Title: Harris v. Bank of Commerce

State: idaho

Issuer: Idaho Supreme Court (civil)

Document:

IN THE SUPREME COURT OF THE STATE OF IDAHO 
 
Docket No. 39204-2011 
 
DARRYL HARRIS and CHRISTINE 
HARRIS, husband and wife, 
 
Plaintiffs-Appellants, 
 
v. 
 
THE BANK OF COMMERCE, an Idaho 
corporation, 
 
Defendant-Respondent, 
 
and 
 
DUANE L. YOST and LORI YOST, husband 
and wife; DUANE L. YOST as Trustee of the 
DUANE L. YOST TRUST, 
 
Defendants. 
 
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Boise, February 2013 Term 
 
2013 Opinion No. 36   
 
Filed: March 29, 2013 
 
Stephen W. Kenyon, Clerk 
 
 
 
Appeal from the District Court of the Seventh Judicial District of the State of 
Idaho, in and for Bonneville County.  The Hon. Dane H. Watkins, District Judge. 
 
The judgment of the district court is affirmed. 
 
Kipp Manwaring, Manwaring Law Office, Idaho Falls, argued for appellants. 
 
Brian T. Tucker, Nelson Hall Parry Tucker, Idaho Falls, argued for respondent. 
 
 
 
EISMANN, Justice. 
 
This is an appeal out of Bonneville County from a summary judgment upholding the 
validity of a bank’s mortgage in real property that the plaintiffs had sold to the mortgagor in 
exchange for an interest in an investment account that turned out to be a Ponzi scheme.  We 
affirm the judgment of the district court. 
 
 
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I. 
Factual Background. 
 
Darryl and Christine Harris owned as community property approximately 80 acres of 
rural land in Bonneville County.  In the summer of 2007, Mr. Harris began discussions with 
Duane Yost and Steve Crandall about developing the land.  They contemplated having the 
Harrises sell 40 of the 80 acres to Mr. and Mrs. Yost and the Yosts and Harrises then transferring 
their respective 40-acre parcels into a limited liability company that would develop the land. 
 
In furtherance of the contemplated development, Mr. Harris agreed to sell the 40 acres to 
Mr. Yost for $800,000.  They both had accounts with the Trigon Group, Inc., an investment 
business.  They agreed that Mr. Yost would pay for the property by transferring $800,000 of his 
account with the Trigon Group to Mr. Harris’s account, which Mr. Yost did on October 1, 2007.  
At that time, they believed they had millions of dollars in their respective accounts.  During the 
period from October 17, 2003, through October 14, 2008, Mr. Harris had invested over $6 
million with the Trigon Group and had withdrawn about $2.3 million.  In their 2007 financial 
statement, the Yosts stated that they had $18.5 million in their account with Trigon Group. 
 
In September 2008, the Bank of Commerce met with the Harrises regarding loans that 
their sons were seeking in order to purchase the Harrises’ business.  The Bank wanted security 
for the loans, and as part of that process it had ordered an appraisal of the 80 acres.  Mr. Harris 
informed the Bank that the appraisal should only be for 40 acres because the other 40 acres 
belonged to the Yosts.  Mr. Harris explained that the documents for the transfer of the parcel to 
the Yosts had not been completed properly and that they were in the process of making sure that 
the county records reflected that the property was in the Yosts’ names.  In order to help their 
sons obtain the loan, the Harrises later signed a deed of trust granting the Bank a security interest 
in the 40 acres they retained. 
 
