Case Title: First Interstate Bank of Sheridan v. First Wyoming Bank, N.A. Sheridan

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1988-10-05T00:00:00Z

Document:
First Interstate Bank of Sheridan v. First Wyoming Bank, N.A. Sheridan1988 WY 125762 P.2d 379Case Number: 87-186Decided: 10/05/1988Supreme Court of Wyoming
FIRST INTERSTATE BANK OF 
SHERIDAN, CONSERVATOR OF THE ESTATE OF KAROL 
YANNA DUNCAN, 
APPELLANT (PLAINTIFF),

v.

FIRST WYOMING BANK, N.A. 
SHERIDAN, WYOMING, APPELLEE 
(DEFENDANT).

Appeal from the District 
Court, SheridanCounty, James N. Wolfe, 
J.

Virgil G. 
Kinnaird of Healy & Kinnaird, Sheridan, for appellant.

Clay B. Jenkins 
and Bruce P. Badley of Badley & Rasmussen, Sheridan, for appellee.

Before CARDINE, C.J., and THOMAS, URBIGKIT and 
MACY, JJ., and BROWN*, J. 
Ret.

* Retired June 30, 1988, 
but continued to participate in the decision of the court in this case pursuant 
to order of the court entered July 1, 1988.

CARDINE, Chief 
Justice.

[¶1.]     This case involves the 
validity of a mortgage from Gail Wagensen to the First Wyoming Bank on a 20-acre 
parcel of the Spur Ranch. The trial court upheld the mortgage, entering judgment 
in favor of the bank.

[¶2.]     Appellant states the 
issue on appeal as follows:

"Are the Findings of Fact 
and Conclusions of Law entered by the Trial Court clearly erroneous and 
unsupported by the evidence as to mental capacity to execute a deed, undue 
influence, confidential relationship and lack of 
consideration?"

[¶3.]     We 
affirm.

[¶4.]     On October 6, 1978, 
appellant Karol Yanna Duncan sold the Spur Ranch to Mickey D. Wagensen and Gail 
R. Wagensen, husband and wife. The ranch consisted of 395 acres and various 
improvements including a home and outbuildings.

[¶5.]     The sale to the 
Wagensens was by an "Agreement for Warranty Deed" with the First Interstate Bank 
of Sheridan as 
escrow agent. Pursuant to the agreement, the Wagensens had the right to request 
a warranty deed on the property or parcels of it by payment of the sum of $500 
per acre. The agreement was amended twice, once in 1979 and a second time on 
September 28, 1982. The second amendment, which is at issue in this case, 
resulted in the conveyance to Wagensens by warranty deed of a 20-acre parcel of 
land out of the original 395 acres. Mickey Wagensen then deeded his interest in 
the 20-acre parcel to Gail Wagensen, which deed was recorded on October 5, 
1983.

[¶6.]     Sometime prior to March 
15, 1984, Gail Wagensen approached the First Wyoming Bank of Sheridan (Bank) to obtain 
a $225,000 loan secured by a mortgage on the 20-acre parcel. Before granting the 
loan, the Bank retained a title insurance company to search the land records to 
insure that there were no defects in Gail Wagensen's title to the property. 
Clear title was confirmed by the title company; and on March 15, 1984, Gail 
Wagensen was loaned $225,000 by the Bank and mortgaged the 20-acre parcel to the 
Bank to secure the loan.

[¶7.]     After mortgaging the 
property, Gail Wagensen defaulted on both the Duncan Agreement for Warranty Deed 
and the $225,000 bank loan secured by the mortgage. The Bank initiated 
foreclosure proceedings on July 26, 1985. Appellant, Karol Yanna Duncan, 
commenced this suit on April 12, 1986, against Gail Wagensen, Mickey Wagensen, 
and the First Wyoming Bank of Sheridan to set aside the September 28, 1982 
amendment to the Agreement for Warranty Deed and the accompanying warranty deed. 
The complaint alleged the following grounds for setting aside the amendment: (1) 
lack of consideration; (2) incapacity on appellant's part to enter into the 
September 28, 1982 amendment; (3) undue influence on Gail Wagensen's part; and 
(4) "record notice" of these facts to First Wyoming Bank. As such, appellant 
urged cancellation of the March 15, 1984 Gail Wagensen mortgage to the 
Bank.

