Horton v. Horton

695 P.2d 102, 1984 Utah LEXIS 968

• Court: Utah Supreme Court
• Decided: December 4, 1984
• Docket: 18712
• Status: Published

Opinions

HALL, Chief Justice:

Defendant Majestic Investment Company of Denver dba Majestic Mortgage Company (Majestic) appeals from a district court judgment setting aside a quitclaim deed from plaintiff Dwaine C. Horton to defendant Virginia Horton as void ab initio. Majestic also appeals a determination that plaintiff’s interest in the subject property has priority over Majestic’s interest. We affirm.

During their marriage, plaintiff Dwaine C. Horton and defendant Virginia H. Horton acquired a house in Bountiful, Utah. In December 1977, as part of a divorce decree, Mrs. Horton was awarded title to the house subject to an equity interest of $30,000 in Mr. Horton due and owing to him at the time his children left home or reached age 21. Mr. Horton’s name remained on the title to secure his interest. In May 1978, Mrs. Horton sought a loan from First Security Bank to build a swimming pool and retaining wall and to complete landscaping around the house. The bank advised Mrs. Horton that Mr. Horton’s signature would be required on the loan documents since he was a record titleholder. Mr. Horton refused to sign the papers for some time, but after pressure from Mrs. Horton and his children, a threat of legal action by Mrs. Horton to force him to sign and advice from his attorney, Dwaine Horton agreed to sign a deed of trust with Mrs. Horton to obtain a loan of $35,000.

Mrs. Horton used only a portion of the borrowed money for construction and landscaping purposes. The remainder, $20,000, was lent to a small business with which she was involved. Within ten days after the loan, the business went under and the proprietor left the country with the money. In order to pay off the construction and landscaping creditors, Mrs. Horton, in September 1978, arranged a second loan from Murray First Thrift for the sum of $51,000. Mr. Horton again agreed to subordinate his lien and signed the loan application. Mrs. Horton used $20,000 from this loan to pay off her outstanding bills. The remaining $30,000 was invested in another company with which Mrs. Horton was involved called Geo-Thermal Electric Company.

While seeking a business loan for GeoThermal at Deseret Financial in Ogden, Mrs. Horton was urged by her business colleagues and by Dix Buckway and John Larry, officers of Deseret Financial, to obtain a consolidation loan of $112,500 for the purposes of paying off the first two house loans and of having additional money to invest in Geo-Thermal. Mrs. Horton agreed to do this and pursued the consolidation loan. Deseret Financial was unable to make the loan, so Buckway arranged with Erwin Rohleder to broker the loan through Majestic.

Rohleder was not employed by Majestic at that time, but was negotiating for a job. Since Majestic did not allow nonemployees to broker loans for the firm, an employee and friend of Rohleder’s, Patrick Vaculin, manager of Majestic’s Salt Lake office, was the official broker. Majestic prepared all of the documents for the loan, and Majestic offices were used for signing them. Rohleder, however, handled the entire transaction and received a fee for his services. He was later employed by Majestic.

Mrs. Horton received the consolidation loan in her own name, a quitclaim deed from Mr. Horton to Mrs. Horton having somehow been obtained. Mrs. Horton paid off the loans to First Security and Murray First Thrift and, for unexplained reasons, paid John Larry of Deseret Financial $10,-000 for having cosigned the consolidation loan and paid Dix Buckway of Deseret Financial a fee for processing the loan. Mrs. Horton ended up with approximately $7,000, which was immediately invested in Geo-Thermal. Geo-Thermal very soon thereafter went out of business, and Mrs. Horton’s invested funds were lost. Deser-et Financial also went bankrupt soon thereafter, and neither Buckway nor Larry was available at trial.

The testimony as to how, when and where the quitclaim deed was obtained from Mr. Horton is at odds. Mr. Horton testified that although the signature on the deed was his, he had never seen that deed, had never intended to sign such a deed or to give up his interest in the property, and did not do so knowingly. He further testified that at the meeting with Rohleder and Mrs. Horton he was given a stack of papers to sign, which he was led to believe by Rohleder and his wife were the final papers for the Murray First Thrift loan, and that the top paper was a loan document. He repeatedly stated that he had trusted his wife and believed he could rely on her representations. Mrs. Horton testified that she knew nothing about the quitclaim deed until Rohleder called her and told her he had it and could process the loan without the need for Horton to sign. Mrs. Horton further testified that she had no intention of having Horton give up his interest in the house or sign a quitclaim deed. She specifically testified that she thought that since the house was appraised for $200,000, even in the event of foreclosure on the $112,500 loan, Mr. Horton’s $30,000 interest was secure. Rohleder testified that the deed, dated November 21, 1978, was signed in Majestic’s office that night after he, Rohleder, had explained the deed very carefully to Horton. Rohleder admitted that the deed was not acknowledged in the presence of a notary, but claimed that it was notarized the night it was signed. Both Mr. and Mrs. Horton testified that the night they were in Majestic’s office was November 1, 1978, not November 21, the date on the deed. The date was significant to both because it was the night before Mr. Horton was to remarry, which he did on November 2. Further, both Mr. and Mrs. Horton testified that it was important that Horton sign the loan papers before his remarriage since his wife-to-be was opposed to his signing any more loan documents for the benefit of Mrs. Horton after Horton was married to the new Mrs. Horton. The deed recited that Horton was an unmarried man, which he was not on November 21.

