Pulse v. N.A. Land Title Co. of Mon ( 1985 )

No. 85-36
IN THE SUPREME COURT OF THE STATE OF MONTANA
1985
HOMER R. PULSE, JR., and MARGARET B.
PULSE, husband & wife,
Plaintiffs and Appellants,
NORTH AMERICAN LAND TITLE COMPANY
OF MONTANA, a corporation, and FIRST
SECURITY BANK OF GLENDIVE, a Montana
Banking corporation,
Defendants and Respondents.
APPEAL FROM: District Court of the Seventh Judicial District,
In and for the County of Dawson,
The Honorable M. James Sorte, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
R. W. Heinema.n, Wibaux, Montana
For Respondent :
Gerald J. Navratil, Glendive, Montana
Submitted on Briefs: Aug. 15, 1985
Decided: October 1 5 , 1985
0C-i 1 5 5985
Filed:
Clerk
Mr. Justice William E. Hunt, Sr., delivered the Opinion of
the Court.
Homer and Margaret Pulse appeal a final order of the
District Court reforming a mortgage executed by Paul J.
Hanson in favor of the Pulses so as to give priority to a
Deed of Trust, executed contemporaneously with the mortgage,
by Hanson in favor of defendant, First Security Bank of
Glendive. We affirm.
Appellants raise four issues for our consideration:
First, whether the trial court erred in determining that both
the Deed of Trust in favor of the Bank and the mortgage in
favor of the Pulses were purchase money mortgages and that
the priority between them was to be determined by the
intentions of the parties?
Second, whether there was clear, convincing, and
satisfactory evidence to support the trial court's
determination that the mortgage document from Hanson to the
Pulses required reformation insofar as the terms "no
exceptions" in that mortgage represented a mutual mistake
inconsistent with the intention of the parties to the
purchase and sale of the premises?
Third, whether the preparation of the Purchase Agreement
and mortgage by the Rank constituted the unauthorized
practice of law?
Fourth, whether the Bank owed the Pulses a fiduciary
duty, and if so, did the Bank breach that duty?
In 1966, Homer Pulse purchased commercial real property
located in Glendive, Montana, known as the Sunshine Market.
In 1981, Pulse decided to sell the Sunshine Market, as the
market for the sale of commercial real estate was good.
Pulse was contacted by Paul Hanson regarding the sale of the
property. Hanson agreed. to purchase the Sunshine Market,
provided he could obtain financing. Thereafter, Pulse and
Hanson met at the First Security Bank of Glendive and
discussed the proposed purchase and sale with Genevieve
Remillard, the Senior Vice-President of the Bank.
The Bank agreed to finance Hanson's purchase of the real
estate and to prepare the necessary documents as "a service"
to its customers. On September 9, 1981., the Pulses entered
into a Purchase Agreement with Hanson. The Purchase
Agreement, as prepared by the Bank, provided. that the
significant terms of the sale were to be as follows:
(a) Purchase price of sixty-nine thousand dollars
($69,000.OO) ;
(b) HANSON to make a downpayment to PULSES
sufficient to pay off an existing mortgage in the
amount of $13,400.00 and, in addition, to provide
PULSES a cash sum in the amount of $20,000.00;
(c) PULSES to carry the balance of the sale price
by way of a second mortgage.
The Rank financed the purchase by lending to Hanson
$33,400.00, an amount sufficient to satisfy the existing
mortgage on the premises and to provide the Pulses with the
additional $20,000.00 cash. As security for the loan to
Hanson, Hanson was to execute a Deed of Trust to the premises
in favor of the Bank. Testimony at the trial indicated that
both the Pulses and Eanson advised the Bank that the Pulses
were to receive a second mortgage from Hanson.
On September 23, 1.981, Hanson simultaneously executed a
mortgage in favor of the Pulses and a Deed of Trust in favor
of the Bank. The Deed of Trust was filed on September 24,
1981, at 2:25 p.m., and the mortgage was filed on September
25, 1981, at 10:57 a.m. Both of these documents were drafted
by an employee of the Bank. Neither of the mortgage
documents bore any heading to the effect that either was a
first or second mortgage. However, the mortgage from Hanson
to the Pulses bore the notation "no exceptions" following the
form language reading "free from all encumbrances excepting."