[¶8.]     Gail Wagensen and 
Mickey Wagensen were dismissed from the case; and, on June 4, 1987, a trial was 
held with appellant, Karol Yanna Duncan, and the First Wyoming Bank, appellee, 
as the remaining parties to the suit. The sole issue at trial was the validity 
of the September 28, 1982 amendment to the Agreement for Warranty Deed and the 
warranty deed to the 20-acre parcel of the Spur Ranch. The court entered 
judgment in favor of the Bank, upholding the mortgage and finding that appellant 
did not meet her burden of proof as to: (1) her contractual incapacity to enter 
into the 1982 amendment; (2) any undue influence by Gail Wagensen in procuring 
the 1982 amendment and accompanying warranty deed; (3) a fiduciary or 
confidential relationship sufficient to shift the burden of proof to the Bank; 
and (4) the failure of consideration. The court further found that the Bank had 
established the requisite elements of its defense of bona fide purchaser. 
Judgment was entered dismissing appellant's complaint against the Bank with 
prejudice.

[¶9.]     Appellant asserts that 
the findings of the trial court were contrary to the great weight of evidence 
and that the finding in favor of the Bank was therefore erroneous. The function 
of an appellate court is not to resolve the conflicting evidence or to retry the 
case. Gasaway v. Reiter, Wyo., 736 P.2d 749 (1987). Rather, when faced 
with a question involving the sufficiency of the evidence on 
appeal,

"`we assume that the 
evidence in favor of the successful party is true leaving out of consideration 
the evidence of the unsuccessful party in conflict therewith and give to the 
evidence of the successful party every favorable inference which may reasonably 
and fairly be drawn from it.'" Id. at 751, 
quoting Walter v. Moore, 
Wyo., 700 P.2d 1219, 1222 
(1985).

See also Harmon 
v. Town of Afton, Wyo., 745 P.2d 889 (1987). Unless the trial 
court's findings are clearly erroneous or contrary to the great weight of the 
evidence, we will not disturb its ruling on appeal. Pancratz Co., Inc. v. 
Kloefkorn-Ballard Construction/Development, Inc., Wyo., 720 P.2d 906 
(1986). As we stated in Whitefoot v. Hanover Ins. Co., Wyo., 561 P.2d 717, 720 
(1977),

"[t]he trial court's 9*9 
9*9 9*9 findings of fact `come here well armed with the buckler and shield' of 
presumed correctness. The findings and judgment of a trial court are generally 
affirmed if there is any evidence to support them and should be disturbed only 
when it appears they are clearly erroneous or contrary to the great weight of 
evidence. An appellate court should not substitute its conclusions for those 
made by the lower court, particularly when a case is tried to a court without a 
jury and different conclusions can be rationally drawn from the evidence." 
(Citations omitted.)

[¶10.]  Appellant contends that the great weight 
of the evidence proves her allegations that she was mentally incapable of 
entering into the September 28, 1982 amendment; that there was undue influence 
on the part of Gail Wagensen in procuring the amendment; that there was a lack 
of consideration for that amendment; and that the Bank had record notice of 
appellant's incompetence such that it could not claim the defense of bona fide 
purchaser. Moreover, she asserts that the defense itself is inapplicable because 
of her mental and contractual incapacity.

