August 6, 2013, Utah Supreme Court Case Summaries

Insight Assets v. Farias, 2013 UT 47, No. 20110020 (August 6, 2013)

ISSUE: The Purchase Money Rule; Bona Fide Purchaser; Laches

Justice Nehring,

This case concerns the relative priorities of a vendor purchase money mortgage and a third-party purchase money mortgage, and the application of the doctrine of laches to purchase money mortgagees who fail to assert their claims in a timely manner. We conclude that, although Insight Assets, as vendor purchase money mortgagee, may have a superior claim of right, its claim is barred by the doctrine of laches, and accordingly affirm.

At ¶ 1.

The Court reviews the background of this case. Specifically: (1) the sale of the property to buyers financed in part by a bank loan and in part bay seller’s loan; (2) Bank’s recording of its trust deed prior to the recording of seller’s trust deed; (3) Bank’s foreclosure on the property and eventual sale to Defendant; and (4) Seller assignment of its trust deed to Plaintiff; (5) Plaintiff’s attempt to foreclose on its trust deed; and (6) the trial court’s determination that Defendant was a bona fide purchaser for value who took the property free of any encumbrances.

At ¶¶ 2-6.

Purchase Money Rule

 Insight Assets correctly asserts the general Purchase Money Rule: a vendor purchase money mortgage, more simply called seller financing, ordinarily takes priority over any other third-party purchase money mortgage, typically bank financing. “Where the contest is between a purchase money mortgage to a third person who advances part of the purchase price . . . and a purchase money mortgage to the vendor . . . for the balance, the latter is given preference even if he had notice of the former.” This is because, as the Restatement explains, “the equities favor the vendor.” The vendor not only parts with money but with specific real estate, which the vendor would not relinquish except for the understanding that the vendor will be able to use the relinquished real estate to satisfy the mortgage owed the vendor. “[T]he law is more sympathetic to the vendor’s hazard of losing real estate previously owned than to the third party lender’s risk of being unable to collect from an interest in real estate that never previously belonged to it.”

At ¶ 9.

This rule, however, is not absolute. As we stated in Kemp v. Zions First National Bank, “an examination of the authorities and the principles involved will show that the result actually depends upon the circumstances of the given case, the equities, and the effect of the recording act.”8 The Restatement also specifies that “where only one of the parties has notice of the other, the recording acts, rather than [the Purchase Money Rule], should govern and should award priority to the party lacking notice.”

At ¶ 10.

In Kemp, even though there was both a vendor purchase money mortgage and a third-party mortgage, this court turned its focus to the facts that the sellers “had given an unrestricted warranty deed, knowing that the financing bank was going to rely on it,” “the bank had neither actual nor constructive knowledge that the vendor retained an interest in the property,” and sellers, “who had failed to record their own mortgage . . . went to the bank and in effect approved the transaction by accepting their share of the proceeds therefrom, but without disclosing that they retained an interest.” In light of these facts, this court concluded that the third-party purchase money mortgage had priority.

At ¶ 11.

Insight Assets does not dispute that in order for the Purchase Money Rule to apply, the parties must have had notice of each other’s purchase money mortgage. On appeal, Insight Assets argues both that Bank had actual knowledge of the vendor purchase money mortgage (a question of fact), and that the title company’s knowledge of the vendor purchase money mortgage was imputed to Bank (a question of law).

At ¶ 13.

Bona Fide Purchaser

We disagree with Mr. Farias and the district court that he was a bona fide purchaser, because the fact that Sellers Trust Deed was recorded before the conveyance to Mr. Farias removes this case from the ambit of the Recording Act and the availability of relief to a bona fide purchaser. However, because we hold that the doctrine of laches bars Insight Assets’ claim, we need not determine, as a question of fact or of law, whether Bank knew of the vendor purchase money mortgage.

At ¶ 14.

Utah’s Recording Act provides:

Each document not recorded as provided in this title is void as against any subsequent purchaser of the same real property, or any portion of it, if: 

(1)   the subsequent purchaser purchased the property in good faith and for a valuable consideration; and 

(2)   the subsequent purchaser’s document is first duly recorded.

On its face, the Recording Act applies only to prior unrecorded interests. Here, Sellers Trust Deed was recorded in 2004—three years before the conveyance to Mr. Farias. There are no allegations that the recording was defective or improper in any way. Therefore, the appropriate analysis of the competing interests lies outside of the Recording Act.