At the trial, the Rank offered testimony that the
inclusion of the terms "no exceptions" in the Pulses'
mortgage was merely a typing error.
Hanson made regular payments to the Bank for six months,
commencing November 16, 1981, and terminating on April 15,
1982. The Bank notified the Pulses that the Bank was
prepared to foreclose its Deed of Trust due to Hanson's
default. Thereafter, the Pulses agreed to accept the
premises subject to the Bank's Deed of Trust. On July 26,
1982, Hanson executed a Quit Claim Deed of the premises to
the Bank in lieu of foreclosure. On August 4, 1982, pursuant
to its agreement with the Pulses, the Bank executed a
Warranty Deed of the premises to the Pulses, which included
the typed notation that "This deed was given subject to a
Deed of Trust given to First Security Bank of Glendive ...
which Deed of Trust the party of the second part assumes and
agrees to pay. " In connection with the receipt of the
Warranty Deed, the Pulses borrowed $1,254.98 from the Rank to
bring the Deed of Trust current. Subsequently, the Pulses
made regular payments to the Bank of $515.48 per month,
consistent with the terms of the Deed of Trust, for 9 months,
until May 16, 1983, at which time they ceased all payments.
On May 24, 1983, the Pulses filed an action for a
declaratory ruling that their purchase money mortgage
received from Hanson was prior in time and right to the
Bankfs Deed of Trust. After a trial. without a jury, the
trial court ordered that the Pulses' mortgage from Ilanson
sh.ould be revised so as to delete the terms "no exceptions."
Further, the trial court ordered that the Bank's Deed of
Trust was prior in time and right to the Pulses1 mortgage and
that the Pulses were 1iabl.e to the Bank for the balance owing
on the Deed of Trust.
Appellants first contend that the Deed of Trust executed
by Hanson in favor of the Bank is not a purchase money
mortgage and not equal in priority to the mortgage executed
by Hanson in favor of appellants. A purchase money mortgage
is a mortgage on land executed to secure the purchase money
by a purchaser of the land contemporaneously with the
acquisition of the legal title thereto or afterward, but as
part of the same transaction. According to section 71-3-114,
MCA :
Priority of purchase money mortgage. Except as
otherwise provided by law, a mortgage given for the
price of real property at the time of its
conveyance has priority over all other liens
created against the purchaser, subject to the
operation of the recording laws.
The Deed of Trust was executed by Hanson in favor of
First Security Bank to secure the loan enabling Hanson to
purchase the Sunshine Market. We agree with the trial court
that this Deed of Trust is a purchase money mortgage. Since
both the Deed of Trust and the mortgage are purchase money
mortgages, we face the problem of determining priority
between them.
Testimony indicates that the Pulses agreed to accept a
second mortgage to secure the unpaid balance of the purchase
price. The Bank relied on this agreement and loaned Hanson
the purchase money with the expectation they would have a
first mortgage. Once the Bank determined to foreclose their
mortgage, appellants pursued a course of conduct which
supported the Eank's position as first mortgagee by accepting
the property subject to the Rank's Deed of Trust and making
payments on that property for 9 months. For these reasons we
hold that the Bank's Deed of Trust is prior to the Pulses'
mortgage.
The second issue raised by appellants is whether there
is clear, convincing, and satisfactory evidence to support
the trial court's determination that the mortgage document
from Hanson to the Pulses required reformation insofar as the
terms "no exceptions" in that mortgage represented a mutual
mistake inconsistent with the intentions of the parties to
the purchase and sale of the premises.
According to section 28-2-1611, MCA:
When written contract may be revised by court.
