Case Title: Kost v. First Nat. Bank of Greybull

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1984-07-30T00:00:00Z

Document:
Kost v. First Nat. Bank of Greybull1984 WY 77684 P.2d 819Case Number: 83-253Decided: 07/30/1984RICHARD KOST, APPELLANT (PLAINTIFF), 

v. 

FIRST NATIONAL BANK OF GREYBULL, A WYOMING BANKING CORPORATION, APPELLEE (DEFENDANT), 

and 

VEOMA STAHLE, AN INDIVIDUAL, (DEFENDANT).
Supreme Court of Wyoming
RICHARD KOST, APPELLANT 
(PLAINTIFF), 

v. 

FIRST NATIONAL BANK OF 
GREYBULL, A WYOMING BANKING CORPORATION, APPELLEE (DEFENDANT), 

and 

VEOMA STAHLE, AN 
INDIVIDUAL, (DEFENDANT).

 
 
Appeal from the District 
Court, Big HornCounty, John T. Dixon, 
J.

 
 
Nancy G. 
Hinckley of Hinckley & Hinckley, Basin, for appellant.

Barton R. Voigt, 
of Barton R. Voigt, P.C., Thermopolis, for appellee.

Before ROONEY, C.J., and 
THOMAS, ROSE, BROWN and CARDINE, JJ.

ROSE, 
Justice.

[¶1.]     Appellant Richard Kost 
brought this action against the First National Bank of Greybull, claiming 
damages arising out of the bank's release of escrowed documents against 
instructions. The trial court determined that the Bank acted reasonably and in 
accordance with the escrow instructions in delivering the documents to 
appellant's seller under a conditional sales contract. We will 
affirm.

FACTUAL 
BACKGROUND

[¶2.]     The facts in this case 
are undisputed. Appellant, Richard Kost, entered into an agreement to purchase 
land from Veoma Stahle on March 31, 1980. The parties designated appellee, the 
First National Bank of Greybull (Bank), as the escrow agent to hold the 
conditional sales contract and other relevant documents.

[¶3.]     The Bank provided its 
standard escrow instructions, which were signed by Kost, Stahle, and a 
representative of the Bank. Portions of the instructions pertinent to this 
appeal read:

"WE, THE UNDERSIGNED 
BELOW DESIGNATED AS THE PARTIES HERETO

"Richard S. Kost, Basin, 
Wyoming

"Veoma M. Stahle, 
Orem, Utah

"hereby deposit with The 
First National Bank, Greybull, Wyoming the following described property and 
documents to-wit:

"Which shall be held by 
the said bank in escrow under the instructions therein and those below stated, 
to-wit:

"1. a copy of the 
Contract dated the 31 day of March, 1980.

"2. a Warranty Deed dated 
the 31 day of March, 1980.

"3. a Quitclaim Deed 
dated the 3 day of April, 1980.

"4. a Title 
Commitment

* * * * * 
*

"3. The escrow bank, as 
part of the consideration for the acceptance of this escrow, shall not be liable 
for any acts or omissions done by or for it in good faith, nor for any claims, 
demands or losses, nor for any damages made or suffered by or under any party to 
this escrow, excepting such as may arise through or be caused by its willful or 
gross negligence.

* * * * * 
*

"6. In accepting any 
funds, securities or documents delivered hereunder, it is agreed and understood 
between the parties hereto that the escrow bank will not be called upon to 
construe any contract or instrument deposited herewith, and shall be required to 
act in respect to the deposit herein made only upon the joint consent in writing 
of said other parties hereto, and in the absence of such agreement or consent, 
it reserves the right to held [sic] any money in its possession, and all papers 
in connection with or concerning this escrow, until a mutual agreement has been 
reached between all of said other parties or until delivery is legally 
authorized and ordered by final judgment or decree of a court of competent 
jurisdiction."

[¶4.]     From the outset Kost 
was late in making his monthly payments of $693.38. When the Bank released the 
escrowed documents on August 20, 1982, its payment records showed Kost to be six 
payments in arrears.

[¶5.]     The conditional sales 
contract delineates the rights of the parties in the event of buyer's 
default:

"8. * * * all documents 
shall be returned to SELLER if BUYER shall become in default under the terms of 
this Contract.