At ¶ 16.

Laches

“The equitable doctrine of laches is founded upon considerations of time and injury. Laches in legal significance is not mere delay, but delay that works a disadvantage to another.” Laches is “based upon [the] maxim that equity aids the vigilant and not those who slumber on their rights.”

Insight Assets argues that laches is inapplicable because it filed its notice of default within the six year statute of limitations for obligations in writing. Insight Assets is correct that six years is the applicable statute of limitations for relief under the Trust Deed and we have stated that “it is the practically invariable rule that laches cannot be a defense before the statutory limitation has expired.” However, that rule is not absolute. It is also true that “[t]he doctrine of laches may apply in equity, whether or not a statute of limitation also applies and whether or not an applicable statute of limitation has been satisfied.” Both the Purchase Money Rule and mortgage foreclosure actions are equitable in nature and therefore subject to the equitable defense of laches, irrespective of whether the statute of limitations period has run

At ¶¶ 17-18.

“[L]aches has two elements: (1) a party’s lack of diligence and (2) an injury resulting from that lack of diligence.” Both elements are present here.

First, Insight Assets, as assignee of Sellers’ interest, lacked diligence in asserting its rights to the property. “The length of time that constitutes a lack of diligence depend[s] on the circumstances of each case.” Here, during the five years between Buyers’ default and Sellers’ assignment to Insight Assets, Sellers took no action to clarify or assert their rights to the property. Indeed, the priority of Sellers Trust Deed over the earlier-recorded Bank Trust Deed was dependent on the Purchase Money Rule, a multi-factor balancing test under which priority is determined by “the circumstances of the given case, the equities, and the effect of the recording act.” Thus, Sellers could not have rationally assumed that their interest had priority over Bank’s interest without having brought an action to determine priority. Because the foreclosure by a senior interestholder extinguishes a junior interest-holder’s security interest in the property, by failing to bring a claim during Bank’s foreclosure proceedings, Sellers risked forfeiting their security interest entirely. We can conceive of no explanation for Sellers’ inaction other than

lack of diligence.

Second, if we allowed Insight Assets’ untimely claim to proceed, Mr. Farias would be injured. Mr. Farias negotiated the price for his home without considering the $17,600 debt that Insight Assets claims is secured by the property. When Mr. Farias purchased the

property three years after Buyers’ default, it was reasonable for him to infer from Sellers’ inaction that their security interest had been extinguished by Bank’s foreclosure. In  addition, the passage of time has made it difficult for Mr. Farias to gather evidence in his defense. The linchpin of Insight Assets’ theory that its claim is entitled to priority under the Purchase Money Rule is the original third-party lender’s knowledge of the seller financing. However, the original third-party lender has gone out of business, and Mr. Farias has been unable to locate its records or its former employees who may have

information relevant to this case. Mr. Farias has also been unable to locate Buyers. In sum, the passage of time due to Insight Assets’ lack of diligence has injured Mr. Farias in his ability to defend this action.

Because Insight Assets and its predecessors in interest have slumbered on their rights, equity should not come to their aid. As such, the doctrine of laches bars Insight Assets’ claimed interest in the real property at issue in this case.

At ¶¶ 19-22.

Attorney Fees

The Court applies Hooban v. Unicity International, Inc., reciprocal fee shifting statute analysis to this case and determines that attorney fees are warranted.

At ¶¶ 24-25.

Torrie v. Weber County, 2013 UT 48, No. 20120500 (August 6, 2013)

ISSUE: Duty of Care to Fleeing Suspects

Justice Nehring,

This case presents an issue of first impression for this court—whether law enforcement owes a duty of care to fleeing suspects.  Under a plain language analysis of the governing statute, we hold that law enforcement officers engaged in pursuit owe a duty to all persons, including fleeing suspects.  The appellants, however, fail to meet their burden on appeal on their separate claim that Weber County owes a fleeing suspect a duty of care with respect to its law enforcement agency’s implementation of policies and procedures regarding vehicular pursuits and with regard to the training and supervision provided to its officers.

At ¶ 1. 

