Case Title: Lange v. Wyoming Nat. Bank of Casper

Citation: 

Docket Number: 85-25

State: wyoming

Court: Wyoming Supreme Court

Date: 1985-09-13T00:00:00Z

Document:
Lange v. Wyoming Nat. Bank of Casper1985 WY 140706 P.2d 659Case Number: 85-25Decided: 09/13/1985PAUL LANGE AND GUELDA S. LANGE, HUSBAND AND WIFE, APPELLANTS (PLAINTIFFS), 

v. 

THE WYOMING NATIONAL BANK OF CASPER, A NATIONAL BANKING INSTITUTION, APPELLEE (DEFENDANT). 

FIRESIDE PARTNERS, A WYOMING GENERAL PARTNERSHIP; MILTON M. COFFMAN, JR.; ROCKY MOUNTAIN TITLE INSURANCE AGENCY, A WYOMING CORPORATION; LAWYER'S TITLE COMPANY, A VIRGINIA CORPORATION; LOWER & COMPANY, A WYOMING CORPORATION, (DEFENDANTS), 

FREDEN-LOWER PARTNERSHIP, (INTERVENOR).
Supreme Court of Wyoming
PAUL LANGE AND GUELDA S. 
LANGE, HUSBAND AND WIFE, APPELLANTS (PLAINTIFFS), 

v. 

THE WYOMING NATIONAL BANK 
OF CASPER, A NATIONAL BANKING INSTITUTION, 
APPELLEE (DEFENDANT). 

FIRESIDE PARTNERS, A 
WYOMING GENERAL PARTNERSHIP; MILTON M. COFFMAN, JR.; ROCKY MOUNTAIN TITLE 
INSURANCE AGENCY, A WYOMING CORPORATION; LAWYER'S TITLE COMPANY, A VIRGINIA 
CORPORATION; LOWER & COMPANY, A WYOMING CORPORATION, (DEFENDANTS), 

FREDEN-LOWER PARTNERSHIP, 
(INTERVENOR).

Rehearing Denied December 
20, 1985.

 
 
Appeal from the District 
Court, NatronaCounty, Dan Spangler, 
J.

 
 
Don W. Riske, 
Riske, Edmonds & Darrow, P.C., Cheyenne, for appellants 
(plaintiffs).

W. Thomas 
Sullins II, Brown, Drew, Apostolos, Massey & Sullivan, Casperfor 
appellee (defendant) Wyo. Nat. Bank of Casper.

Jerry A. Yaap, 
Bishop, Bishop & Yaap, Casper, for defendant Lawyer's Title Ins. Co. 

Before THOMAS, C.J., 
ROONEY, BROWN and CARDINE, JJ., and WOLFE, District Judge.*

* ROSE, Justice, having 
recused himself, Wolfe, District Judge, was assigned pursuant to order of the 
court entered April 12, 1985.

WOLFE, District 
Judge.

[¶1.]     On March 13, 1980, the 
appellants Paul and Guelda Lange (sellers) and Fireside Partners (buyers) 
entered into a contract for the purchase of certain real and personal property 
located in Casper, 
Wyoming. The subject of the 
contract included the Fireside Lounge, City of Casper Liquor License Number 17, 
four apartment units and commercial buildings located at 1845, 1847, 1849, 1855 
and 1875 CY 
Avenue in Casper.

[¶2.]     The contract provided 
for placement of several warranty deeds in escrow with the appellee Wyoming 
National Bank of Casper. Such deeds were to have been released 
to Fireside Partners periodically as installment payments were made. Fireside 
Partners was able to make all of the installment payments up to July 1, 1982. 
The problems giving rise to this case resulted from Fireside Partners' inability 
to make the July 1, 1982, payment.

[¶3.]     On July 31, 1982, the 
appellants provided notice pursuant to the terms of the contract that if the 
July 1 payment was not made in full on or before the thirtieth day from the date 
of said notice, the contract would terminate.

[¶4.]     In an attempt to make 
payment, Milton M. Coffman, Jr., as managing partner of Fireside Partners, 
sought a loan from appellee Wyoming National Bank of Casper. Coffman 
represented to the bank that upon making the July 1 installment payment Fireside 
Partners would receive fee title to the entire parcel upon which the Fireside 
Lounge building was located (also known as the Schedule C property). This would 
enable Fireside Partners to offer the parcel as security for the loan it was 
seeking.