"9. DEFAULT: In the event 
that BUYER shall be or become in default with respect to any provisions of this 
Contract, including but not limited to, the payment of money, then SELLER may, 
at her option, give notice in writing to BUYER of the nature and extent of such 
default, and in the event BUYER shall be and remain in default for a period of 
thirty (30) days after the posting of such notice, postage prepaid, in the 
United States mail, then all rights of BUYER hereunder shall cease and terminate 
and SELLER may, at her option, declare this Contract void and of no further 
force and effect, and take immediate possession of the premises and shall be 
entitled to the return to her of said documents from said 
escrow."

[¶6.]     On March 20, 1982, 
Stahle sent a letter to Kost which said:

"* * * [A]s of yesterday 
you should have made 18 payments on your contract, and you have made only 14 * * 
*.

"* * * I am contacting my 
attorney to start proceedings to foreclose unless you are able to at least bring 
the payments for this year up to date by April 19th."

She followed 
this letter with a personal meeting with Kost on May 18, 1982, at which time she 
advised him of her intent to give him only until July to take care of the late 
payments.

[¶7.]     Finally, on July 12, 
1982, Stahle's attorney, Mark L. Reynolds, sent a letter to Kost via certified 
mail, invoking the default provisions of the conditional sales contract. The 
letter continued:

"Please be advised that 
if payments have not been brought current within 30 days, Mrs. Stahle will 
declare the contract null and void and of no further force and effect and will 
take immediate possession of the premises and shall take immediate possession of 
all documents from the escrow, which was set up pursuant to the said 
contract."

[¶8.]     Twice - on July 26, 
1982 and on August 4, 1982 - Kost wrote to Reynolds inquiring as to "the exact 
nature and extent of the default." In his letter of August 4, Kost 
said:

"* * * I do not consider 
your letter of 12 July * * * proper notice of default as required by the 
Stahle/Kost Contract."

He went 
on:

"This notice did not 
provide me with the `nature and extent' of the default, i.e., how many payments, 
which payments, interest due, etc."

When Kost did 
not receive any further information, he wrote to the Bank president on August 
10, 1982, informing the Bank of "a difficulty" with the conditional sales 
contract and advising that release of the escrowed documents would violate the 
contract.

[¶9.]     Reynolds, on behalf of 
Stahle, went to the Bank on August 20, 1982, requesting that the escrowed 
documents be released to him. After reviewing the documents, the payment records 
and the letters, the vice-president of the Bank conferred with the president, 
who suggested that they consult an attorney. The attorney determined that Kost 
was in default and advised the Bank to surrender the documents. The Bank did so, 
and that is the basis of this suit.

DISPOSITION IN THE TRIAL 
COURT

[¶10.]  Appellant originally brought suit against 
the Bank and Stahle. Since he and Stahle resolved their differences out of 
court, the trial concerned only Kost's claim against the 
Bank.

[¶11.]  Kost's complaint alleged that the Bank 
acted in a "grossly negligent and willful manner" in releasing the documents in 
the face of his letter of August 10, 1982. This standard of care corresponds 
with paragraph three of the escrow instructions which provides that the 
Bank

"* * * shall not be 
liable for any acts or omissions * * * excepting such as may arise through or be 
caused by its willful or gross negligence."

[¶12.]  At trial, appellant's counsel argued that 
the Bank "construed" the documents in escrow, contrary to paragraph six of the 
escrow instructions, when it determined that Kost was in default. Counsel argued 
that the Bank further violated paragraph six by releasing the documents without 
the joint written consent of the parties. The contention was that, pursuant to 
paragraph six, the Bank should have held the papers until the parties worked out 
their differences or until a court order directed the release. The failure of 
the Bank to do so constituted gross and willful negligence, according to 
Kost.

[¶13.]  The trial court found for the Bank and 
entered its findings as follows:

"1. Plaintiff sought 
recovery of damages herein which he alleged arose out of willful and gross 
negligence of the Defendant Bank.

"2. The parties agreed in 
the documents upon which the action was based to a standard which imposes 
liability on the Bank only for willful or gross 
negligence.

"3. There can be no 
question that the Plaintiff was in fact in default under his contract with Mrs. 
Stahle.

"4. It was not 
unreasonable for the Bank to conclude that Mrs. Stahle's notice of default to 
the Plaintiff was sufficient, and the Bank's conduct did not rise to the level 
of willful or gross negligence.

"5. The mere failure of 
Mrs. Stahle to include the exact amount then due in her notice of default did 
not render the Bank's determination that the notice was sufficient an act of 
willful or gross negligence.

"6. Provisions in the 
Bank's Escrow Agreement giving it the option to require written consent by both 
seller and buyer before delivering escrowed papers did not prevent the Bank from 
acting without such written consent.

