
subdivision.  To finance its 
business, GCI entered into a relationship with the Bank in early March of 
1998.  GCI initially obtained two 
loans from the Bank on a house that they had constructed in the subdivision 
because they had outstanding bills that needed to be paid prior to the scheduled 
closing.1  The Bank learned during this period that 
GCI had transferred the ownership of all of its property, including Tracts 3 and 
4, to Joshua Guetzkow.  Gerald 
Guetzkow informed the Bank loan officer that the purpose of the transfer, along 
with Joshua Guetzkow's appointment as president of GCI, was to get his son 
started in the construction business.  
GCI repaid these loans when the property was sold.

 

[¶5]      Beginning in 
August of 1998, the Bank granted a series of mortgages to GCI on Tracts 3 and 4: 
$200,000 on Tract 3 recorded on September 3, 1998; $60,000 on Tract 4 recorded 
on January 29, 1999; an additional $40,000 on Tract 3 and another $40,000 on 
Tract 4 on March 26, 1999; and an additional $50,000 on Tract 4 recorded on June 
1, 1999.  On June 8, 1999, the Bank 
loaned a final $20,000 and consolidated all the other mortgages on Tracts 3 and 
4 into a single loan.  The final 
mortgage amounted to $410,000 and was recorded on June 10, 1999.  The Bank issued the loans based upon a 
financial statement filled out by Gerald Guetzkow and a commitment from First 
American Title Insurance Company that showed Joshua Guetzkow as the owner and 
that there were no liens against the property.

 

[¶6]      GCI defaulted on 
its mortgage, and the Bank filed this action to foreclose on August 16, 
2000.  Haught was named as defendant 
on the basis of her status as a judgment creditor of GCI.  Haught's action against GCI and the 
Guetzkows for fraudulent conveyance was consolidated into the Bank's foreclosure 
action.2  In claiming that the Bank's mortgages 
were not entitled to priority, Haught cited a series of facts that she contended 
should have given a reasonable lender notice of her adverse claim against GCI 
and the Guetzkows: (1) tax liens against Gerald Guetzkow; (2) Gerald Guetzkow's 
statement to the effect that he had structured GCI to avoid creditors 
(specifically, Gerald Guetzkow referred to his wife with whom he was involved in 
a contested divorce at the time); (3) the unprofitable nature of GCI; (4) the 
transfer of Tracts 3 and 4 to Gerald Guetzkow's 18 year old son; (5) the use of 
the transferred property as security for loans to GCI; (6) the lack of 
truthfulness exhibited by Gerald Guetzkow; and (7) the failure of the Bank to 
require Gerald Guetzkow to fully complete the Bank's financial disclosure forms 
before making the loans.  Haught 
contended that all of these facts, which were known to the Bank at the time it 
made the loans, taken together should have placed it on notice to inquire 
further into the finances of GCI and the Guetzkows.  Any reasonable inquiry, Haught argued, 
would have disclosed her pending litigation against GCI and the Guetzkows filed 
in June of 1998.

 

[¶7]      The district 
court agreed with Haught:

7.  The 
facts recited above, and known by the Bank at the time it was preparing to loan 
$200,000 to GCI, Inc., required the Bank to inquire further into the financial 
condition of GCI, Inc., as well as Gerald and Joshua Guetzkow.  The Bank chose not to do so.  In fact, the Bank consciously turned 
away from the facts of the situation and attempted to remain ignorant of what it 
might learn.  Standing alone, the 
fact of property being transferred within a family may not be enough to require 
further inquiry.  Standing alone, 
the fact that Gerald Guetzkow had prior financial difficulties or that his 
corporation had claims against it may not be enough to require further 
inquiry.  However, the combination 
of all of the facts known by the Bank (tax liens, corporate structure created to 
avoid creditors, unprofitable corporation, sudden transfers of valuable assets 
to an 18 year old son of the individual representing the corporation, 
substantial loans using the suddenly transferred assets as security, lack of 
truthfulness by Gerald Guetzkow and lack of diligence by the Bank in obtaining 
standard information) required the Bank to inquire 
further.

 

8.  It 
is clear that had the Bank made even a limited inquiry into the financial 
condition of GCI, Inc. and the Guetzkows in the summer of 1998, it would have 
learned of Janet Haught's pending litigation and of the clearly questionable 
transfer of assets from GCI, Inc. to 18 year old Joshua Guetzkow.  Such an inquiry is reasonable and, it is 
clear from the evidence, would have precluded the Bank from loaning money to 
GCI, Inc. without first addressing the claims of Ms. 
Haught.