[¶11.]  Wyoming has long recognized the defense of 
bona fide purchaser for value and the protections to which such a purchaser is 
entitled. Crompton v. Bruce, Wyo., 669 P.2d 930 (1983); Soppe v. Breed, Wyo., 504 P.2d 1077 (1973); North American Uranium, Inc. 
v. Johnston, 77 Wyo. 332, 316 P.2d 325 (1957); 
Snyder v. Ryan, 39 Wyo. 266, 270 P. 1072 (1928). Accordingly, the 
only question we need answer in disposing of this case is whether there was 
sufficient evidence to support the trial court's finding that the Bank was a 
bona fide purchaser.

[¶12.]  A bona fide purchaser is protected 
against infirmities in a deed which would render the deed voidable. 23 Am.Jur.2d 
Deeds § 188 (1983). The infirmities alleged by appellant fall into this 
category. While a void deed cannot pass title even in favor of an innocent 
purchaser or a bona fide encumbrancer for value, Crittenden v. McCloud, 106 Cal. App. 2d 42, 234 P.2d 642 (1951), a deed only voidable can pass title and be 
relied upon and enforced by a bona fide purchaser. Fallon v. Triangle 
Management, 169 Cal. App. 3d 1103, 215 Cal. Rptr. 748 (1985); Peterson v. Peterson, 
74 Cal. App. 2d 312, 168 P.2d 474 (1946).

[¶13.]  This distinction between void and 
voidable deeds applies to appellant's claims of mental incapacity and undue 
influence as affecting the validity of the 1982 amendment. While a contract made 
by one under guardianship by reason of incompetency has been held to be void, 
Evans v. York, Mo. App., 195 S.W.2d 902 (1946), a contract made prior to an 
adjudication of incapacity and appointment of a guardian, but while the person 
is under mental disability, is only voidable. Cohen v. Crumpacker, Mo. App., 586 S.W.2d 370 (1979). Thus, absent 
an adjudication of incapacity, the underlying instrument, in this case the 
September 28, 1982 amendment to warranty deed, is voidable only and will not be 
invalidated merely on allegations unsubstantiated by sufficient 
evidence.

[¶14.]  The same is true regarding undue 
influence in obtaining a deed. The deed is "voidable only, not void, if obtained 
as a result of undue influence or compulsion." Fallon v. Triangle Management, 
supra, 215 Cal. Rptr.  at 750. Where a deed is only voidable, the defense of bona 
fide purchaser is available. McCoy v. Love, Fla., 382 So. 2d 647 
(1979).

[¶15.]  In order to achieve bona fide purchaser 
status, the purchaser has the burden of proving that he is (1) a purchaser in 
good faith, (2) for a valuable consideration, not by gift, (3) with no actual, 
constructive, or inquiry notice of any alleged or real infirmities in the title, 
(4) who would be prejudiced by cancellation or reformation of the instrument. 
Crompton v. Bruce, supra, 669 P.2d  at 935.

[¶16.]  In Wyoming, mortgagees are considered purchasers 
entitled to bona fide purchaser protection. See W.S. 34-1-101. Moreover, "it is 
universally agreed that a lender who takes a mortgage on land has given value 
despite the fact that the `value' advanced is expected to be repaid." 
Cunningham, Stoebuck, & Whitman, Law of Property, § 11.10 at 784 (1984), 
citing W.S. 34-1-101. There is no question from the evidence presented at trial 
that the Bank was a purchaser in good faith, gave valuable consideration (the 
$225,000 loan) for the mortgage, and would be prejudiced by cancellation or 
reformation of the mortgage. 

[¶17.]  Appellant, however, asserts that the Bank 
is not a bona fide purchaser because it had record notice of the alleged 
infirmities in the amendment by virtue of the existence of a district court case 
in which appellant was a party and the issue was her capacity to contract. 
Appellant states that

"had the Bank or its 
agent, the title insurance company, properly researched the District Court files 
they would have become aware of the action between [appellant] v. Robert W. 
Duncan, et al., Civil Action No. C442-9-81, which would have put [appellee] on 
`inquiry notice' concerning [appellant's] alleged 
incompetence."