[¶5.]     However, the 
description on the warranty deeds held in escrow to be released when the July 1 
payment was made specifically did not include the entire parcel upon which the 
Fireside Lounge building was located. Therefore, Coffman commissioned the 
preparation of a new legal description which encompassed the entire parcel of 
real property and then obtained a title insurance policy based on the expanded 
legal description. The title insurance policy was issued by Rocky Mountain Title 
Insurance Agency (hereinafter RMTIA), which Coffman managed, and was 
underwritten by Lawyer's Title Insurance Company (hereinafter LTIC). 
Additionally, Coffman drafted an Affidavit of Lien Release allegedly obtained 
from Lower & Company for construction work they had performed on the 
Fireside Lounge building.

[¶6.]     At the closing of the 
loan transaction, Coffman demanded and received a deed from the escrow agent at 
appellee bank. He then proceeded to remove the original legal description from 
the deed and substitute the expanded description purporting to convey the entire 
parcel, on which set the Fireside Lounge building, to Fireside Partners. Based 
upon the altered deed, the Affidavit of Lien Release and the title insurance 
commitment, appellee bank issued a loan to Coffman and placed a mortgage on the 
property described in the expanded legal description. Fireside Partners then 
made the July 1, 1982, installment payment from the proceeds of the bank 
loan.

[¶7.]     After August 1982, 
Fireside Partners defaulted on the contract for deed. Appellants thereafter 
declared a default in the contract, retained all payments and exercised their 
right to the return of property not already released.

[¶8.]     On April 21, 1983, 
appellants filed a complaint asking the court to quiet title in them the 
original Schedule C property and to declare the mortgage obtained by Coffman 
against the Schedule C property to be null and void. The complaint also alleged 
various compensatory and punitive damages against Milton M. Coffman, Jr., RMTIA, 
LTIC and Lower & Company.

[¶9.]     Summary judgment was 
granted to Lower & Company as to the damage claim brought against them by 
the appellants. At trial it was made known that Coffman and Fireside Partners 
had filed for bankruptcy and that RMTIA was insolvent; therefore, neither would 
be appearing or defending at the trial. The court subsequently ordered a default 
against Coffman and RMTIA and excused them from appearing. The parties remaining 
to participate at trial were appellee Wyoming National Bank, appellee Lawyer's 
Title Insurance Company and appellant Lange.

[¶10.]  The amount of the mortgage was 
$1,481,000.00. $290,000.00 of that amount went to the appellants for the July 1, 
1982, payment, and the remainder ($1,191,000.00) represented previous debts 
Coffman had incurred with appellee bank. The district court reformed the 
description on the mortgage so that it encumbered the original Schedule C 
property. The court then quieted title in appellants that portion of property 
unlawfully conveyed by Fireside Partners. Title to the original Schedule C 
property was also quieted in appellants subject to the $1,481,000.00 mortgage of 
the appellee bank. Additionally, the court denied any liability of appellee LTIC 
to the appellants.

[¶11.]  Appellants put forth the following issues 
for consideration:

"I. Whether the court 
erred in not declaring the Wyoming National Bank/Fireside Partners mortgage 
invalid.

"II. Whether the court 
erred by ordering that the Wyoming National Bank/Fireside Partners mortgage be 
reformed to encumber only those lands described in the warranty deed originally 
placed in escrow.

"III. Whether the court 
erred in dismissing the appellants' claims against appellee Lawyers' Title 
Insurance Company."

[¶12.]  We will affirm in part and reverse in 
part.

I

[¶13.]  The major issue in this case is whether 
or not the mortgage set up between Coffman and appellee bank is valid. The 
appellants contend it is not, and we agree.

[¶14.]  There is no dispute in this case that 
Coffman altered the deed to the Schedule C property. The alteration made it 
appear to the appellee bank that Coffman would receive title to the entire 
parcel on which the Fireside Lounge was situated as soon as the July 1, 1982, 
payment was made. Relying on that fact, the appellee bank issued a loan to 
Coffman and accepted a mortgage on the Schedule C property as security. Clearly, 
Coffman obtained the mortgage by fraudulent 
misrepresentation.