 

9.  While 
record title standing alone would show title vested in Joshua Guetzkow without 
infirmity, the Bank was in possession of knowledge which clearly indicated that 
this record title may be part of a scheme to defraud creditors.  This additional knowledge possessed by 
the Bank is what gives rise to the duty to further inquire.  This information would excite the 
suspicion of an ordinary prudent person.  
It is, in fact, clear and convincing evidence of fraud which was brought 
home to the Bank in no uncertain manner.  
The Bank consciously turned away from the information and chose to remain 
ignorant of what the necessities of the situation required.  This deliberate refusal to make 
reasonable inquiry charges the Bank with the facts which would have been 
revealed.

 

10.  The 
facts which would have been revealed by reasonable inquiry include, among 
others, the fraudulent nature of the transfer of Tracts 3 and 4, GCI Subdivision 
from GCI, Inc. to Joshua Guetzkow.  
Reasonable inquiry would have revealed the fraudulent transfer either by 
proper inquiry of Gerald Guetzkow based upon the standard forms used by the Bank 
in lending money, or by a more thorough search of the public records, 
particularly local Court records, to determine if creditors['] claims were being 
defeated by the transfers.  The Bank 
is charged with knowledge of these fraudulent transfers.

 

The 
district court established priority for Haught's judgment lien over the Bank's 
mortgages on Tracts 3 and 4.  The 
Bank has appealed.

 

 

[¶8]                              
When a trial court has made express findings of fact and conclusions of 
law in a bench trial, we review the factual determinations under the clearly 
erroneous standard and the legal conclusions de novo. State v. 
Campbell County School District, 2001 WY 19, ¶41, 19 P.3d 518, ¶41, (Wyo. 
2001) (quoting Rennard v. Vollmar, 977 P.2d 1277, 1279 (Wyo. 1999)).  "A finding is clearly erroneous when, 
although there is evidence to support it, the reviewing court on the entire 
evidence is left with the definite and firm conviction that a mistake has been 
committed."  Campbell County 
School District, ¶41 (citing Hopper v. All Pet Animal Clinic, Inc., 
861 P.2d 531, 538 (Wyo. 1993)).  In 
the alternative:  "[A] determination 
that a finding is against the great weight of the evidence means a finding will 
be set aside even if supported by substantial evidence."  Id.

 

Davis 
v. Chadwick, 
2002 WY 157, ¶8, 55 P.3d 1267, ¶8 (Wyo. 2002).  If the district court's conclusions of 
law are in accordance with law, we will affirm it; if not, then we will correct 
it.  Roberts v. Estate of 
Randall, 2002 WY 115, ¶11, 51 P.3d 204, ¶11 (Wyo. 
2002).

 

[¶9]      A mortgagee is 
considered to be a purchaser entitled to bona fide purchaser protection.  First Interstate Bank v. First 
Wyoming Bank, 762 P.2d 379, 382 (Wyo. 1988).  In order to attain bona fide purchaser 
status, the burden is on the purchaser to demonstrate that he is: (1) a 
purchaser in good faith; (2) for valuable consideration (not a gift); (3) with 
no actual, constructive, or inquiry notice of any alleged or real infirmities in 
the title; and (4) prejudiced by cancellation or reformation of the instrument. 
Id. (citing Crompton v. Bruce, 669 P.2d 930, 935 (Wyo. 1983)). 

 

[¶10]   The question in this case is 
whether or not the Bank was on notice of an alleged or real infirmity in the 
title to Tracts 3 and 4.  Actual 
notice is knowledge of another purchaser's claim of interest.  14 Richard Roy Powell on Real Property § 
82.02[1][d][i] (Michael Allan Wolf, ed. 2003).  Constructive or record notice is notice 
of all properly recorded claims and is inferred as a matter of law.  Id., at § 82.02[1][d][ii].  There is no claim that the Bank had 
actual notice or that the title record disclosed Haught's claim.  The focus here is on inquiry notice, 
which we have defined as "knowledge of facts so informing that a reasonably 
cautious person would be prompted to inquire further."  Bummer v. Collier, 864 P.2d 453, 
458 (Wyo. 1993) (quoting Miller v. Alexander, 13 Kan.App.2d 543, 775 P.2d 198, 204 (1989)).  A leading 
authority has described the concept in this way:

 

[iii]  Inquiry 
Notice.

            
. . . .

            
Inquiry notice, as used herein, arises from a legal inference.  A subsequent purchaser may have actual 
(or even constructive) notice of some fact.  However, that fact is not that another 
person has a claim to the property.  
Instead, the notice of some apparently extraneous fact.  However, it is a fact that is 
sufficiently "curious" or "suspicious," according to normal human experience, 
that the purchaser should, as a matter of law, make an investigation into 
it.  If, upon making the 
investigation into this first fact a second fact, namely that another person has 
a claim to the title of the property, is revealed, then the purchaser is 
considered to have inquiry notice of the claim itself.  In other words, because of the nature of 
the first fact, of which the purchaser has actual or constructive notice, a 
rebuttable inference is made that the purchaser has notice of the second 
fact.  However, if a reasonable 
inquiry would not reveal the second fact, then the inference is 
rebutted.