The trial court 
found, however, that the case referred to by appellant was dismissed prior to 
the September 28, 1982 amendment. Thus, even a thorough search of the district 
court files would have revealed nothing to put the Bank on notice that 
appellant's capacity to contract was in question. Appellant conceded this point 
at trial and admitted that no other facts existed to support her contention that 
the Bank had notice of her incapacity. Her attorney stated in closing 
argument:

"The First Wyoming Bank 
makes much of being without notice. I won't say much there except to say, your 
Honor, I am sure that the First Wyoming Bank in and of itself had no knowledge 
9*9 9*9 9*9."

[¶18.]  The Bank correctly states in its brief 
that "[t]his case resurrects the medieval bugaboo of uncertain land titles which 
was laid to rest by modern recording statutes." Our recording statute is the 
only means to effect constructive notice. A purchaser without actual notice of 
an alleged infirm title has the right to rely on the records. W.S. 34-1-121; 
Paul v. Harris, 40 Wyo. 261, 276 P. 444 (1929). Thus, Wyoming law is clear that 
unless a document is properly recorded in the office of the county clerk it 
is

"void, as against any 
subsequent purchaser or purchasers in good faith and for a valuable 
consideration of the same real estate or any portion thereof, whose conveyance 
shall be first duly recorded." W.S. 34-1-120.

Proper 
recording, however, affords protection to one without notice of infirmities in a 
voidable conveyance. The deed at issue in this case was properly recorded and is 
not void, but is claimed to be voidable. The trial court found that appellant 
did not satisfy her burden of proof on her claims, that the Bank was a bona fide 
purchaser, and that the deed was not void but was valid. We agree. "Until a 
voidable deed is declared void, it is fully operative." Fallon v. Triangle 
Management, supra, 215 Cal. Rptr.  at 750.

[¶19.]  The purpose of the recording statutes is 
to provide protection for those diligent enough to conduct a search of the title 
records. The Bank retained a title insurance company to conduct such a search. 
The search disclosed a recorded warranty deed, regular on its face, conveying 
title to Gail Wagensen. The search revealed no defects in Gail Wagensen's title 
to the 20-acre parcel. Thus, there was no actual, constructive, or inquiry 
notice of the alleged deficiencies. The Bank is entitled to the protection of 
the recording system. The deed to Gail Wagensen, as to the Bank, is not 
void.

[¶20.]  Appellant asserts that the doctrine of 
bona fide purchaser does not apply when the original grantor alleges 
incompetence. We disagree. As we stated above, mere allegations of incompetence 
are insufficient to invalidate a deed. The trial court was unpersuaded by 
appellant's evidence that she was contractually incapable of entering into the 
1982 amendment and upheld the mortgage. As against voidable deeds, the 
protections granted under the doctrine of bona fide purchaser are complete and 
apply regardless of the state of appellant's competence so long as the Bank had 
no notice of the claimed incompetence.

"Irrespective of the 
grounds on which the relief is sought, cancellation will not be granted against 
a bona fide purchaser for value and without notice of the ground for 
cancellation. From a purchaser for value without notice, a court of equitable 
jurisdiction takes nothing away which the purchaser has honestly acquired." 12A 
C.J.S. Cancellation of Instruments § 66(a), pp. 748-49 
(1980).

See also Snyder 
v. Ryan, supra, 270 P. 1072. Pursuant to this rule, lack of consideration and 
undue influence on the part of Gail Wagensen in procuring the amendment would 
likewise fail to annul the protections afforded the Bank under the bona fide 
purchaser doctrine.

[¶21.]  There was more than sufficient evidence 
to support the court's finding that the Bank was a bona fide purchaser in good 
faith without notice of the alleged infirmities when granting a loan to Gail 
Wagensen and taking a mortgage as security for the loan.

[¶22.]  AFFIRMED.