[¶15.]  Appellants correctly rely on the general 
rule stated in Otero v. Albuquerque, 
22 N.M. 128, 158 P. 793 (1916), and restated in Mosley v. Magnolia Petroleum Co., 45 
N.M. 230, 114 P.2d 740, 748 (1941):

"* * * A deed purloined 
or stolen from the grantor, or possession of which was fraudulently or 
wrongfully obtained from him without his knowledge, consent, or acquiescence, is 
no more effectual to pass title to the supposed grantee than if it were a total 
forgery, and an instrument of the latter kind had been spread upon the 
record."1

[¶16.]  Therefore, a deed fraudulently altered is 
void. The appellee bank does not contest this point. As stated in their brief 
before this court: 

"* * * Appellee, the 
Wyoming National Bank of Casper, would agree that in this action grounds exist, 
under Wyoming law, for a court to cancel the Lange to Fireside Partners warranty 
deed which had been fraudulently altered. * * *"

[¶17.]  The disagreement between the parties 
occurs over how this void deed affects the mortgage between Coffman (Fireside 
Partners) and appellee bank.

[¶18.]  Appellants contend that a mortgagee (here 
appellee bank) who encumbers a wrongfully obtained title cannot be viewed as a 
good-faith encumbrancer; therefore, the mortgage should be declared void. 
However, one need not go so far in order to establish that the mortgage, in this 
case, is invalid. The mortgage between Coffman and appellee bank was based on a 
fraudulently altered deed. This fact, in and of itself, makes the mortgage a 
nullity regardless of whether the appellee bank made the loan in good faith. 12 
A C.J.S. Cancellation of Instruments, § 37, p. 700, 
states:

"The general rules of 
rescission and cancellation for fraudulent inducement are applicable to 
commercial papers, leases, mortgages, releases and satisfaction pieces, 
exchanges, and other contracts and instruments."

The rule was 
applied in Financial Credit Corporation 
v. Williams, 246 Md. 575, 229 A.2d 712 (1967). In that case, 
the mortgagors used the proceeds of a loan to secure improvements on their home. 
However, the mortgagee misrepresented the sum of the mortgage to be $3,200 when, 
in fact, it was $6,399.60, and procured the mortgagor's signature without giving 
notice of any change. Although not aligned with the facts in the present case, 
Financial Credit Corporation v. Williams, 
supra, stands for the general proposition that a mortgage obtained by fraud 
is an absolute nullity as between the mortgagor and mortgagee. Financial Credit Corporation v. Williams, 
supra, 229 A.2d  at 715.

[¶19.]  It appears uncontradicted in this case by 
all of the parties that fraud was involved in obtaining the mortgage from 
appellee bank. In order for the loan to be approved, appellee bank required an 
Affidavit of Lien Release from Lower & Company, a title insurance policy and 
a deed reflecting the description of the property to be mortgaged. Subsequently, 
Coffman obtained an expanded legal description of the Schedule C property, a 
title insurance policy based on that expanded description, and then apparently 
forged an Affidavit of Lien Release. He later actually altered the original 
deed, held in escrow, to reflect the expanded description. After Coffman 
presented the Affidavit of Lien Release, title insurance policy and altered 
deed, the appellee bank issued a loan to Coffman and accepted a mortgage on the 
Schedule C property. Clearly, fraud had been committed. This fact, in and of 
itself, makes the mortgage a nullity.

[¶20.]  Our conclusion is supported even further 
by the fact that the mortgage was based on a void deed. Appellee bank argues 
that the cancellation of the deed has no effect on the mortgage. This simply 
cannot be. "If the mortgagor's rights in the property continue, so do the rights 
of the mortgagee. If the mortgagor's rights in the land terminate, so do the 
mortgagee's." Rush v. Anestos, 104 
Idaho 630, 661 P.2d 1229, 1234 (1983); Kendrick v. Davis, 75 Wn.2d 456, 452 P.2d 222 (1969). 
Coffman, as the mortgagor, lost any rights he may have had in the Schedule C 
property by altering the deed. This automatically made the deed a nullity in the 
hands of Coffman and eventually appellee bank. A mortgage based on such a void 
deed has no legal effect and is itself null and void.

[¶21.]  The fact that Coffman fraudulently 
obtained the deed from the escrow agent takes this case outside the general rule 
that the alteration of a description of a deed after delivery does not void the 
deed as it existed at the time of delivery. 4 Am.Jur.2d, Alteration of 
Instructions, § 33, p. 32.

[¶22.]  The district court reformed the mortgage 
so that the Schedule C property was encumbered in the amount of $1,481,000.00. 
This result contradicts our holding today in that one cannot reform an invalid 
mortgage. Apparently the district court is concerned that appellants will 
receive a windfall if the Schedule C property is returned, the mortgage held 
void and the July 1 payment retained.