As a result of the economic downturn in the latter part of 2008, the Bank was seeking to 
collateralize its unsecured loans.  In April 2008, the Yosts had obtained a $2 million unsecured 
loan from the Bank, and in July 2008 they had obtained a short-term, $1 million unsecured loan.  
The latter loan was due in September, but the Bank extended the due date to October 15, 2008.  
The Yosts had intended to pay that loan by withdrawing funds from their account with the 
Trigon Group, but they had not yet received those funds.  As they were working with the Bank to 
provide security for their loans, they realized that they had not received a deed to the 40-acre 
 
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parcel.  Despite a title commitment showing that the Harrises were the record owners of the 
property, in order to obtain security for the $1 million loan the Bank had the Yosts execute a 
deed of trust on November 21, 2008, which was recorded the same day.  In late November, Mr. 
Yost told Mr. Harris that he needed a deed to the 40 acres to satisfy the Bank’s demands for 
security.  On November 25, 2008, Mr. Harris signed a quitclaim deed conveying the property to 
the Duane L. Yost Trust, and Mr. Yost recorded the deed on the same day. 
The Bank’s title company informed it that the property needed to be deeded to the Yosts, 
not to the trust, and that Mrs. Harris needed to sign the deed.  The Bank prepared a corrected 
quitclaim deed, and on December 1, 2008, Mr. Yost and Mr. Harris met at attorney Robert 
Crandall’s office.  Mr. Harris signed the corrected deed, but he was unable to contact his wife to 
have her sign it.  He then signed her name and left the deed with the attorney, who notarized both 
signatures and recorded the deed the following day.  The Yosts also signed a deed of trust to the 
40-acre property as security for their $2 million loan from the Bank.  A few weeks later, Mr. 
Harris told Mrs. Harris that he had signed her name to the deed, and she responded by simply 
shrugging her shoulders and saying, “Okay.”  She testified that when he told her he had forged 
her name on the deed, it did not bother her and she trusted him because he knew what he was 
doing.  She also testified that she did not do anything about it.  Mr. Harris testified that he knew 
the Bank would rely on the corrected deed in securing its loan to the Yosts. 
The Yosts had informed the Bank that they would be receiving money from the Trigon 
Group to pay their loans.  In an effort to assist the Yosts, a group of investors in the Trigon 
Group and their accountants met with the Bank on December 8, 2008, and assured the Bank that 
the accountants had done due diligence, that Trigon Group was legitimate, and that although the 
economic downturn had damaged the fund, it still had $8 million to $10 million to return to 
investors. 
 
On January 2, 2009, Messrs. Harris and Yost learned that the money they had invested 
with the Trigon Group was gone.  Shortly thereafter, they learned that Trigon Group was a Ponzi 
scheme operated by Daren Palmer, who was later convicted of federal crimes. 
 
On June 12, 2009, the Harrises filed this action against the Yosts, their trust, and the 
Bank.  The Harrises alleged six claims for relief:  (1) they had a vendor’s lien in the 40 acres sold 
to the Yosts in the amount of the $800,000 sale price; (2) they had an equitable mortgage in that 
property securing the $800,000 sale price; (3) they were entitled to rescind the sale to the Yosts 
 
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for lack or failure of consideration; (4) they were entitled to rescind the sale to the Yosts due to a 
mutual mistake that the Trigon Group was solvent; (5) with the rescission of the sale, they were 
entitled to judgment quieting their title in the property free of any claims of the Yosts or the 
Bank; and (6) the quitclaim deed to the Yosts could be construed as a mortgage pursuant to 
Idaho Code section 45-904.  They also alleged that they were entitled to foreclose their vendor’s 
lien, their equitable mortgage, and their deed construed as a mortgage.  The Yosts did not appear 
in the action, and on October 16, 2009, the Harrises obtained a judgment against them and their 
trust for the allegedly unpaid purchase price of $800,000, plus interest, court costs, and attorney 
fees.  The Bank filed a counterclaim against the Harrises and a cross claim against the Yosts 
seeking a judgment against the Yosts for the sums they owed the Bank, a judgment that the 
Bank’s interest in the property is superior to any interest of the Harrises, and the foreclosure of 
the Bank’s deeds of trust. 
 
The Bank and the Harrises both moved for summary judgment.  In their memorandum 
filed on November 18, 2010, opposing the Bank’s motion for summary judgment, the Harrises 
raised for the first time the assertion that the corrected deed to the Yosts was invalid under Idaho 
Code section 32-912 because Mrs. Harris had not signed the deed.  After briefing and oral 
argument, the district court issued a memorandum decision and order granting the Bank’s motion 
for summary judgment and denying the Harrises’ motion.  The district court entered a judgment 
in the Bank’s favor on June 7, 2011, and the Harrises timely appealed. 
 
