Romain v. Earl Schwartz Company

No. 88-567
IN THE SIJPREME COURT OF THE STATE OF MONTANA
JOHN D. ROMAIN,
Defendant and Appellant,
-vs-
EARL SCHWARTZ COMPANY, A Partnership,
composed of EARL SCHCVARTZ , GLADYS
SCHWARTZ, KAY SCHWARTZ YORK, RAY L.
YORK, KATHY SCHWARTZ MAU, ROBERT MAU
and KARLA LEA SCHWARTZ, Partners,
Defendant and Respondent.
APPEAL FROM: District Court of the Twelfth Judicial District,
In and for the County of Hill,
The Honorable Chan Ettien, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Robert J. Emmons and Joseph Sullivan; Emmons & Coder,
Great Falls, Montana
For Respondent:
STUART c ~ ~ W C K E N Z I E , E ~Solem , MacKenzie, Chinook,
U``S &
Montana
Submitted on Briefs: June 30, 1989
Decided: Au-yust 25, 1989
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Justice R. C. McDonough delivered the Opinion of the Court.
This is an appeal from an action begun to foreclose a
mortgage on agricultural real property. Defendant John D.
Romain (Romain) appeals from the judgment of the District
Court of the Twelfth Judicial District, Hill County, finding
adverse to his cross-claim asserted against Earl Schwartz
.
Company, a partnership (partnership) We affirm in part and
reverse in part.
Although Romain presents several issues for review, we
find that consideration of only two are necessary to decide
this case. These issues are:
1) Did the trial court err in determining that Romain
as vendor and grantor divested himself of all alleged rights
to repossession under a contract for deed covering the
property upon delivery of a warranty deed to the partnership,
vendee and grantee?
2) Did the trial court err in holding that Romain
failed to mitigate his damages and therefore should not be
allowed to assert a right of indemnity against the
partnership for damages caused by the partnership's default
on the mortgage?
The facts in this case are somewhat complicated. On
July 26, 1979, John Romain agreed to sell his farm by
contract for deed to the partnership for $4,635,000. When
this contract was entered into, the farm was subject to a
mortgage held by John Hancock Mutual Life Insurance Company
(John Hancock) . As part of the purchase price, the
partnership agreed to pay the remaining balance owed John
Hancock by Romain. On July 31, 1979, Earl Schwartz as an
individual delivered his personal guaranty of Romain's note,
to the extent of $1,000,000, to John Hancock.
In January 1980, the partnership paid off the balance
owed Romain on the contract for deed. Romain then conveyed
the legal title by warranty deed to the partnership, "subject
to," the John Hancock mortgage.
In 1986 and 1987, payments on the mortgage were not
made, putting the note and mortgage in default. As a result,
John Hancock sued to foreclose on the property. Named as
defendants were the partnership and the individual partners,
Earl Schwartz in his individual capacity as guarantor, John
and Maradel Romain and other lienholders.
Upon learning of the default, Romain cross-claimed
against the partnership and sought cancellation of the con-
tract for deed, possession of the property and growing crops,
and all monies from any federal farm programs on the farm.
On August 29, 1988, the trial judge granted John Hancock a
decree of foreclosure with a judgment against John and
Maradel Romain for $3,966,973.46, and a judgment against Earl
Schwartz based on his guaranty in the amount of
$1,269,310.87.
The trial judge made separate Findings of Fact, Conclu-
sions of Law and Judgment on Romain's cross-claim. On this
issue, the trial court denied Romain relief and redemption
rights and left the partnership in possession of the farm
property and crops, and all monies from the 1987 and 1988
farm programs.
In reaching this conclusion, the court found that Romain
lost all rights to repossession of the property upon delivery
of the warranty deed by him to the partnership. Because he
had no right to possession of the property, the trial court
also found that Romain had no claim to any growing crops or
farm program money. Rather, his only existing remedy under
the contract for deed was indemnification by the partnership
for damages sustained as a consequence of the default.
Any right to indemnification, however, was contingent
upon Romain's mitigation of damages. In August of 1988, John
Hancock wrote Romain and informed him that if he executed a
deed transferring all of his rights and interest in the
property to John Hancock, he would be absolved of all claims
against him resulting from the foreclosure and any deficiency
which may arise. Romain refused to execute such a deed. The
trial court found this refusal to be a failure on his part to
mitigate damages. Consequently, Romain was denied indemni-
fication for any deficiency judgment which may arise from the
foreclosure sale. This appeal followed.
