Turbiville v. Hansen

NO. 88-88
IN THE SUPREME COURT OF THE STATE OF MONTANA
1988
SHARON TURBIVILLE,
Plaintiff and Appellant,
-vs-
ERLING HANSEN and AVIS HANSEN,
husband and wife; and AVIS CORPORATION,
a Montana corporation; and ALFRED GRAF;
and FIRST NATIONAL BANK & TRUST CO., a
North Dakota Banking Institution,
Defendants and Respondents.
".\.
APPEAL FROM: District Court of the Fifteenth Judicial District,
In and for the County of Roosevelt,
The Honorable M. James Sorte, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Timothy J. Whalen; Whalen & Whalen, Billings, Montana
For Respondent:
Phillip N. Carter; Koch & Carter, Sidney, Montana
Donna M Murphy; Rolfstad, Winkjer, McKennett and
Stenehjem, Williston, North Dakota
Submitted on Briefs: July 8, 1988
Decided: September 6, 1988
Mr. Justice Fred J. Weber delivered the Opinion of the Court.
This is an action for damages arising from the termina-
tion of Ms. Turbiville's contractual interest in a nightclub
and restaurant on the Montana-North Dakota state line. The
District Court for the Fifteenth Judicial District, Roosevelt
County, granted summary judgment to defendant First National
Bank and Trust Co. (Bank). Ms. Turbiville appeals. We
affirm.
The issue is whether the lower court erred in granting
the Bank summary judgment.
In June of 1982, Ms. Turbiville entered into an agree-
ment to purchase the State Line Club (Cluh) from defendants
Hansen. Ms. Turbiville paid $95,000 as a down payment and
signed a contract for deed for the balance. The Bank was the
escrow agent.
In 1983, Ms. Turbiville entered negotiations to sell the
Club to defendant Mr. Graf, a Canadian citizen. Under their
agreement, Mr. Graf took possession of the Club in June but
the final closing of the sale would not take place until July
31. The closing did not take place on that date, but instead
was postponed several times.
On August 10, 1983, the Hansens, through their attorney,
issued a notice of default alleging violation of paragraph
X I 1 of the contract for deed, in which Ms. Turbiville had
agreed to maintain the Club's bar and liquor licenses in good
standing:
Until final payment hereunder, Purchaser
agrees to keep and maintain said liquor and beer
licenses to be acquired hereunder in full force and
effect and to commit no act or failure to act which
might result in the loss of said licenses. Pur-
chaser also agrees until final payment hereunder to
keep the cocktail lounge on said premises operating
during the legal operating hours of licensed liquor
establishments, and to comply with all of the laws
of the State of Montana, pertaining to the opera-
tion of retail liquor establishments. Any failure
to fulfill the covenants of this paragraph shall be
considered a default under the terms of article I11
of this contract.
The problem, of which Ms. Turbiville was aware, was a ques-
tion on the part of the Montana Department of Revenue about
continuation of the Club's state liquor license, because Mr.
Graf is a Canadian citizen. The notice of default stated, in
relevant part:
[Ylou have committed acts and have failed to act in
such a manner that the liquor and beer license
might be lost and/or terminated by the Montana
Department of Revenue, Liquor Division. You have
further failed to comply with all of the laws of
the State of Montana pertaining to the operation of
a retail liquor establishment. The specific acts
or omissions and other violations have been report-
ed to Erling and Avis Hansen through the under-
signed by Mr. Mike Otterberg, who is an
investigator for the Legal Enforcement Division of
the Montana Department of Revenue.
On October 12, 1983, the Hansens and their attorney went to
the Bank and requested that the escrow be closed and all
documents be returned to them. They presented the escrow
officer with a copy of the default notice which had been sent
to Ms. Turbiville. They also presented the escrow officer
with an "Affidavit to Close Escrow" stating:
We, Erling Hansen and Avis Hansen, after being duly
sworn upon oath, state:
1. That we are the parties who entered into that
certain Contract for Deed and Conditional Sales
Contract with Sharon Turbiville dated the 1st day
of June, 1982.