 

            
Because this notice is based upon a legal inference, the purchaser cannot 
avoid notice of the second fact by merely failing to make the inquiry.  The rule is often stated that when the 
facts suffice to impose the duty of investigation, the purchaser is charged with 
notice of what a proper investigation would have revealed, whether the 
investigation is made or not. Ignoring this principle quickly renders the 
doctrine of inquiry useless.  
However, if the search, even though not conducted, was certain to be 
futile, no notice should be imputed.  
This statement is consistent with the prior principle, because the fact 
that the search would be futile indicates that a reasonable inquiry would have 
revealed no information that could be charged to the purchaser.  Perhaps a better title for this form of 
notice, as defined here, would be inferred notice, or more specifically, 
notice inferred from secondary facts.  [Emphasis in 
original.]

 

            
The last two subsections noted that a person who has actual or 
constructive notice of a particular claim may have an obligation to inquire into 
the evidence to ascertain the validity of the claim.  In contrast, a person with inquiry 
notice or inferred notice does not have notice of the claim itself; she merely 
has notice of some extraneous or secondary fact.  Inquiry is necessary to disclose whether 
any claim exists.  If she ascertains 
that a claim exists, then the purchaser is obligated to further investigate the 
evidence to determine the validity of the claim.  This two-step process of inquiry is 
quite different from the one-step inquiry into the validity of a claim that may 
be necessary for actual or constructive notice.

 

            
With inquiry notice, the purchaser must watch for those "curious" or 
"suspicious" facts that give her notice that she should inquire further.  Exactly how inquisitive or distrustful a 
purchaser must be has been the subject of considerable debate.  Professor Philbrick has asserted, in an 
extensive argument, that the standard should be reasonableness from the 
perspective of the ordinary person purchasing real estate in the purchaser's 
situation at the time of the purchase.  
This means that a court should find an obligation to inquire only from 
those extraneous or secondary facts that, by ordinary human experience, suggest 
a genuine potential for a defect.  
In addition, the extent of the inquiry necessary to satisfy the burden of 
investigation must be governed by some standard of reasonableness.  A more exacting standard would give 
unwarranted protection to prior unrecorded interests at the expense of 
subsequent purchasers, contrary to the general purpose of the recording acts to 
protect a subsequent purchaser from an unrecorded prior 
interest.

 

14 
Powell on Real Property, § 82.02[1][d][iii] (footnotes omitted).  Inquiry notice, then, has two parts: (1) 
extraneous or secondary facts that suggest a genuine potential for a title 
defect; and (2) a reasonable inquiry based on the existence of those facts would 
disclose a claim by another person to the title of the property.  However, notice will not be imputed to a 
purchaser if a reasonable inquiry would not disclose a claim to the 
property.

 

[¶11]   In this case, the district court 
held that various facts known to the Bank suggested that GCI and the Guetzkows 
were engaged in fraud and that a reasonable inquiry would have disclosed 
Haught's claim.  We conclude that 
the district court erred by charging the Bank with inquiry notice.  The record does not support the district 
court's conclusion that a reasonable inquiry would have disclosed any claim by 
Haught to the title of Tracts 3 and 4.

 

[¶12]   At the time the Bank initially 
issued its first mortgage on Tract 3, Haught had already filed her action 
against GCI for breach of the settlement agreement.  That action did not assert any claim 
against Tracts 3 and 4.  Haught 
obtained and recorded her monetary judgment against GCI on June 16, 1999, six 
days after the Bank had recorded the final, consolidated mortgage on Tracts 3 
and 4.  At no time during the period 
when the Bank was issuing the mortgages on Tracts 3 and 4 was there an assertion 
by Haught of a claim against those properties.  Any reasonable inquiry by the Bank would 
not have disclosed any defect to the title to Tracts 3 and 4. 

 

[¶13]   Haught was not without means for 
alerting third parties to any claims that she may have had against Tracts 3 and 
4. Under Wyoming law, Haught could have filed a notice of lis pendens.  See Wyo. Stat. Ann. §§ 1-6-106 to 
111 (LexisNexis 2003).  The very 
purpose of a notice of lis pendens is to "warn all persons that certain property 
is the subject matter of litigation, and that any interests acquired during the 
pendency of the suit are subject to its outcome.  The notice is for the purpose of 
preserving rights pending litigations."  
Black's Law Dictionary 947 (7th ed. 
1999).  A common type of the 
litigation that triggers the lis pendens doctrine includes actions to impress a 
lien on specific property for the payment of a debt.  14 Powell on Real Property, § 
82A.02[4][a].  Absent a notice of 
lis pendens, Haught's suit against GCI for breach of the settlement agreement 
did not constitute a claim against Tracts 3 and 4.