I
Romain argues that his delivery of the warranty deed to
the partnership did not operate to divest him of his right to
repossession of the farm under the contract for deed. We
disagree.
In support of our conclusion, we begin by examining two
statutes. Section 70-1-508, MCA, provides that a grant of
property takes effect only upon delivery by the grantor.
Moreover, $ 70-1-510, MCA, provides that a grant cannot be
delivered conditionally. Rather, delivery to a grantee is
deemed to be absolute and the instrument takes effect upon
its delivery. Any prior conditions are discharged at time of
delivery.
Examination of these two statutes leads to the conclu-
sion that Romain divested himself of all interest in the
property upon delivery of the deed to the partnership. The
language of the warranty deed is clear. Romain gave up the
legal title and any other interest in the property.
Romain argues, however, that it was not his intent, upon
delivery of the deed, to give up his right to repossession
upon foreclosing or cancelling the contract for deed. He
maintains that it was always his intention, to allow the
forfeiture clause of the contract for deed to remain in
effect until the John Hancock loan was fully repaid. Because
he remained liable for any deficiency underlying the
multi-million dollar mortgage, Romain argues that his
intention to retain his right to repossession should be
obvious.
We recognize that a valid delivery of title requires not
only actual manual transfer, but also an intent on the part
of the grantor to pass title to the property. Hartley v.
Stibor (Idaho 1974), 525 P.2d 352, 355. Therefore, it is
possible that there is no legal delivery although the instru-
ment has been delivered to the grantee. Hayes v. Moffatt
(1928), 83 Mont. 214, 226, 271 P. 433, 437. Romain argues
that this lack of intent is evidenced by the default provi-
sion within the contract for deed and the language within the
warranty deed which states that the conveyance is "subject
to" the John Hancock mortgage.
This logic fails in light of Montana statutory law, the
language of the warranty deed, and established case law.
Section 70-1-519, MCA, in accordance with established case
law, provides that upon transfer of property, the transferee
obtains all title held by the transferor unless a different
intention is expressed or is necessarily implied. As stated
earlier, Romain maintains that this intent should be implied
from the language within the contract and the warranty deed,
and the circumstances surrounding the conveyance.
The language of the deed giving up all right, title and
interest in the property clearly indicates Romain's intent to
transfer full title to the partnership, including all his
security interest. The fact that the warranty deed contained
language stating that it was "subject to" the John Hancock
mortgage does not render inoperative the presumption that
Romain intended to convey his entire interest. It is
presumed that one who conveys property by deed intends to
convey his entire interest unless a portion of the interest.
is expressly excepted. The words "subject to" are a
limitation upon the warranty of title and not such an excep-
tion. First National Bank of Denver v. Allard (Colo. 1972),
506 P.2d 405, 406.
Moreover this intention, manifested by the deed, pre-
vails over any contrary intent which may be gleamed from the
contract for deed. It has long been recognized that an
unambiguous provision in a deed prevails over an inconsistent
provision in a sales contract pursuant to which the deed was
given. Johnson v. Ware (Cal. 1943), 136 P.2d 101, 102;
McCafferty v. Young, (1964), 144 Mont. 385, 397 P.2d 96.
I1
Romain next contests the trial court's decision to deny
him any right to indemnity for damages sustained as a result
of the respondent's default. The trial court ruled that
Romain failed to mitigate his damages by refusing to execute
a deed transferring all of his rights in the property to John
Hancock. In exchange for this performance, John Hancock
promised to absolve Romain of any possible deficiency judg-
ment. Because of this failure to mitigate, the court held
that Romain could not avail himself of any indemnification by
the partnership for damages sustained as a consequence of
their default.
In this regard, we disagree with the trial judge. A
damaged party is only expected to do what is reasonable under
the circumstances and need not embark upon a course of action
which may cause further detriment to him. Spackman v. Ralph
M. Parsons Co. (1966), 147 Mont. 500, 414 P.2d 918. Romain
may have reasonably determined that a release of his interest
in the property to John Hancock would jeopardize his
ownership of the claim here. Therefore, we decide that under
these facts, Romain was under no duty to sign over the deed
to John Hancock until he exhausted his remedies. However, as
a result of the holding in this case, Romain could now be
required to transfer all of his rights in the property
pursuant to John Hancock's offer. Accordingly, on this issue
the trial court is reversed and the case is remanded for
proceedings consistent with this opinion.