Court Opinion

ID: 886126
Source: CourtListenerOpinion
Date Created: 2013-06-05 03:53:28.908454+00
Date Added: 2024-06-11T11:19:12.336456
License: Public Domain

No. 01-675

                     IN THE SUPREME COURT OF THE STATE OF MONTANA

                                              2002 MT 137N

JAY W. RUTHERFORD,

                Plaintiff/Appellant,

         v.

ULTRA SHIELD PRODUCTS INTERNATIONAL, INC., its
successors, assigns, and all other persons, unknown, claiming or
who might claim any right, title, estate, or interest in or lien or
encumbrance upon the real property described in the complaint
adverse to the plaintiff's ownership or any cloud upon plaintiff's title
thereto, whether such claim or possible claim be present or contingent,

                Defendant and Respondent.

SUN MERCHANT GROUP, INC.,

                Third-Party Plaintiff and Respondent,

         v.

JAY W. RUTHERFORD, AMERICAN, BANK and all other persons,
unknown, claiming or who might claim any right, title, estate or interest
in or lien or encumbrance upon the real property described in the plaintiff's
complaint adverse to Sun Merchant Group, Inc.'s ownership, or any cloud
upon Sun Merchant Group, Inc.'s title thereto, whether such claim or possible
claim be present or contingent.

                Third-Party Defendants and Appellant.
                                                          _______________________________________

APPEAL FROM:             District Court of the Sixth Judicial District,
                         In and for the County of Park,
                         The Honorable Nels Swandal, Judge presiding.

COUNSEL OF RECORD:

                For Appellant:

                         Patrick N. Dringman, Josephson & Dringman, Big Timber, Montana

                For Respondent:

                         Karl Knuchel, Attorney at Law, Livingston, Montana

                                                     Submitted on Briefs: February 7, 2002
                                                                                Decided: June 20, 2002
Filed:

                         __________________________________________
                                             Clerk
Justice Jim Regnier delivered the Opinion of the Court.
¶1    Pursuant to Section I, Paragraph 3(c) Montana Supreme Court

1996 Internal Operating Rules, the following decision shall not be

cited as precedent but shall be filed as a public document with the

Clerk of the Supreme Court and shall be reported by case title,

Supreme   Court    cause   number   and    result   to   the   State   Reporter

Publishing Company and to West Group in the quarterly table of

noncitable cases issued by this Court.

¶2    Jay W. Rutherford filed a quiet title action in the Sixth

Judicial District Court, Park County, against Ultra Shield Products

International, Inc. (“Ultra Shield”) seeking to quiet title to

certain property in Park County, Montana.           Sun Merchant Group (“Sun

Merchant”) interpled as a third-party plaintiff to defend its

claimed interest in the subject property.            Following a trial, the

District Court ruled in favor of Sun Merchant.            Rutherford appeals

and we affirm.
¶3    The following issue is dispositive of this appeal:

¶4    Did the District Court err in quieting title to the disputed

property in favor of Sun Merchant?

                                 BACKGROUND

¶5    This dispute revolves around two parcels of property in Big

Timber, Montana.     On September 30, 1996, Rutherford made a $10,000

down payment toward the property out of his personal funds.               Ultra

Shield paid the remainder of the purchase price and took title to

the property in its name.       Ultra Shield is a business incorporated

in   Delaware,    with   its   principal    place   of   business   in   Rancho

Cucamonga, California.         Rutherford was the CEO and President of

Ultra Shield at the time of the transaction.                    Ultra Shield,

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however, later suspended Rutherford in September 1998.

¶6     On November 13, 1997, Rutherford took out a mortgage for

$75,000 from American Bank of Big Timber (“American Bank”).                        He

used    the    Big   Timber   property       as   collateral      for   the    loan.

Rutherford took out a second mortgage from American Bank around

August 19, 1998, for $102,500.          He again used the disputed property

as collateral for the loan.            Rutherford claims that he used the

proceeds from these loans to repay Ultra Shield for the purchase

price of the property.         Rutherford claims to have made all the

necessary payments on these loans, but no evidence exists that

Rutherford has fully paid off the loans or used other assets to

collateralize them.
¶7     Sun Merchant, an investment company incorporated in Florida,

purportedly lent Ultra Shield a total of $150,000 in August and

September 1998.      On November 19, 1998, Rutherford filed a Complaint

to Quiet Title on the two parcels of property against Ultra Shield

and any successors or assigns.          On November 23, 1998, and December

4, 1998, in exchange for a release from Sun Merchant’s loan and any

future claims, Ultra Shield transferred the two parcels of property

via quitclaim deeds to Sun Merchant.              Sun Merchant later interpled

as a third-party plaintiff to defend its claimed interest in the

property.

¶8     On May 22, 2001, the District Court conducted a bench trial.

The    court   issued   a   judgment    quieting     title   in    favor      of   Sun

Merchant.      Rutherford appeals from this judgment.