"7. The Plaintiff should 
be responsible for Defendant Bank's costs incurred in defense of this 
action."

ISSUES ON 
APPEAL

[¶14.]  Appellant presents the following issues 
for our consideration:

"1. The District Court 
erred in holding that there was no question that Kost was in default under the 
contract.

"2. The District Court 
erred in holding that the Bank's conduct was not willful or gross 
negligence.

"3. Kost was entitled to 
all of the damages he suffered as a result of the wrongful redelivery of the 
documents."

We will affirm 
the holdings of the district court with respect to Kost's default and the 
reasonableness of the Bank's conduct and, therefore, will not address the issue 
of damages. 

I

[¶15.]  Appellant takes the position that the 
Bank wrongfully released the escrowed documents because he was never effectively 
in default under his contract with Stahle. Kost contends that there could be no 
operative default until he received proper notice of the "nature and extent" of 
his default pursuant to paragraph nine of the conditional sales contract. Such 
proper notice, according to Kost, would specify the precise number and amount of 
payments in arrears. In support of his argument, he cites Black's Law Dictionary 
(4th ed. 1951), which defines "extent" as "amount."

[¶16.]  We agree with appellant that failure to 
make payments, while constituting grounds for forfeiture of a conditional sales 
contract, does not operate to terminate the contract absent appropriate notice 
to the nonperforming party. Angus Hunt 
Ranch, Inc. v. Bowen, Wyo., 571 P.2d 974, 978 (1977); Younglove v. Graham&Hill, Wyo., 
526 P.2d 689 (1974). We cannot agree, however, that the letters from Stahle and 
her attorney, invoking the default clause and requesting payments, failed to 
satisfy the notice requirements under the contract in this 
case.

[¶17.]  Our appellate obligation in cases of this 
sort is to interpret and construe the contract as a matter of law in order to 
shed light on the intention and understanding of the parties. Intention is 
determined from the words of the contract, if the language is clear and 
unambiguous, and we must consider the writing as a whole, taking into account 
the relationships between the various parts. Amoco Production Company v. Stauffer 
Chemical Company of Wyoming, Wyo., 612 P.2d 463, 465 
(1980), and cases cited therein.

[¶18.]  In the instant case, the default 
provision in the conditional sales contract contemplates the buyer's breach of 
any term of the contract, including the payment of money. The purpose of the 
notice requirement with respect to a default is precisely what one would think - 
to put the buyer on notice that the default clause is being invoked. The "nature 
and extent" requirement implements that purpose by letting the buyer know why 
such action is being commenced and how he might remedy the problem within the 
time provided. See Angus Hunt Ranch, Inc. 
v. REB, Inc., Wyo., 577 P.2d 645, 650 
(1978).

[¶19.]  Stahle's letter of March 20, 1982, 
informed Kost of the nature of his default: he was delinquent in his monthly 
payments. The letter further specified that he owed four installments, payment 
of which would cure the default. Since Kost knew the amount of each monthly 
installment to be $693.38, he cannot reasonably maintain that Stahle's letter 
failed to inform him of the extent of his default. Subsequent letters by 
Stahle's attorney reaffirmed the nature of the default and indicated that 
appellant could avoid forfeiture of the contract by bringing his payments 
current within 30 days.

[¶20.]  These letters sufficiently notified 
appellant of the manner in which he had breached the contract and of the 
performance necessary to cure his default. Such notice fully satisfied the 
express contract provisions and served to trigger Stahle's remedies under the 
default clause. We hold that the district court did not err in finding Kost 
unquestionably in default.

II

[¶21.]  Appellant contends that the Bank's 
release of the escrowed papers in this case constituted gross negligence because 
(1) the Bank construed the conditional sales contract and determined default 
contrary to paragraph six of the contract, and (2) the Bank ignored its legal 
obligations as an escrow agent to Kost. Appellant cites the general principle 
that an escrow holder owes a duty of care to both parties, e.g. Osborn v. Grego, 226 Kan. 212, 596 P.2d 1233, 1237 (1979), and refers us to our definition of gross negligence in Knudson v. Hilzer, Wyo., 551 P.2d 680, 
684 (1976):

"* * * Gross negligence 
is an indifference to present legal duty and utter forgetfulness of legal 
obligations * * *."