The notary, Shelly Busha Fry, in a published deposition, testified that she had prepared the quitclaim deed, along with other loan papers, and had given them to Rohleder all together in a file. She also testified that in fact the deed was not notarized the night the Hortons were in Majestic’s office, but sometime later and that it was not signed in her presence. Mrs. Horton admits to filling in Mr. Horton’s name on the acknowledgment line.

In 1980, Mrs. Horton was unable to meet her mortgage payments, and Majestic proceeded to foreclose on the trust deed. A default judgment was obtained against Mrs. Horton, and the house was sold at a proper trustee’s sale.

Mr. Horton learned of the foreclosure proceedings from his son and, in the process, learned, allegedly for the first time, of the quitclaim deed and the third loan. Mr. Horton filed this action, claiming that the quitclaim deed was obtained from him by fraud and misrepresentation and should therefore be set aside and his equity interest in the house should be recognized. At trial, only three witnesses testified: Mr. Horton, Mrs. Horton and Erwin Rohleder. The trial court found that neither Mr. nor Mrs. Horton knew of the quitclaim deed at the time it was signed and did not intend to have Mr. Horton execute and deliver the quitclaim deed or give up his interest in the property. The court therefore ruled that the quitclaim deed was void ab initio and that Mr. Horton’s interest had priority over Majestic’s interest.

On appeal, Majestic first argues that the findings of the trial court finding fraud and setting aside the deed were not supported by clear and convincing evidence.¹ An action to avoid a deed is one in equity.² Therefore, this Court can review and weigh the evidence.³ However, the standard of appellate review in equity cases, even where the level of the proof in the trial court is clear and convincing evidence, is that of clear preponderance.⁴ Therefore, where the evidence is in conflict this Court will not upset the findings in the trial court unless the evidence so clearly preponderates against them that this Court is convinced that a manifest injustice has been done.⁵ We do not find that to be the ease here.

A finding of fraud must be based on the existence of all of its essential elements, i.e., a false representation of an existing material fact made knowingly or recklessly for the purpose of inducing reliance thereon, upon which there was reliance to the innocent party’s detriment.⁶ The trial court found the existence of all of these elements in this case. The evidence clearly supports the findings made. The trial court did not abuse its discretion by choosing to believe the testimony of the Hortons rather than the contradictory testimony of Rohleder and finding that the deed was obtained fraudulently.

Majestic also argues that the trial court found the quitclaim deed void based on the lack of proper acknowledgment. This argument evidences a misunderstanding of the court’s findings. The trial court clearly found that the deed should be set aside based on fraud in its making. The court’s finding with regard to the lack of acknowledgment is a finding that goes to and supports the finding of fraud.

The trial court also found however that neither Mr. Horton nor Mrs. Horton intended to have Mr. Horton execute and deliver a quitclaim deed or to have him give up his equity interest in the property.

The evidence also clearly supports the finding that there was no delivery of the deed. In Poulsen v. Ponteen,7 a case markedly similar in its pertinent facts, this Court held that where the quitclaim deed was not duly acknowledged there was no presumption of delivery.⁸ In that case, there was evidence that both the date and the typed version of the grantor’s name were added sometime after the signature. Further, there was evidence that the signature was not contemporaneously notarized and that the grantor did not appear before the notary who purported to take the acknowledgment. The Court therefore held that the deed was not duly acknowledged. The Court went on to hold, based on the facts of that case, that the grantor had met her burden of proof of no delivery.

Similar evidence is found in the record in this case. Both Hortons testified that the date on the deed was not the date they met with Rohleder. Mrs. Horton testified that she added Horton’s name in the acknowledgment space sometime after" that meeting. All the witnesses agreed that Horton did not appear before the notary and that the deed was not contemporaneously notarized.

Delivery or its absence is a question of fact.⁹ On review of questions of fact, this Court views the evidence and all the inferences that can reasonably be drawn therefrom in a light most supportive of the trial court’s findings.¹⁰ Those findings will not be disturbed when they are based on substantial, competent and admissible evidence.¹¹

The evidence presented by Majestic is that Rohleder and Mr. and Mrs. Horton were present when Horton signed the deed and that it was properly notarized immediately thereafter. Rohleder testified that he explained the quitclaim deed to Horton and told both parties that the loan would not go through with Horton’s name on the title. However, both Hortons testified that, while loan papers were signed at that meeting, no deed was signed or was intended to be signed and no explanation of a quitclaim deed was made. Rohleder admitted Mrs. Horton told him that after she knew of the quitclaim deed she still intended Horton to get his money. Horton suggested that the deed had been deliberately mixed in with the loan papers he was signing. Further, the notary never saw the deed signed and notarized the deed sometime after the signing, with Mrs. Horton filling in the acknowledgment section.