 
II. 
Did the District Court Err in Holding that the Deed to the Yosts Was Not Void? 
 
 
The Harrises assert that the district court erred in holding that the Deed to the Yosts was 
not void for lack of consideration, for lack of delivery, and for lack of Mrs. Harris’ signature on 
the deed.  They argue that they did not receive any consideration because the Yosts’ $800,000 
interest in their investment account with the Trigon Group turned out to be worthless.  Mr. Harris 
testified that he “assumed that was real money, which it later proved out not to be.”  They argue 
that there was no delivery of the deed because Mr. Harris was initially reluctant to transfer the 
property due to investors’ recent difficulties in withdrawing funds from the Trigon Group, but he 
signed the deed after Mr. Yost showed him a copy of a fax stating that $125 million was about to 
be transferred to one of Daren Palmer’s entities, which allayed Mr. Harris’s suspicions about 
 
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Trigon Group.  They contend that since he signed the deed upon assurances that the Trigon 
Group was financially sound, the delivery of the deed was conditioned upon the investment 
account transferred to them by the Yosts being worth $800,000.  Finally, they argue that the 
district court erred in holding that Mrs. Harris was estopped from asserting that the deed was 
voidable under Idaho Code section 32-912. 
 
We need not address these issues because the Harrises have waived any claim they may 
have had that the deed to the Yosts could be set aside.  Upon a vendee’s breach of a real estate 
contract, the vendor has three possible remedies:  (a) rescind the transaction; (b) sue for the 
balance owing on the purchase price; or (c) sue for damages measured by the difference between 
the contract price and the market value of the property at the time of the breach, unless the 
contract provides otherwise.  Koch v. Glenn, 53 Idaho 761, 764, 27 P.2d 870, 871 (1933). 
 
Although the vendor can bring an action seeking inconsistent remedies, Gridley v. Ross, 
37 Idaho 693, 701, 217 P. 989, 990 (1923), the vendor cannot obtain a judgment for inconsistent 
remedies, Sunderlin v. Warner, 42 Idaho 479, 490, 246 P. 1, 5 (1926).  The vendor cannot obtain 
judgments that both affirm the sale of the real property and rescind the sale. 
 
In Sunderlin, the Johnsons agreed to exchange their farm land for the Sunderlins’ home 
in town and household goods plus $4,500 payable over time.  Id. at 483-84, 246 P. at 2-3.  The 
deeds were placed in escrow because the Johnsons were litigating title to the farm land.  Id.  The 
parties’ contract provided that if the Johnsons did not obtain title to the farm land, then they 
would buy the Sunderlins’ home for $10,000.  Id.  Before that litigation was finally resolved, the 
escrow holder became insolvent, and its liquidation agent took possession of the escrow 
documents.  Id. at 484-85, 246 P. at 3.  He wrongly delivered the deed signed by the Sunderlins 
to the Johnsons, and they then sold the Sunderlins’ property to a third party.  Id.  After the 
Johnsons lost their court case, the Sunderlins filed an action against Mr. Johnson for the balance 
owing on the purchase price of the property and against the liquidation agent and his surety for 
wrongful delivery of the deed to the Johnsons.  Id. at 485, 246 P. at 3.  The Sunderlins obtained a 
default judgment against Mr. Johnson for the balance owing on the purchase price of the 
property.  Id. at 486, 246 P. at 3.  The Sunderlins’ action against the liquidation agent and his 
surety proceeded to trial.  The trial court dismissed their lawsuit at the close of their case in chief 
on the defendants’ motion for nonsuit, and the Sunderlins appealed.  Id. at 488, 246 P. at 4.  We 
held that having obtained a default judgment against Mr. Johnson for the balance owing on the 
 