[¶22.]  With respect to his first contention, 
appellant points out that the Bank was under a fiduciary obligation to strictly 
comply with the escrow instructions. Osborn v. Grego, supra, 596 P.2d  at 
1237. Appellant contends that the Bank breached this fiduciary duty when it 
construed the contract and ascertained his default.

[¶23.]  Considering the escrow instructions as a 
whole and keeping in mind that the purpose of such instructions is to provide 
direction to the escrow agent, we conclude that the Bank was required to examine 
all of the escrowed documents to determine its duties. The instructions direct 
the Bank to hold the documents

"* * * under the 
instructions therein [the conditional sales contract and other escrowed papers] 
and those below stated [the escrow instructions]."

Thus, the Bank 
had to read the instructions in conjunction with the contract to determine its 
duties as escrow agent. Hays v. Hug, 
243 Or. 175, 412 P.2d 373, 374 (1966); Estate of Reinhold v. Mansfield, 90 Ill. App.3d 224, 45 Ill.Dec. 564, 412 N.E.2d 1146, 1149 (1980). The language in paragraph six that the Bank "will not be 
called upon to construe any contract or instrument deposited [t]herewith" 
precludes the parties from seeking an interpretation of their contract from the 
Bank, but does not prohibit the Bank from examining all relevant documents in 
order to perform its escrow function.

[¶24.]  Prior to release of the papers, the Bank 
consulted an attorney. After examining the escrowed papers and the payment 
records, the attorney concluded that Kost was in default under the contract, 
that Stahle had provided adequate notice, and that the Bank should release the 
papers. The Bank's conduct in employing impartial counsel to examine the 
escrowed documents and advise the Bank as to its obligations did not violate the 
escrow instructions and, therefore, did not constitute gross 
negligence.

[¶25.]  A strict reading of paragraphs eight and 
nine of the conditional sales contract, supra, seems to support the conclusion 
reached by the Bank's attorney. Both paragraphs provide for the return of the 
escrowed documents to the seller in the event of a default by the buyer. Thus, 
the Bank acted reasonably in following the advice of counsel to release the 
papers.

[¶26.]  Kost further contends that the Bank acted 
in a grossly negligent way in failing to notify him prior to releasing the 
documents to Stahle's attorney. Kost's position is that the Bank owed him such 
notice, given the Bank's receipt of his letter protesting the release of the 
papers and the Bank's knowledge that he resided nearby and planned to subdivide 
the purchased land.

[¶27.]  The Bank's officers and attorney 
testified that they considered appellant's letter of resistance, but determined 
that it did not affect the rights of the parties under the conditional sales 
contract or the escrow agreement. Appellant cites no authority and we have found 
none requiring an escrow agent to notify a defaulting party of delivery of the 
escrowed documents, when that party has previously received ample notice of 
intent to take such action from the performing party. Neither the escrow 
instructions nor the conditional sales contract requires such notice, and we 
conclude that the Bank breached no duty in failing to notify Kost prior to 
delivery of the papers to Stahle. McWaters v. Frederick W. Berens, Inc., 
143 Ga. App. 
392, 394, 238 S.E.2d 717 (1977).

[¶28.]  As to appellant's argument that the Bank 
should not have released the documents without the written consent of the 
parties, the trial court found that paragraph six of the escrow instructions, 
supra, gave the Bank an option to release or to hold the papers. The paragraph 
six language supports that finding:

"* * * [T]he escrow bank 
* * * shall be required to act in 
respect to the deposit herein made only upon the joint consent in writing of 
said other parties hereto, and in the absence of such agreement or consent, it reserves the right to held [sic] any 
money in its possession, and all 
papers in connection with or concerning this escrow * * *." (Emphasis 
added.)

[¶29.]  Appellant also sets forth the argument 
that the contractual provision limiting the Bank's liability (escrow 
instructions, supra, paragraph three) should be strictly construed, because the 
Bank provided the instructions. This argument was not presented below, so we 
need not consider it. Scherling v. 
Kilgore, Wyo., 599 P.2d 1352 (1979); Dennis v. Dennis, Wyo., 675 P.2d 265 
(1984). It is worth noting, however, that a contract limiting liability may be 
enforced as long as it does not contravene public policy. Brittain v. Booth, Wyo., 601 P.2d 532, 
535 (1979).

[¶30.]  We conclude that the Bank properly 
determined its duties as escrow agent in accordance with the escrow instructions 
and breached no duty to appellant in releasing the documents to Stahle's 
attorney.

[¶31.]  The judgment of the district court is 
affirmed.