“’For a governmental agency and its agents to be liable for negligently caused injury suffered by a member of the public, the plaintiff must show a breach of a duty owed him as an individual, not merely the breach of a duty owed to the general public at large . . . .’”  The public duty doctrine precludes the imposition of a duty on a government entity with respect to specific individuals in the absence of a “specific connection between the government agency and the individuals that makes it reasonable to impose a duty.”  There are at least four circumstances that may create such a special relationship:

(1) by a statute intended to protect a specific class of persons of which the plaintiff is a member from a particular type of harm; (2) when a government agent undertakes specific action to protect a person or property; (3) by governmental actions that reasonably induce detrimental reliance by a member of the public; and (4) under certain circumstances, when the agency has actual custody of the plaintiff or of a third person who causes harm to the plaintiff.

The Torries argue that the first example applies here and that Deputy Harper had a statutory duty to use reasonable care in deciding whether to pursue Wayne and in his subsequent execution of that high speed pursuit.

At ¶ 10.

In analyzing whether a statutory duty exists, we look first to the statute itself and give effect to its plain language. . . . Utah Code section 41-6a-212, the statute providing exemptions to traffic laws for emergency vehicles, states in subsection (6) that “[t]he privileges granted under this section do not relieve the operator of an authorized emergency vehicle of the duty to act as a reasonably prudent emergency vehicle operator in like circumstances.”  Further, subsection (1)(b) of the statute states, “the operator of an authorized emergency vehicle may exercise the privileges granted under this section when . . . in the pursuit of an actual or suspected violator of the law,” indicating that the legislature intended the statute to apply to pursuits like the case at bar.  The legislatures’ failure to include a carve-out exception to the duty referenced in subsection (6) for fleeing suspects, an act which we consider to be deliberate on the part of the legislature, reinforces or determination that such a duty should therefore be imposed.

At ¶ 11.

Day [v. State ex rel. Utah Department of Public Safety] ultimately concluded that:

[t]he test is whether the driver of the emergency vehicle acted reasonably and with appropriate care for the safety of others in light of all the circumstances.  Among the factors that should be considered in deciding whether an officer acts with reasonable care for the safety of others using the highways and streets are the density of traffic and population of the area in which the pursuit occurs; whether the area is rural or urban; the nature of the street, e.g., whether freeway or city streets with stop signs and semaphores; the presence of pedestrians and school zones; the weather and visibility; and, of course, the urgency of apprehending the fleeing person and whether allowing that person to escape may itself pose a serious threat to the safety of others.

While we do not per se adopt this test in the case at bar, many of the enumerated factors will likely remain relevant on remand in this case.  Additionally, the Weber County Sheriff’s Office policy and procedures manual may be relevant in determining whether Deputy Harper’s pursuit of Wayne was reasonable.

At ¶¶ 15-16.

Under the law, the Torries are entitled to an opportunity to attempt to establish that Deputy Harper did not conduct his pursuit of Wayne “as a reasonably prudent emergency vehicle operator in like circumstances.” Therefore, we reverse the district court’s grant of summary judgment holding that Deputy Harper owed no duty to Wayne and remand for further proceedings.

At ¶ 18.

In light of the utter failure on the part of the Torries to independently brief any arguments supporting the imposition of either a statutory or common law duty with regard to Weber County, we do not decide that issue.

At ¶ 19.

Watkins v. Ford, 2013 UT 49, No. 20100802 (August 6, 2013)

ISSUE: Latent Ambiguity in a Contract; Abandonment of a Contract

Justice Parrish,

The Court outlines the trial court’s and Court of Appeals’ decisions

At ¶¶ 1-2.

We first hold that although the Vehicle Contracts contain a latent ambiguity, the latent ambiguity does not excuse either party’s performance under the Contracts because the parties’ intent aligned with respect to the vehicles to be bought and sold. We next hold that Henry Day abandoned the Vehicle Contracts by refunding Mr. Watkins’s deposit and by conveying its belief that the dealership would not get an allotment of the vehicles. However, because Henry Day’s representations regarding the possibility of receiving the

vehicles were ambiguous, the issue of whether Mr. Watkins abandoned his rights under the Vehicle Contracts requires a remand for additional factual findings. If the district court concludes that Mr. Watkins did not abandon the Contracts, it must then consider whether Mr. Watkins adequately mitigated his damages.

