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Darryl Harris and Christine Harris, Husband and Wife v. the Bank of Commerce

March 29, 2013

DARRYL HARRIS AND CHRISTINE HARRIS, HUSBAND AND WIFE,
PLAINTIFFS-APPELLANTS,
v.
THE BANK OF COMMERCE, AN IDAHO CORPORATION, DEFENDANT-RESPONDENT, AND DUANE L. YOST AND LORI YOST, HUSBAND AND WIFE; DUANE L. YOST AS TRUSTEE OF THE DUANE L. YOST TRUST, DEFENDANTS.



Appeal from the District Court of the Seventh Judicial District of the State of Idaho, in and for Bonneville County. The Hon. Dane H. Watkins, District Judge.

The opinion of the court was delivered by: Eismann, Justice.

2013 Opinion No. 36

Stephen W. Kenyon, Clerk

The judgment of the district court is affirmed.

This is an appeal out of Bonneville County from a summary judgment upholding the validity of a bank's mortgage in real property that the plaintiffs had sold to the mortgagor in exchange for an interest in an investment account that turned out to be a Ponzi scheme. We affirm the judgment of the district court.

I. Factual Background.

Darryl and Christine Harris owned as community property approximately 80 acres of rural land in Bonneville County. In the summer of 2007, Mr. Harris began discussions with Duane Yost and Steve Crandall about developing the land. They contemplated having the Harrises sell 40 of the 80 acres to Mr. and Mrs. Yost and the Yosts and Harrises then transferring their respective 40-acre parcels into a limited liability company that would develop the land.

In furtherance of the contemplated development, Mr. Harris agreed to sell the 40 acres to Mr. Yost for $800,000. They both had accounts with the Trigon Group, Inc., an investment business. They agreed that Mr. Yost would pay for the property by transferring $800,000 of his account with the Trigon Group to Mr. Harris's account, which Mr. Yost did on October 1, 2007. At that time, they believed they had millions of dollars in their respective accounts. During the period from October 17, 2003, through October 14, 2008, Mr. Harris had invested over $6 million with the Trigon Group and had withdrawn about $2.3 million. In their 2007 financial statement, the Yosts stated that they had $18.5 million in their account with Trigon Group.

In September 2008, the Bank of Commerce met with the Harrises regarding loans that their sons were seeking in order to purchase the Harrises' business. The Bank wanted security for the loans, and as part of that process it had ordered an appraisal of the 80 acres. Mr. Harris informed the Bank that the appraisal should only be for 40 acres because the other 40 acres belonged to the Yosts. Mr. Harris explained that the documents for the transfer of the parcel to the Yosts had not been completed properly and that they were in the process of making sure that the county records reflected that the property was in the Yosts' names. In order to help their sons obtain the loan, the Harrises later signed a deed of trust granting the Bank a security interest in the 40 acres they retained.

As a result of the economic downturn in the latter part of 2008, the Bank was seeking to collateralize its unsecured loans. In April 2008, the Yosts had obtained a $2 million unsecured loan from the Bank, and in July 2008 they had obtained a short-term, $1 million unsecured loan. The latter loan was due in September, but the Bank extended the due date to October 15, 2008. The Yosts had intended to pay that loan by withdrawing funds from their account with the Trigon Group, but they had not yet received those funds. As they were working with the Bank to provide security for their loans, they realized that they had not received a deed to the 40-acre parcel. Despite a title commitment showing that the Harrises were the record owners of the property, in order to obtain security for the $1 million loan the Bank had the Yosts execute a deed of trust on November 21, 2008, which was recorded the same day. In late November, Mr. Yost told Mr. Harris that he needed a deed to the 40 acres to satisfy the Bank's demands for security. On November 25, 2008, Mr. Harris signed a quitclaim deed conveying the property to the Duane L. Yost Trust, and Mr. Yost recorded the deed on the same day.

The Bank's title company informed it that the property needed to be deeded to the Yosts, not to the trust, and that Mrs. Harris needed to sign the deed. The Bank prepared a corrected quitclaim deed, and on December 1, 2008, Mr. Yost and Mr. Harris met at attorney Robert Crandall's office. Mr. Harris signed the corrected deed, but he was unable to contact his wife to have her sign it. He then signed her name and left the deed with the attorney, who notarized both signatures and recorded the deed the following day. The Yosts also signed a deed of trust to the 40-acre property as security for their $2 million loan from the Bank. A few weeks later, Mr. Harris told Mrs. Harris that he had signed her name to the deed, and she responded by simply shrugging her shoulders and saying, "Okay." She testified that when he told her he had forged her name on the deed, it did not bother her and she trusted him because he knew what he was doing. She also testified that she did not do anything about it. Mr. Harris testified that he knew the Bank would rely on the corrected deed in securing its loan to the Yosts.

The Yosts had informed the Bank that they would be receiving money from the Trigon Group to pay their loans. In an effort to assist the Yosts, a group of investors in the Trigon Group and their accountants met with the Bank on December 8, 2008, and assured the Bank that the accountants had done due diligence, that Trigon Group was legitimate, and that although the economic downturn had damaged the fund, it still had $8 million to $10 million to return to investors.

On January 2, 2009, Messrs. Harris and Yost learned that the money they had invested with the Trigon Group was gone. Shortly thereafter, they learned that Trigon Group was a Ponzi scheme operated by Daren Palmer, who was later convicted of federal crimes.

On June 12, 2009, the Harrises filed this action against the Yosts, their trust, and the Bank. The Harrises alleged six claims for relief: (1) they had a vendor's lien in the 40 acres sold to the Yosts in the amount of the $800,000 sale price; (2) they had an equitable mortgage in that property securing the $800,000 sale price; (3) they were entitled to rescind the sale to the Yosts for lack or failure of consideration; (4) they were entitled to rescind the sale to the Yosts due to a mutual mistake that the Trigon Group was solvent; (5) with the rescission of the sale, they were entitled to judgment quieting their title in the property free of any claims of the Yosts or the Bank; and (6) the quitclaim deed to the Yosts could be construed as a mortgage pursuant to Idaho Code section 45-904. They also alleged that they were entitled to foreclose their vendor's lien, their equitable mortgage, and their deed construed as a mortgage. The Yosts did not appear in the action, and on October 16, 2009, the Harrises obtained a judgment against them and their trust for the allegedly unpaid purchase price of $800,000, plus interest, court costs, and attorney fees. The ...


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