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The Bank of Commerce v. Jefferson Enterprises, LLC

Supreme Court of Idaho

June 20, 2013

THE BANK OF COMMERCE, an Idaho banking corporation, Plaintiff-Counterdefendant-Respondent,
JEFFERSON ENTERPRISES, LLC, an Idaho limited liability company, Defendant-Counterclaimant-Appellant.

2013 Opinion No. 74

Appeal from the District Court of the Sixth Judicial District of the State of Idaho, Bannock County. Hon. Robert C. Naftz, District Judge.

The decree of foreclosure and judgment of the district court are affirmed.

Able Law PC, Pocatello, for appellant. A. Bruce Larson argued.

Nelson Hall Parry Tucker, P.A., Idaho Falls, for respondent. Brian T. Tucker argued.

J. JONES, Justice.

The Bank of Commerce ("Bank") instituted this action to foreclose two mortgages against the Pocatello real estate development of Jefferson Enterprises, LLC ("Jefferson"). Jefferson counterclaimed on a variety of grounds. The district court granted summary judgment in favor of the Bank, ordering foreclosure of the mortgages. We affirm.


In late 2005 and early 2006, Jefferson was engaged in the development of a large subdivision known as the Southern Hills Project (the "Project") in the City of Pocatello. At that time, a Jefferson entity owned an eighty acre parcel of land (the "Eighty Acre Parcel"), which was encumbered by a mortgage held by D.L. Evans Bank ("D.L. Evans"). Another Jefferson entity held an option to purchase an adjacent parcel of property known as the "Wood Parcel." The option on the Wood Parcel was set to expire on May 10, 2006, and the owners were unwilling to extend it. Jefferson considered the Wood Parcel to be critical to the success of the Project and began seeking financing for its acquisition in the final days of 2005.

Jefferson, acting through its managing member Dustin Morrison, initially sought financing through D.L. Evans, which held the mortgage on the Eighty Acre Parcel. Morrison proposed a loan of $2.8 million, which D.L. Evans declined although indicating a willingness to lend $2.2 million. On April 21, 2006, Morrison approached Steve Worton, a loan officer with the Bank, seeking a loan in the amount of $2.8 million. Morrison contends he submitted an application for funding in that amount, which proposed that the Bank take a first priority mortgage on the Wood Parcel and a second priority mortgage (behind D.L. Evans) on the Eighty Acre Parcel.[1] Morrison further alleges that there was an oral "pre-commitment" of sorts—that as part of the negotiations leading up to the approval of the loan the Bank agreed to take a second position mortgage on the Eighty Acre Parcel. However, Worton testified that beginning with their first conversation, Worton and Morrison understood the Bank would have a first position interest in both parcels. In any event, on the 9th of May the Bank's Board of Trustees approved a loan in the amount of $2, 223, 805, on the condition that the Bank have a first position security interest on both the Eighty Acre Parcel and the Wood Parcel.

Faced with the imminent expiration of the option to purchase the Wood Parcel, Morrison contacted D.L. Evans in an attempt to negotiate a subordination of its mortgage on the Eighty Acre Parcel. D.L. Evans would not agree to subordinate. Thus, in order to place the Bank in first position per the conditions of the loan, Jefferson had to pay off the existing mortgage before it could close on the Bank's loan. The loan closed on May 10, 2006. The initial note is in the principal amount of $2, 223, 805, dated May 9, 2006, and secured by a mortgage recorded on May 10, 2006. The following year, Jefferson gave the Bank an additional note, representing accrued interest on the first note. The second note is in the amount of $400, 000, [2] dated June 27, 2007, and secured by a mortgage recorded on June 27, 2007.