 

[¶14]   In her brief, Haught stresses that 
the Bank should have been on notice that the transfer of Tracts 3 and 4 to 
Joshua Guetzkow was fraudulent.  
However, that fact would only trigger the duty to investigate.  For a purchaser to be charged with 
inquiry notice, a reasonable investigation must disclose a claim to the title of 
the property.  Under these 
circumstances, Haught had, at most, a potential claim on GCI's property through 
a judgment lien.  A possibility or 
probability is not sufficient to impute inquiry notice on a 
purchaser:

 

[I]nquiry 
notice should be held to exist only when the purchaser has such information as 
must, in the court's opinion, have led him by reasonable investigation to "full 
information," to "a complete knowledge of all matters." . . . [T]he purchaser 
should have not merely knowledge of the existence of a prior conveyance, 
but such appreciation of it as a superior title as can fairly be attributed 
to him on the issue of good faith. . . [T]he ultimate ascertainable fact 
that bars bona fides cannot be merely such as might deter a reasonably 
prudent man from proceeding with a purchase. It is not a defensible use of the 
recording acts to bar good faith by notice of mere possibilities, or even 
probabilities, of an outstanding claim. It  
is, on the contrary,  the 
duty  of  the courts to divest the 

earlier 
unrecorded title unless inquiry notice is truly the equivalent of record 
notice.  It is not enough to 
confront him with the legal problem, the solution of which by a court perhaps 
few could predict. 
[Italics in original; bold supplied.]

 

14 
Powell on Real Property, at § 82.02[1][d][iii] fn. 116 (quoting Philbrick, 
Limits of Record Search and Therefore of Notice (pts. 1-3), 93 U. Pa. L. 
Rev. 125 at 271 (1944-45)).  The 
Bank's knowledge of the fraudulent nature of the transfer of the property from 
GCI to Joshua Guetzkow is not sufficient by itself to impute inquiry notice 
because the ultimate question here is not the wisdom of the Bank's business 
decision to lend money to GCI; it is whether a reasonable investigation would 
have disclosed a claim by Haught to the title to Tracts 3 and 4.  There is no evidence that a reasonable 
investigation would have disclosed to the Bank that Haught had a claim; 
therefore, inquiry notice should not have been imputed.  The district court's decision is 
reversed.

 

[¶15]   At the time Haught filed her action 
against GCI and the Guetzkows in June of 1998, Wyo. Stat. Ann. § 1-17-302, 
read:

 

The 
lands and tenements within the county in which judgment is entered are bound for 
the satisfaction thereof from the first day of the term at which judgment is 
rendered, 
but judgments by confession and judgments rendered at the same term in which the 
action is commenced shall bind the lands only from the day on which the 
judgments are rendered.  All other 
lands as well as goods and chattels of the debtor are bound from the time they 
are seized in execution.3

 

(Emphasis 
added.)  Haught raised this claim 
below but the district court did not address it.  Accordingly, we remand this matter to 
the district court for consideration of Haught's claim in respect to § 
1-17-302.

 

[¶16]   Reversed and remanded.

 

FOOTNOTES

 

  1The house was 
not on either Tract 3 or Tract 4, and these loans are not at issue 
here.

  2The Guetzkows 
failed to appear, and the district court granted judgment in favor of 
Haught.  The district court pierced 
the corporate veil and held Gerald and Joshua Guetzkow personally liable for 
Haught's judgment against GCI.  The 
court also set aside the transfer of Tracts 3 and 4 to Joshua Guetzkow as 
fraudulent.  The rulings against GCI 
and the Guetzkows are not at issue in this appeal.

  3Wyo. Stat. Ann. 
§ 1-17-302 was amended in 1999 to read:

 

The 
lands and tenements within the county in which judgment is entered are bound for 
the satisfaction thereof from the day the judgment is filed with the county 
clerk.  Whenever a judgment is 
required to be filed with the county clerk, it shall be recorded in the real 
estate records.  Goods and chattels 
of the debtor are bound from the time they are seized in 
execution.

 

Wyo. Sess. Laws 1999, ch. 190, sec. 1.  The legislature grandfathered actions 
filed prior to the July 1, 1999 effective date of the 
amendment:

 

This act shall apply to all civil actions filed on or after the effective 
date of this act.  Nothing in this 
act shall affect the validity or preference of a lien of any civil action filed 
prior to the effective date of this act.

 

Wyo. Sess. Laws 1999, ch. 190, sec. 2.  Haught's action against GCI was filed on 
June 2, 1998, well before the effective date of the 1999 a 
mendment.