2. That on the 10th day of August, 1983, a Notice
of Default was sent to Sharon Turbiville at
Bainville, Montana.
3. That a true and correct copy of said Notice of
Default is attached hereto.
4. That the sixty (60) day grace period has ex-
pired without said default having been cured and
that we have elected to cancel this contract.
(Dated and signed. )
The escrow officer copied the documents in the escrow file
and gave the originals to the Hansens.
Ms. Turbiville brought this action alleging that when
the contract for deed was cancelled she lost all the money
she had paid on the Hansen contract, along with other damag-
es. Her claim against the Rank alleged that the Bank breached
a fiduciary duty owed to her when it delivered the documents
in the escrow account to the Hansens without contacting her.
The complaint alleged that " [a] reasonable and prudent busi-
nessman would have some doubt that a breach existed according
to the terms of the notice of default when Alfred Graf and
his attorney were present when the escrow account was turned
over." (The allegation that Mr. Graf and his attorney were
present is not supported by the depositions.)
The Bank moved for, and was granted, summary judgment
prior to trial. Ms. Turbiville settled with the other defen-
dants. Then she asked the court to reconsider the order
granting summary judgment to the Bank. The court reaffirmed
its order and Ms. Turbiville appeals.
Did the lower court err in granting the Bank summary
judgment?
Rule 56, M.R.Civ.P., allows a district court to enter
summary judgment when the pleadings, depositions, and other
documents on file with the court demonstrate no genuine issue
of material fact and that the moving party is entitled to
judgment as a matter of law. This Court's review of a
summary judgment is based on its examination of the entire
case. Shimsky v. Valley Credit Union (Mont. 1984), 676 P.2d
1308, 1310, 41 St.Rep. 258, 260.
Ms. Turbiville's argument on appeal is that there were
disputed issues of material fact and that the Bank was not
entitled to judgment as a matter of law. She argues that
summary judgment for the Bank was not proper because 1) the
contract required an actual default, not just a claimed one,
before the escrow documents could be returned to the Hansens,
2) both the liquor license provision in the contract for deed
and the default notice sent to her are void for vagueness, 3)
it would have been impossible for her to cure the default
within the time allowed because the Department of Revenue had
not set hearing on the alleged liquor license violation until
November 14, 1983, and 4) the affidavit requesting closure of
the escrow was insufficient on its face because it did not
clarify whether notice was provided to her in accordance with
the terms of the contract.
The escrow agreement signed by the Bank, Ms. Turbiville,
and the Hansens provided, in relevant part:
4. If the purchaser, or her personal repre-
sentatives, heirs or assigns, shall default in
making payment as agreed, or shall otherwise de-
fault in the performance of the provisions of the
contract for deed, then the seller, their personal
representatives, heirs or assigns upon demand shall
be entitled to the immediate return from the escrow
agent of the contract for deed, warranty deeds and
abstracts, so that they may pursue such remedies as
provided by law for the foreclosure of the contract
for deed.
9. The escrow agent shall be liable onlv to
account +or the money received by it and for the
delivery of the instruments and documents escrowed
in accordance with the terms of this agreement.
In this case we conclude that the only obligation of the
escrow holder was to adhere strictly to the instructions as
provided in the escrow agreement. See First Fidelity Bank v.
Matthews (Mont. 1984), 692 P.2d 1255, 1259, 41 St.Rep. 2502,
2506. The Bank's duty, under paragraph 4 of the escrow
agreement, was to "upon demand" immediately return the escrow
documents to the sellers in the event of default. The agree-
ment does not require the escrow agent to ascertain whether
the demand for return of the escrow documents is technically
justified. Neither does it require the escrow agent to
determine whether the notice given to Ms. Turbiville was
legally sufficient, whether the Department of Revenue's
hearing date renders performance of the contract impossible,
or whether the contract and default notice are void for
vagueness. Ms. Turbiville improperly characterizes these
issues as factual determinations which the Bank was responsi-
ble for making before returning the escrow documents to the
seller. These determinations are appropriate for a court of
law, not for the escrow agent. The remedy for omission of
any of these requirements was suit against the Hansens, and
all of these issues may have been relevant to the settled
part of this lawsuit. These issues do not create an issue of
material fact as to the claim against the Bank, because they
are unrelated to whether the Bank adhered strictly to the
instructions as provided in the escrow agreement.