[¶23.]  However, had Coffman not made the July 1 
payment by August 29, the appellants could have exercised their right to a 
return of the Schedule C property free of all encumbrances and at the same time 
retained all payments made prior to July 1982. These conditions were agreed to 
by Coffman (Fireside Partners) and appellants in the contract for deed. By 
invalidating the subject mortgage, we are merely holding that the parties should 
be brought back to the position they were in prior to the events which led to 
this lawsuit. The only windfall appellants could receive is in being allowed to 
retain the July 1 payment. Consequently, the appellants are directed to return 
to appellee bank the July 1 payment in the amount of $290,000.00, which they 
have already agreed to do.

II & 
III

[¶24.]  We do not reach the issues of whether the 
district court erred in reforming the mortgage between Coffman and appellee bank 
or in denying appellants' damages claims against LTIC. Appellants in their 
notice of appeal limited themselves to one issue; that of the district court's 
refusal to cancel the mortgage between Coffman and appellee bank. Therefore, we 
refuse to consider any issues not previously raised by appellants in their 
notice of appeal.

[¶25.]  We hold that the district court erred in 
not declaring the Coffman (Fireside Partners) and appellee bank mortgage 
invalid. The mortgage is void by virtue of the fact that it was based on an 
invalid deed. In so much that appellants have benefited from the void mortgage, 
they are directed to return to the appellee bank the July 1, 1982, payment 
($290,000.00) made by Coffman on the Schedule C property.

[¶26.]  Affirmed in part and reversed in 
part.

1 See also Balfour v. Hopkins, 35 C.C.A. 445, 93 F. 564 (C.C.A.Wash. 1899); Meley v. 
Collins, 41 Cal. 663, 10 Am.Rep. 279 (1871); Jackson v. Lynn, 94 Iowa 151, 62 N.W. 704, 58 
Am.St.Rep. 386 (1895); Stone v. 
French, 37 Kan. 145, 14 P. 530, 1 Am.St.Rep. 237 (1887); 
McGinn v. Tobey, 62 Mich. 252, 28 N.W. 818, 4 
Am.St.Rep. 848 (1886); Wiggenhorn v. 
Daniels, 149 Mo. 160, 50 S.W. 807 (1899); Scheer v. Stolz, 41 N.M. 585, 72 P.2d 606 (1937); Clevenger v. Moore, 126 Okla. 246, 259 P. 219, 54 A.L.R. 1237 (1927); Epps v. McCallum Realty Co., 139 S.C. 
481, 138 S.E. 297 (1927); Steffian v. 
Milmo National Bank, 69 Tex. 513, 6 S.W. 823 (1888); Houston Land & Trust Co. v. Hubbard, 
37 Tex.Civ.App. 546, 85 S.W. 474 (1905); Spotts v. Whitaker, Tex.Civ.App., 157 S.W. 422 (1913).

ROONEY, Justice, concurring in 
part and dissenting in part.

[¶27.]  I concur with that said in the majority 
opinion except for the direction to appellants to pay to appellee bank the July 
1, 1982 payment made by Coffman and Fireside Partners. Appellants were not 
parties to the transaction by which the appellee bank loaned money to the other 
defendants. Appellants should not be required at their peril to inquire into the 
source of money used to pay an installment on an obligation owed to them. 
Illustration: X sells an automobile to Y with payment to be made on 
installments. X need not inquire, when each payment is made, whether or not Y 
obtained the money through fraud, theft, etc. I cannot agree with the setting of 
such a precedent. There is no proper legal theory by which appellants are made 
insurers of appellee bank's loan.

[¶28.]  To label the payment made to appellants 
by defendants other than appellee bank as a "windfall" is an improper, indirect 
attack on the liquidated damage provision of the agreement between appellants 
and the other defendants. Appellee bank was not "unjustly" 
enriched.

"The mere fact that a 
third person benefits from a contract between two other persons does not make 
such third person liable in quasi contract, unjust enrichment, or restitution. * 
* *" 66 Am.Jur.2d Restitution and Implied Contracts, § 16, p. 960 
(1973).

See Eightway Corporation v. Dime Savings Bank of 
Williamsburgh, 94 Misc.2d 274, 404 N.Y.S.2d 302 (1978); McGrath v. Hilding, 41 N Y2d 625, 394 N.Y.S.2d 603, 363 N.E.2d 328 (1977); Haggard Drilling, Inc. v. Greene, 195 
Neb. 136, 236 N.W.2d 841 (1975).

[¶29.]  I would reverse in all 
respects.