When, through fraud or a mutual mistake of the
parties or a mistake of one party while the other
at the time knew or suspected, a written contract
does not truly express the intention of the
parties, it may be revised on the application of a
party aggrieved so as to express that intention, so
far as it can be done without prejudice to rights
acquired by third persons in good faith and for
value.
reforming the appellants' mortgage, the trial court found
there was a mistake in the mortgage and it therefore did not
reflect the intentions of the parties. We agree.
A mistake of fact is defined as, "a mistake not caused
by the neglect of a legal duty . . . ." Section 28-2-409,
MCA. In determining whether the Bank made a mistake of the
kind justifying reformation, the threshold question is
whether the Bank neglected a legal duty. There is no doubt
the Bank was negligent in its preparation of the appellants'
mortgage. But in Montana, mere negligence may not be a bar
to reformation of a contract. Instead, the negligence must
amount to "the neglect of a legal duty." As we stated in
Parchen v. Chessman (1914j, 49 Mont. 326, 142 P. f331, 635:
The term "mistake" involves the conception that he
to whom the fault expressed by it is imputed has
been guilty of some degree of negligence which may
or may not be excusable when viewed in the light of
the circumstances of the particular case. Courts
of equity are not bound by cast-iron rules.
Here, the negligence of the Bank did not amount to the
neglect of a legal duty. The Bank prepared the instruments
as a service to and at the request of the appellants a.nd.
Hanson. The Bank routinely typed first mortgages in which
the terms "no exceptions" were necessary. The insertion of
those terms in appellants1 mortgage was a typographical error
by one of the Bank's secretaries. This mistake, while
negligent, does not amount to the neglect of a legal duty
which would preclude reformation.
The mistake was mutual because the mortgage as written
does not reflect the mutual intentions of the parties.
Testimony indicated that the Bank would never accept a second
mortgage in a situation such as this, and that appellants
agreed to accept a second mortgage to secure the unpaid
bal-ance of the purchase price. The Purchase Agreement
reflects this agreement. When faced with the Bank's threat
to foreclose their mortgage, appellants did not assert that
theirs was the first mortgage, but instead accepted the
property back subject to the Bank's Deed of Trust.
Appellants brought the Deed of Trust current and made
payments on the Deed for 9 months. Testimony and the
partiesr actions indicate that the parties intended the Bank
to receive a first mortgage, and appellants a second
mortgage.
A.ccording to section 28-3-304, MCA:
When writing disregarded. When through fraud,
mistake, or accident a written contract fails to
express the real intention of the parties, such
intention is to be regarded and the erroneous parts
of the writing disregarded.
Under the circumstances of this case, and under the relevant
law, the trial court was justified in finding the terms "no
exceptions" were in the mortgage hecause of mists-ke, that the
mortgage as written did not reflect the mutual intentions of
the parties, and that the mortgage should he reformed by
deleting the terms "no exceptions."
The third issue appellants raise is whether the
preparation by the Bank of the Purchase Agreement, Mortgage,
and Deed of Trust in connection with the transaction
constituted the unauthorized practice of 1.aw. This issue is
one of first impression in Montana, but has been addressed by
a number of other jurisdictions. What constitutes the
practice of law is not easily defined. In Cowern v. Nelson
(Minn. 1940), 290 N.W. 795, 797, the Minnesota Court stated:
The line between what is and what is not the
practice of law cannot be drawn with precision.
Lawyers should be the first to recognize that
between the two there is a region wherein much of
what lawyers do every day in their practice may
also be done by others without wrongful invasion of
the lawyer ' s field..
While there is a sizeable minority of cases which hold that
the drafting or filling in of blanks in printed forms of
instruments dealing with land may not constitute the
unauthorized practice of law, the majority of cases take the
contrary view. We agree with the majority.
In the North Dakota case of Cain v. Merchant National
Bank and Trust Co. (N.D. 1936), 268 N.W. 719, a suit was
brought aqainst a bank and trust company seeking to enjoin
the bank from preparing quitclaim deeds, warranty deeds, real
estate mortgages, and the like. In dismissing the suit, the
Court stated that:
A person who is not a member of the bar may draw
instruments such as simple deeds, mortgages,
promissory notes, and bills of sale when these
instruments are incident to transactions in which
such person is interested, provided no charge is
made therefor.