Based on the above testimony and more, the trial court’s findings were founded in substantial evidence and should not be disturbed. While we note that there was some evidence of delivery of the deed, the trial judge did not abuse his discretion by choosing to believe the testimony of the Hortons rather than the contradictory testimony of Rohleder.

Finally, Majestic contends that its mortgaged interest should not be subordinated to Horton’s equity interest. Majestic argues that even if the deed was not valid as a conveyance it nevertheless should be construed as an equitable mortgage to Majestic since Horton went to Majestic’s office with the intent to sign loan papers and therefore with the intent to subordinate his interest to Majestic’s interest. This argument has no merit. To say that a deed fraudulently obtained and set aside could serve as an equitable mortgage simply because Horton subordinated his interest on two previous loans and, at the time the deed was signed, was apparently signing loan papers stretches the bounds of reason. The issue before the trial court was not whether Horton intended to subordinate his interest in the first two loans, but whether he intended to subordinate his interest in the third, much larger loan.

In any event, the burden of proof is on the party claiming equitable mortgage, here Majestic, to show by clear and convincing evidence that the conveyance was intended as a mortgage.¹² Majestic failed to meet this burden. The trial court found that Horton intended to subordinate his interest only to First Security and Murray First Thrift and that the loan from Majestic to Virginia Horton was made without Horton’s knowledge or consent. The evidence does not clearly preponderate ¹³ against the findings of the court on this issue.

In fact, it is undisputed that Mr. Horton subordinated his interest to First Security and Murray First Thrift in order to acquire loans of $35,000 and $51,000 respectively. The balances owing on these two loans plus interest ($86,700) were paid from the proceeds of the Majestic loan. Thus, as a result of the fraudulent conveyance, Mr. Horton’s debt was cleared.

It is not the intent of equity actions such as this to punish a transgressor or to permit any party, whether innocent or not, to reap a benefit from the fraudulent transaction that he would not have reaped if the transaction had not taken place.¹⁴ The purpose of an equity action is to restore the parties to the status quo to the extent possible.¹⁵

It is generally accepted that he who seeks equity must do equity.¹⁶ Thus, in order that the fraudulently acquired quitclaim deed be set aside and Mr. Horton’s interest in the subject property restored to him, Mr. Horton must, to the extent possible, return to Majestic the benefits received by him that he otherwise would not have received. If Majestic had not paid off the balances owing on the two loans from First Security and Murray First Thrift to which Mr. Horton had voluntarily subordinated his $30,000 equity interest, Horton’s interest would still be subordinated to that amount.

Thus, equity requires that Majestic, having paid $86,700 to retire the mortgages to First Security and Murray First Thrift, should have priority over Mr. Horton to the extent of that amount.

The case is remanded to the trial court for modification of judgment in accordance with this opinion.

DURHAM, J., and JUDITH M. BILLINGS, District Judge, concur.

1 . See, e.g., Rasmussen v. Olsen, Utah, 583 P.2d 50 (1978).

2 . Del Porto v. Nicolo, 27 Utah 2d 286, 495 P.2d 811 (1972).

3 . Id.

4 . Bown v. Loveland, Utah, 678 P.2d 292 (1984); Abbott v. Christensen, Utah, 660 P.2d 254 (1983).

5 . Hatch v. Bastian, Utah, 567 P.2d 1100 (1977). See also Kiahtipes v. Mills, Utah, 649 P.2d 9 (1982); Nicolo, supra note 2.

6 . Sugarhouse Finance Co. v. Anderson, Utah, 610 P.2d 1369 (1980); Taylor v. Gasor, Inc., Utah, 607 P.2d 293 (1980).

7 . Utah, 672 P.2d 97 (1983).

8 . Id. at 99.

⁹

10 . Id. at 100.

¹¹

12 . Loveland, supra note 4. See also Baker v. Taggart, Utah, 628 P.2d 1283 (1981).

13 . See supra note 4.

14 . Pan Am. Petroleum & Transp. Co. v. United States, 273 U.S. 456, 47 S.Ct. 416, 71 L.Ed. 734 (1927); Ehrlich v. United States, 252 F.2d 772 (5th Cir.1958); Rosenthyne v. Matthews-McCulloch Co., 51 Utah 38, 168 P. 957 (1917).

15 . Id. See also 13 Am.Jur.2d Cancellation of Instruments § 37 (1964).

16 . Coleman Co. v. Southwest Field Irrigation Co., Utah, 584 P.2d 883 (1978); Carbon Canal Co. v. Sanpete Water Users Ass’n, 19 Utah 2d 6, 425 P.2d 405 (1967).