We accordingly affirm the court of appeals’ determination that the latent ambiguity in the Vehicle Contracts did not absolve the parties of their respective obligations and remand for a determination as to whether Mr. Watkins abandoned his rights under the Contracts and, if necessary, for a determination as to whether Mr. Watkins mitigated his damages.

At ¶¶ 3-4.

The Court reviews the background of this case

At ¶¶ 5-17.

Latent Ambiguity 

Even though the Vehicle Contracts referred to the sale of the Ford GT40, the court of appeals held that they should be interpreted to embrace the sale of the Ford GTs that were actually delivered to Henry Day. Despite the Contracts’ latent ambiguity, it reasoned that there was no question that the parties intended to contract for the sale and purchase of two Ford GTs—the moniker for the production version of the Ford GT40. Henry Day argues that “[g]iven the sophisticated business parties involved in the[] Contracts . . . the Contracts should be interpreted strictly on the[ir] plain language.” In contrast, Mr. Watkins argues that the parties used the term “GT40” to identify the vehicles he sought to purchase only “because that was its name at the time,” and that “Henry Day knew and understood that the GTs it received were the same model that Ford . . . had initially introduced as the Ford GT40.”

At ¶ 24.

We begin with Henry Day’s argument that the integration clause of the Vehicle Contracts prevents the consideration of extrinsic evidence regarding the alleged ambiguity. While we agree that the Contracts contain integration clauses,1 the integration clauses do not necessarily bar the introduction of extrinsic evidence. Tangren Family Trust v. Tangren, 2008 UT 20, ¶ 11, 182 P.3d 326. Despite a finding that an “agreement is integrated, . . . parol evidence may be admitted . . . if . . . the language of the agreement is ambiguous.” Id. (internal quotation marks omitted).

“When determining whether a contract is ambiguous, any relevant evidence must be considered” and “the better-reasoned approach is to consider the writing in light of the surrounding circumstances.” Ward v. Intermountain Farmers Ass’n, 907 P.2d 264, 268 (Utah 1995). We allow the introduction of relevant evidence regarding the existence of a potential ambiguity to prevent an “inherently one-sided [analysis] . . . based solely on the extrinsic evidence of the judge’s own linguistic education and experience.” Id. (internal quotation marks omitted). In this way, we can interpret a contract and any potential ambiguity in light of the parties’ intentions. See WebBank v. Am. Gen. Annuity Serv. Corp., 2002 UT 88, ¶ 17, 54 P.3d 1139 (“The underlying purpose in construing or interpreting a contract is to ascertain the intentions of the parties to the contract.”).

At ¶¶ 25-26.

“Utah’s rules of contract interpretation allow courts to consider any relevant evidence to determine whether a latent ambiguity exists in contract terms that otherwise appear to be [facially] unambiguous.“ Gillmor v. Macey, 2005 UT App 351, ¶ 35, 121 P.3d 57; see also 32A C.J.S. Evidence § 1514 (2013) (“Thus, a contract apparently unambiguous on its face may still contain a latent ambiguity that can only be exposed by extrinsic evidence.”). While a “[facial] ambiguity arises solely from the terms of the instrument, . . . a latent ambiguity is one not appearing upon the face of the instrument, but is developed by extrinsic evidence.” Conlam v. Doull, 9 P. 568, 569 (Utah Terr. 1886). A latent ambiguity “arises from a collateral matter when the document’s terms are applied or executed.” BLACK’S LAW DICTIONARY 93 (9th ed. 2009). By its very nature, a latent ambiguity is one that cannot be found within the four corners of the document but is only discoverable through the introduction of extrinsic evidence.

At ¶ 28.

Henry Day argues that the names “GT40” and “GT” may refer to different vehicles. But that proposition is simply not supported by the undisputed evidence. Jeremy Day, a co-owner and general manager of Henry Day, testified that “[t]he GT had earlier been introduced as the GT40.” Thus, the testimony supports the conclusion that when the Vehicle Contracts were executed, both parties were in agreement regarding the particular car for which they were contracting—the production version (eventually designated the Ford “GT”) of Ford’s concept car, the “GT40.”3 Because there is no dispute as to the identity of the vehicles for which the parties contracted, the latent ambiguity created by Ford’s subsequent name change does not excuse either party’s obligations under the Vehicle Contracts.

At ¶ 30.