2 6 8 N.W.
The factors which we find are most important in resolving
this question are three-fold:
First, the real estate instruments must be prepared only
incident to transactioi~s in which the maker is interested;
Second, the instruments must be prepared without a
separate charge; and
Third, the preparation must not go beyond the fill-ing in
of blank forms.
In the case at bar, the Purchase Agreement, Mortgage,
and Deed of Trust were prepared as "a service" for the
appellants, at either a.ppellants' or Hanson's request, and at
no charge to either. The instruments were prepared incident
to the financing of Hanson's purchase of the Sunshine Market
in which the Bank was an interested party. Finally, the Rank
did not draft the Purchase Agreement, Mortgage, and Deed of
Trust, their preparation consisted. of filling in blanks on
preprinted forms.
We hold that where, as here, a party merely fills in
blanks on preprinted forms such as simple deeds, mortgages,
and notes, without separate charge, and incident to real
estate transactions in which the party is involved, this does
not constitute the unauthorized practice of law.
Next, appellants argue in favor of the existence of a
fiduciary relationship between themselves and the Bank,
through the Bank's employee, Remillard. In support, they
cite our recent decision in Deist v. Wacholz (Mont. 1984),
678 P.2d 188, 41 St.Rep. 286, in which we found that a
fiduciary relationship existed between Deist and her bank.
We stated in Deist:
"As a general rule, the relationship between a bank
and a depositor or customer does not ordi-narily
impose a fiduciary duty of disclosure upon the
bank. They deal at arms length. [Citations
omitted] However, 'special circumstances' may
dictate otherwise . . .." (Quoting Tokarz v.
Frontier Federal Savings & Loan Association (Wash.
1983), 656 P.2d 1089, 1092.)
In the Deist case, we found there to be:
[Slubstantial, credible evidence . . . that the
relationship between the Conrad National Bank and
Joan Deist was more than than a simple
debtor-creditor affair. Joan and her husband had
dealt with the bank for about twenty-four years
prior to his death. Both she and Russell had
imposed trust and confidence in the advice of
Eugene Gillette, who as an officer. was the
alter-ego of the enterprise and, for all practical
purposes, was the "bank" to Joan and other
customers [Citations omitted.] Gillette acted as
financial advisor to Joan after Russell's death
with respect the ranch debt. Even though Joan's
association with the Bank in this transaction did
not extend over several years, the nature of the
association and her reliance, combined with her
husband's years of dealing with the bank on
essentially the same matters, were sufficient to
make out a prima facie case that a fiduciary
relationship existed.
Deist, 678 P.2d at 193, 194.
However, in the case a.t bar, the special cj.rcumstances
we found in Deist are not present. Neither the Bank nor its
employees located a buyer for appellants as was the case in
Deist. Instead Hanson approached. the Pulses. unlike Deist
where a hank employee was an unnamed purchaser of Deist's
ranch, First Security Bank was not a party to the transaction
beyond. their role as Hanson's lender. There is persuasive
testimony that the terms of the sale were formulated by
Hanson and appellants and were not a product of the Bank's
advice. In addition, although the Pulses had accounts with
the Bank since 1.947, they did not use that Bank excl.usively,
ha.ving accounts and certificates of deposit in other banks as
well. Finally, the Pulses dealt with the loan department on
only a few occasions prior to this transaction; once to
finance the purchase of their residence, once to finance the
purchase of the Sunshine Market, and a few small loans
insured by the Small Business Administration. We do not
believe that appellants' dealings with First Security Bank
are of the exclusive repeated nature necessary to justify
finding a fiduciary relationship.
As an appellate court our duty is not to retry the case,
but to determine if the trial court's determination is
supported by substantial credible evidence. Conflicts in the
evidence are to be resolved by the trial judge and will not
be disturbed absent a clear preponderance of the evidence
against such findings. Here, there is substantial credible
evidence to support the findings of the trial court and we
will not disturb those findings on appeal.
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We Concur: T */