                              STANDARD OF REVIEW

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¶9    Rutherford’s claims of resulting and constructive trusts are

claims in equity.    See Kauffman-Harmon v. Kauffman, 2001 MT 238, ¶

11, 307 Mont. 45, ¶ 11, 36 P.3d 408, ¶ 11.         Therefore, in reviewing

the findings of fact, we decide if the District Court's findings

are clearly erroneous, and, in reviewing the conclusions of law, we

decide if the court’s interpretation of the law is correct.              See

Hansen v. 75 Ranch Co., 1998 MT 77, ¶ 20, 288 Mont. 310, ¶ 20, 957

P.2d 32, ¶ 20.

                                  DISCUSSION
¶10   Did the District Court err in quieting title to the disputed

property in favor of Sun Merchant?

¶11   Rutherford sought to quiet title based on theories of purchase

money   resulting   trust   and    constructive   trust.    A   party   must

establish a trust “by evidence that is clear, convincing and

practically free from doubt.”         Hilliard v. Hilliard (1992), 255

Mont. 487, 492, 844 P.2d 54, 57.          Sitting in equity empowers us to

determine all questions involved in the matter and to do complete

justice, including the power to fashion equitable results.               See

Kauffman-Harmon, ¶ 11.

¶12   The District Court held that Rutherford was not entitled to

receive the property, either through a purchase money resulting

trust or constructive trust, because he did not have “clean hands.”

 The doctrine of clean hands provides that “[p]arties must not

expect relief in equity, unless they come into court with clean

hands.”   See Kauffman-Harmon, ¶ 19 (citing In re Marriage of Burner

(1991), 246 Mont. 394, 397, 803 P.2d 1099, 1100).          As the statute

states, “[n]o one can take advantage of his own wrong.”         Section 1-

                                      5
3-208, MCA.     Accordingly, we will not assist a party whose claim

originated in the party’s wrongdoing, whether the victim of the

wrongdoing is the other party or a third party.          See Kauffman-

Harmon, ¶ 19; Murphy v. Redland (1978), 178 Mont. 296, 309, 583

P.2d 1049, 1056.

¶13   Rutherford argues that the unclean hands doctrine does not

apply because he did not need to make an affirmative declaration

that he owned the property to establish a trust.          Nevertheless,

Rutherford does claim that he did represent that he owned the

property.     Regardless of his disclosures regarding the existence

of the trust, Rutherford misses the point of the unclean hands

doctrine.     The issue is not whether a resulting trust requires a

party to affirmatively disclose the existence of a resulting trust.

 Instead, the issue is whether Rutherford, as a party seeking

equity, did equity himself in this matter.       See Kauffman-Harmon, ¶

13.
¶14   Here, the District Court concluded that Sun Merchant made its

loan to Ultra Shield after Rutherford made several representations

to Sun Merchant regarding the property.            Specifically, these

representations indicated that Ultra Shield owned the property.

Although Rutherford testified at trial that he verbally informed

Sun Merchant that he owned the property, the District Court noted

that numerous written documents at the time of the negotiations

indicated that Ultra Shield owned the property.        Perhaps the most

significant written document was Ultra Shield’s filings with the

United   States   Securities   and   Exchange   Commission.   In   those

filings, which Rutherford signed as President and Chief Executive

                                     6
Officer, Ultra Shield listed the Montana property as assets of the

company.

¶15   At    best,   Rutherford   made       conflicting   representations    to

different parties depending on what benefitted him at the time.              At

worst, if he did own the property through a trust, he violated

federal securities laws by knowingly representing the contrary in

public securities filings.       See 17 C.F.R. § 240.10b-5 (stating that

using any national securities exchange to defraud or make any

untrue     statement   of   material    fact    is   illegal).   Regardless,

Rutherford certainly did not bring his claim in equity with clean

hands.
¶16   Rutherford also argues that the court misapplied the clean

hands doctrine by failing to weigh the policy against unjust

enrichment against the policy giving relief to a person with

unclean hands.      This argument confuses two separate legal concepts.

 Rutherford combines a statutory exception to a purchase money

resulting trust with the equitable notion of clean hands.

¶17   A purchase money resulting trust does not apply in certain

instances where a party makes a transfer to accomplish an illegal

purpose.     See § 72-33-218(2)(c), MCA.          In such circumstances, the

court weighs the policy against unjust enrichment of the transferee

against the policy against giving relief to a person who has

entered an illegal transaction.             See § 72-33-218(2)(c), MCA.     The

doctrine of clean hands does not require such a balancing test.

¶18   For these reasons, we conclude that the clean hands doctrine

bars Rutherford from asserting his claims.            Because his claims are

barred, we need not address any of his other issues.

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¶19   Affirmed.

                                /S/ JIM REGNIER

We Concur:

/S/   KARLA M. GRAY
/S/   PATRICIA COTTER
/S/   JIM RICE
/S/   W. WILLIAM LEAPHART

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