When Jefferson defaulted on the notes, the Bank filed this action to foreclose on its mortgages. Jefferson counterclaimed on a number of grounds. The Bank subsequently moved for summary judgment. The district court issued a memorandum decision and order on January 17, 2012, dismissing Jefferson's counterclaims and ordering the foreclosure of the Bank's mortgages. That same day, the district court issued a judgment that essentially summarized what it had done in the order and required that each party pay its own attorney fees and costs. The Bank timely moved for an award of attorney fees and costs, while Jefferson moved for reconsideration. On April 19, 2012, the district court entered: decisions denying the motion to reconsider and granting the request for attorney fees and costs; a decree of foreclosure ordering the sale of the mortgaged properties; and a judgment granting attorney fees and costs.[3] Jefferson filed a timely appeal.


I. Did the Bank breach an agreement to take a second position security interest in the Eighty Acre Parcel?

II. Did the Bank breach the implied covenant of good faith and fair dealing?

III. Did the Bank intentionally interfere with a prospective economic advantage?

IV. Did the Bank commit fraud?

V. Did the district court improperly dismiss Jefferson's promissory estoppel claim?

VI. Did the district court err in finding that a series of novations occurred?

VII. Did the district court err in determining that the Bank's mortgages should be foreclosed?

VIII. Is either party entitled to attorney fees on appeal?


A. Standard of Review.

This Court employs the same standard as the district court in reviewing a grant of summary judgment. Buku Properties, LLC v. Clark, 153 Idaho 828, 832, 291 P.3d 1027, 1031 (2012). Summary judgment is proper when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." I.R.C.P. 56(c). "If the evidence reveals no disputed issues of material fact, then only a question of law remains, over which this Court exercises free review." Conway v. Sonntag, 141 Idaho 144, 146, 106 P.3d 470, 472 (2005).

B. The Bank did not breach an agreement to take a second position security interest in the Eighty Acre Parcel.

Jefferson contends that the Bank agreed to take a second position security interest in the Eighty Acre Parcel and subsequently breached the agreement by requiring that it satisfy and discharge the D.L. Evans mortgage as a condition of obtaining the loan. It proffers two theories in support of this contention. Jefferson first alleges that the initial mortgage, which it signed on May 10, 2006 (the "Mortgage"), explicitly stated such an agreement. Alternatively, Jefferson contends that the parties reached some sort of pre-commitment oral agreement to that same effect.

1. The Mortgage.

Jefferson argues on appeal that "[t]he Mortgage provided that encumbrances of record, such as the [D.L. Evans mortgage], would have priority over the lien of the Bank's Mortgage." This contention is based on the following language in the Mortgage:
6. WARRANTY OF TITLE. Mortgagor covenants that Mortgagor is lawfully seized of the estate conveyed by this Mortgage and has the right to grant, bargain, convey, sell, and mortgage the Property and warrants that the Property is unencumbered, except for encumbrances of record. . . . .
8. PRIOR SECURITY INTERESTS. With regard to any other mortgage, deed of trust, security agreement or other lien document that created a prior security interest or encumbrance on the Property and that may have priority over this Mortgage, Mortgagor agrees:
A. To make all payments when due and to perform or comply with all covenants.
B. To promptly deliver to Lender any notices that Mortgagor receives from the holder.
C. Not to make or permit any modification or extension of, and not to request or accept any future advances under any note or agreement secured by, the other mortgage, deed of trust or security agreement unless Lender consents in writing.

In essence, Jefferson's argument is that since these two provisions make reference to existing encumbrances, the Bank's Mortgage was subject to any existing encumbrance, including the D.L. Evans mortgage.

The Bank counters that this argument was not raised in district court and should not be considered on appeal. The Bank presents a series of other counterarguments in the alternative―that the Mortgage does not say what Jefferson claims it does; that there were no existing encumbrances to be subordinate to at the time the Mortgage was executed; and that the Mortgage was not subscribed by the Bank and thus is barred by the Statute of Frauds.

This Court has repeatedly held: "To properly raise an issue on appeal there must either be an adverse ruling by the court below or the issue must have been raised in the court below, an issue cannot be raised for the first time on appeal." Garner v. Bartschi, 139 Idaho 430, 436, 80 P.3d 1031, 1037 (2003) (quoting McPheters v. Maile, 138 Idaho 391, 397, 64 P.3d 317, 323 (2003)). Thus, since ...

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