As a final matter, we must admonish counsel for the
Bank. The attachment to its brief of a document executed
subsequent in time to the matters involved in this appeal was
entirely inappropriate.
We affirm the summary judgment i of the Bank.
, Justices
Mr. Justice William E. Hunt, Sr., dissenting:
I dissent from the majority's conclusion that summary
judgment should be granted in this case. Summary judgment is
only appropriate when, viewed in the light most favorable to
the nonmoving party, there are no material questions of fact
in issue. Cereck v. Albertson's, Inc. (1981), 195 Mont. 409,
411, 637 P.2d 509, 510-511. In the present case, the clause
in the escrow agreement that directed the First National Bank
& Trust Company to return the documents it held in escrow
could only be triggered by the existence of an actual
default. The evidence before the Court, however, does not
clearly indicate whether a default did in fact occur. Thus,
a material question of fact is in dispute, and summary
judgment is improper.
I also disagree with the majority's assertion that the
bank had no duty to ascertain whether the demand for delivery
of the documents was justified. Granted, the escrow
agreement specified that the bank was to deliver the
documents "upon demand" by the seller. However, the evidence
shows that First National had previously gone beyond the
directions of the escrow agreement for the benefit of the
sellers. In all fairness, and in keeping with the purpose of
escrow agreements in general, the bank should not now be
allowed to claim that the limits of the contract prevented it
from making any inquiry to determine whether default in fact
existed or notice had been received before handing over
instruments it held in trust for Turbiville.
Individuals with differing interests enter into an
escrow arrangement to ensure that their rights are
safeguarded by a disinterested third party, the escrow agent.
Rlackburn v. McCoy (19341, 1 Cal. App. 2d 648, 654, 37 P.2d
153, 155. The escrow agent becomes an agent for each of the
principles to the escrow agreement. First Fidelity Bank v.
Matthews (1984), 692 P.2d 1255, 1258, 41 St.Rep. 2502, 2505.
As such, the escrow agent owes fiduciary duties to each of
its principles. Dulan v. Montana National Bank (1983), 203
Mont. 177, 182, 661 P.2d 28, 30. These duties require the
agent to walk a fine line between the conflicting interests
of the parties to a contract for deed placed in its
possession. For this reason, it is of the utmost importance
that the escrow agent remain impartial to both sides by
strictly following the instructions of the escrow contract.
First National Bank & Trust breached its duty of
impartiality when it failed to strictly follow the directions
of the escrow agreement. The agreement instructed the bank
to receive payments from Turbiville and to distribute those
payments in a certain fashion. The contract made no mention
of the need to take any action to collect payments. Even so,
First National took it upon itself to call TurbivilLe
whenever a payment was late. In so doing, the bank exceeded
its role as defined by the escrow agreement and became, in
effect, a collection agent for the Hansens, rather than a
mere depository.
Since the bank went beyond the confines of the escrow
agreement on behalf of the sellers, it should not be able to
shield itself behind the wording of the contract to justify
its failure to verify the existence of a default before
surrendering the documents in its possession. The affidavi.t
presented to the bank stated only that notice of default had
been mailed to Turbiville; there was no indication that
notice had been sent by certified mail as required by the
contract for deed. Furthermore, the notice itself only
vaguely referred to the particulars of the default. The
least the hank should have done under the circumstances was
call Turbiville to see that she had received the notice and
to clarify the terms of the default.
Sharon Turbiville paid approximately $165,000 toward the
purchase of the State Line Club. The bank, as escrow agent,
held the deed to the club in trust for her. It breached its
trusteeship by failing to maintain an impartial stance
between Turbiville, as the buyer, and the Hansens, as the
sellers of the State Line Club.
For these reasons, I would reverse the District Court's
order for summary judgment.