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purchase price, the Sunderlins could not pursue a claim against the liquidation agent and his 
surety based upon the wrongful delivery of the deed.  In so holding, we stated as follows: 
It is apparent that when appellants [the Sunderlins] recovered a judgment 
for the value of this house and lot upon implied contract, the Johnsons having 
obtained title to the same by the alleged wrongful delivery of the deed, appellants 
must be deemed to have elected to affirm the conveyance and recover for the 
purchase price of the property.  This form of action is inconsistent with their 
subsequent election to sue respondents Warner [the liquidation agent] and 
National Surety Company ex delicto for a wrongful delivery of the deed. They 
could only recover in an action of contract on the theory that they had elected to 
ratify a delivery of the deed. They cannot contend that they had a right of 
recovery against the Johnsons for the value of the property, and against Warner 
[the liquidation agent] and his surety for having wrongfully delivered the deed 
which conveyed the property to the Johnsons. 
 
Id. at 490, 246 P. at 5 (emphasis added). 
 
This Court added that by obtaining a judgment for the purchase price, the Sunderlins had 
ratified the delivery of the deed to the Johnsons and they could only maintain a lawsuit on the 
ground that the deed was valid.  We stated: 
The delivery of a deed to the grantee without his performing the condition 
upon which his right to receive it depended vested no title in him, and the grantor 
has a right of action to recover it or have it canceled as a cloud upon his title, but 
after he brings a suit against the grantee ex contractu and recovers a judgment for 
the purchase price, he thereby ratifies the act of delivering the deed, as such suit 
could only be maintained upon the ground that the deed was valid. 
 
 Id. at 491, 246 P. at 5. 
 
The Harrises obtained a judgment entered on October 16, 2009, against the Yosts and 
their trust for what they contended was the balance owing for the purchase of the 40 acres 
($800,000 plus interest).  That judgment became final on June 7, 2010, when a judgment was 
entered on the remaining causes of action in this lawsuit.  Having obtained a final judgment that 
was based on the theory that the property was validly transferred to the Yosts, the Harrises 
cannot pursue a claim against the Bank on the theory that the deed to the Yosts should be 
rescinded or was void. 
 
III. 
Did the District Court Err in Holding that the Bank 
Was an Encumbrancer in Good Faith? 
 
 
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“One who sells real property has a vendor’s lien thereon, independent of possession, for 
so much of the price as remains unpaid and unsecured otherwise than by the personal obligation 
of the buyer.”  I.C. § 45-801.  Vendor’s liens “are valid against every one claiming under the 
debtor, except a purchaser or encumbrancer in good faith and for value.”  I.C. § 45-803.  With 
respect to the Harrises’ claimed vendor’s lien in the property,1 there must be evidence that the 
Bank had notice that the purchase price for the land remained unpaid.  See Benz v. D.L. Evans 
Bank, 152 Idaho 215, 228, 268 P.3d 1167, 1180 (2012) (where bank had notice that contract 
purchaser of property had paid a portion of the purchase price, bank was not a good faith 
encumbrancer). 
 
Prior to taking its deed of trust, Mr. Harris had told the Bank that the Yosts owned the 
property and that the Harrises were in the process of making sure that the county records 
reflected that the property was in the Yosts’ names.  The Bank also knew of the quitclaim deed, 
which stated that Mr. Harris “hereby RELEASES, and Forever QUITCLAIMS to the Duane L. 
Yost Trust, Grantee, for good and valuable consideration the following described tract of land.”  
The Bank also knew of the corrected quitclaim deed, which stated that the Harrises “hereby 
RELEASE[], and Forever QUITCLAIM[] to Duane Yost and Lori Yost, Grantees, for good and 
valuable consideration the following described tract of land.”  Nothing in either deed indicated 
that there was any portion of the purchase price remaining unpaid.  Indeed, the Harrises do not 
contend that the Bank had knowledge of what the consideration for the deed was, much less 
whether the Harrises had received the promised consideration. 
Rather, they contend that the Bank should have known that the Yosts still owed the 
Harrises the purchase price of the property.2  They argue that the Bank knew that the Yosts’ 
                                                 