Abandonment

Henry Day argues that abandonment involves either “the intentional relinquishment of one’s rights in the contract,” “acts or conduct of the parties inconsistent with the continued existence of the contract,” or “mutual abandonment” of the contract through mutual assent of the parties. Henry Day then reasons that the parties abandoned the Vehicle Contracts because Henry Day returned Mr. Watkins’s deposit, and Mr. Watkins deposited the refund check without objection.4

Mr. Watkins replies that waiver and abandonment of contract rights are substantially similar affirmative defenses and that both require the “intentional relinquishment of a known right.” He asserts that Henry Day’s December 31st letter unequivocally represented that the condition precedent to the Vehicle Contracts, the allocation of the contracted-for vehicles to Henry Day, had permanently failed. Mr. Watkins reasons that, because of the letter, he did not know that he still had rights that he could assert under the Vehicle Contracts, and he therefore deposited the refund check without objection. Henry Day counters that its December 31st letter was accurate at the time it was written and Mr. Watkins understood there remained a possibility that Henry Day could receive an allocation of the vehicles if it won a future Allocation Award.

At ¶¶ 31-32.

[A] contract is abandoned when one party “show[s] by unequivocal acts that he regard[s] the agreement as abandoned,” and the other party acquiesces. Id. at 701. Similarly, we have held that a contract may be abandoned by the parties’ express assent or through “acts or conduct of the parties inconsistent with the continued existence of the contract.” Parduhn v. Bennett, 2002 UT 93, ¶ 11, 61 P.3d 982 (internal quotation marks omitted); see also Harris v. IES Assocs., Inc., 2003 UT App 112, ¶ 37, 69 P.3d 297. In the latter circumstance, assent to abandon a contract need not be express. See Parduhn, 2002 UT 93, ¶ 11. Rather, “mutual assent to abandon . . . a contract may be inferred from the attendant circumstances and conduct of the parties.” Id. (internal quotation marks omitted). In all cases, abandonment must be “ascertained from all the facts and circumstances surrounding the transaction,” and the “proof of abandonment must be made by clear, unequivocal, and decisive evidence.”5 17B C.J.S. Contracts § 586 (2013).

At ¶ 33.

The December 31st letter [in which Henry Day expressed that it would not be receiving and Ford GTs, the condition precedent to the contract].is ambiguous It could have been interpreted as an unequivocal representation that the contingency had failed and Henry Day would never receive the contracted-for vehicles. Alternatively, it could have been interpreted as a representation that Henry Day would not receive any allocation of vehicles unless it did so pursuant to an Allocation Award that was yet to be made. Or, it could have been interpreted as a representation of Henry Day’s belief that Ford would not allocate any vehicles to the dealership.

Mr. Watkins’s actions in response to the letter can only be evaluated based on his understanding of what the letter meant in light of the information that he had at the time. But the district court did not make any factual findings in this regard. We therefore remand for a determination of Mr. Watkins’s understanding of Henry Day’s December 31st letter. If Mr. Watkins acquiesced in Henry Day’s abandonment understanding that Henry Day could never receive any vehicles, Mr. Watkins’s actions do not constitute the intentional abandonment of his rights under the Contracts. See McIrvin v. W. Side Unlimited Corp., No. 08-CV-127-LRR, 2010 WL 605651, at *13 (N.D. Iowa Feb. 18, 2010) (“Knowledge is an element of acquiescence: Acquiescence is where a person knows or ought to know that he is entitled to enforce his right or to impeach a transaction, and neglects to do so.” (emphasis added added) (internal quotation marks omitted)). If, however, Mr. Watkins acted with the knowledge that there remained a possibility that Henry Day could still potentially receive a vehicle through a future allocation award or, if he understood the letter merely as a statement of Henry Day’s belief at the time, his deposit of the check and renewed search for another dealer would constitute acts or conduct inconsistent with the continued existence of the Vehicle Contracts. See Parduhn, 2002 UT 93, ¶ 11.

On remand, the appropriate analysis is analogous to that in a case of contract reformation. In such cases, “[i]f a mistake on the part of one of the parties to an agreement is caused by the other, it may entitle him or her to avoid the [reformed] contract.” 17A C.J.S. Contracts § 183 (2013). Even “[a]n innocent misrepresentation on which one rightly relies may invalidate a contract [reformation] where it relates to a material matter.” Id. § 199.

At ¶¶ 38-40.