1 The Harrises also claim that their deed to the Yosts was an equitable mortgage and a mortgage under Idaho Code 
section 45-904.  Both of those claims require that there be a debt owing from the grantor to the grantee that 
continues after the delivery of the deed.  Dickens v. Heston, 53 Idaho 91, 100, 21 P.2d 905, 908 (1933) (discussing 
the requirements for an equitable mortgage, “The controlling test to be applied in determining whether a given 
instrument is a mortgage is whether at the time of the execution of the deed the grantor sustains the relation of 
debtor to the grantee.”); Fond v. McCreery, 55 Idaho 144, 151, 39 P.2d 766, 768 (1934) (construing the predecessor 
of section 45-904, “It is true an existing debt, owing from the grantor to the grantee in a deed, is indispensable to the 
instrument being construed to be a mortgage.”).  There is no assertion that the Harrises (grantors) owed a debt to the 
Yosts (grantees), and therefore the deed to the Yosts cannot constitute a mortgage. 
2 The evidence indicates that the Harrises received exactly the consideration for which they bargained—the transfer 
to them of a portion of the Yosts’ investment account with the Trigon Group.  Mr. Harris testified that Mr. Yost did 
not agree to pay cash or write a check for the purchase price, but simply stated that he would transfer $800,000 of 
his investment account to the Harrises’ investment account, and Mr. Yost accepted that as payment, although he also 
 
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financial statement showed that 90% of their wealth consisted of their investments in the Trigon 
Group and the Bank was therefore on notice that the Trigon Group was the sole source of the 
Yosts’ ability to acquire additional assets.  The Harrises also assert that because the Bank knew 
that some of its customers had received insufficient funds checks from the Trigon Group, the 
Bank was on notice that Trigon Group’s financial stability was questionable.  According to the 
Harrises, the Bank should have conducted further inquiry into the Yosts’ financial dealings and 
the Trigon Group’s solvency, and had it done so it could have concluded that the Yosts must 
have paid for the property with a portion of their investment account with the Trigon Group, 
which the Bank could have determined was not worth the $800,000 purchase price.  This 
imaginative argument is not sufficient to show that the Bank knew or had notice of the Harrises’ 
claimed vendor’s lien. 
The Harrises also argue that the Bank had constructive notice of the Harrises’ vendor’s 
lien because the Bank’s president admitted that in 2008 he drove past the 40-acre parcel that had 
been sold to the Yosts and the president “noted Yost was not in apparent possession and the 
property was being farmed.”  Actually, the president testified that he drove past the property and 
saw that it was farm ground.  The Harrises’ counsel then asked, “Didn’t appear to be anybody 
occupying or possessing it otherwise?” and the president answered, “Well, it was in crop.”  He 
then admitted that there was no house on it.  The Harrises do not explain how the president 
seeing that the land was being farmed would provide notice that the Harrises had allegedly not 
been paid the entire purchase price. 
 
IV. 
Is the Bank Entitled to Attorney Fees on Appeal? 
 
 
The Bank contends that it is entitled to an award of attorney fees on appeal.  First, it 
contends that it is entitled to an award of attorney fees pursuant to the terms of the promissory 
note and deeds of trust signed by the Yosts.  Because the Harrises did not sign those documents, 
they do not obligate the Harrises to pay the Bank attorney fees. 
 
The Bank also contends that it is entitled to an award of attorney fees under Idaho Code 
section 12-120(3) on two grounds.  That statute entitles the prevailing party to an award of 
                                                                                                                                                             
testified that he “assumed that that was real money.”  However, we need not address whether the Harrises would 
have any other claim against the Yosts once the parties learned that the investment account was not worth $800,000. 
 
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attorney fees in “any civil action to recover on . . . [a] note . . . and in any commercial 
transaction.”  This is not an action to recover on any note upon which the Harrises are liable.  
Likewise, there was no claim of a commercial transaction between the Harrises and the Bank.  
Therefore, the Bank is not entitled to an award of attorney fees on appeal. 
 
V. 
Conclusion. 
 
 
We affirm the judgment of the district court.  We award the respondent costs, but not 
attorney fees, on appeal. 
 
 
Chief Justice BURDICK, Justices J. JONES, W. JONES, and HORTON CONCUR.