Top 10 Business Law Cases From the Past Year (2013)

“Top 10 Business Law Cases From the Past Year”
Business & Corporate Law Section Annual CLE
May 17, 2013
Wendy Gerwick Couture

Gatz Props., LLC v. Auriga Capital Corp., 59 A.3d 1206
(Del. Nov. 7, 2012).

(Del. Nov. 7, 2012).
Section 15 of the LLC Agreement
Neither the Manager nor any other
Member shall be entitled to cause
the Company to . . . enter into any
additional agreements with
affiliates on terms and conditions
which are less favorable to the
Company than the terms and
conditions of similar agreements
which could then be entered into
with arms-length third parties,
without consent of a majority of the
non-affiliated Members . . .

(Del. Nov. 7, 2012).
Section 15 of the LLC Agreement
Neither the Manager nor any other
Member shall be entitled to cause
the Company to . . . enter into any
additional agreements with
affiliates on terms and conditions
which are less favorable to the
Company than the terms and
conditions of similar agreements
which could then be entered into
with arms-length third parties,
without consent of a majority of the
non-affiliated Members . . .
o No magic words are
necessary
o Viewed functionally,
this is the contractual
equivalent of the
entire fairness
standard of conduct
and judicial review

(Del. Nov. 7, 2012).
Chancellor Strine: “Thus, because the LLC Act provides for principles of equity to
apply, because LLC managers are clearly fiduciaries, and because fiduciaries owe
the fiduciary duties of loyalty and care, the LLC Act starts with the default that
managers of LLCs owe enforceable fiduciary duties.”

(Del. Nov. 7, 2012).
Section 18-1101 (c) - To the extent that, at law or
in equity, a member or manager or other person
has duties (including fiduciary duties) to a limited
liability company or to another member or
manager or to another person that is a party to
or is otherwise bound by a limited liability
company agreement, the member's or manager's
or other person's duties may be expanded or
restricted or eliminated by provisions in the
limited liability company agreement; provided,
that the limited liability company agreement may
not eliminate the implied contractual covenant of
good faith and fair dealing.

(Del. Nov. 7, 2012).
Section 18-1101 (c) - To the extent that, at law or
in equity, a member or manager or other person
has duties (including fiduciary duties) to a limited
liability company or to another member or
manager or to another person that is a party to
or is otherwise bound by a limited liability
company agreement, the member's or manager's
or other person's duties may be expanded or
restricted or eliminated by provisions in the
limited liability company agreement; provided,
that the limited liability company agreement may
not eliminate the implied contractual covenant of
good faith and fair dealing.
Section 1104 - In any case
not provided for in this
chapter, the rules of law and
equity, including the law
merchant, shall govern.

(Del. Nov. 7, 2012).
X
Mere Dictum
“*I+t was improvident and unnecessary
for the trial court to reach out and
decide, sua sponte, the default fiduciary
duty issue as a matter of statutory
construction. . . . *T+hat court’s
pronouncements must be regarded as
dictum without any precedential value.”

(Del. Nov. 7, 2012).
X
LLC Act is Ambiguous
“*T+he merits of the issue whether the LLC statute
does—or does not—impose default fiduciary duties
is one about which reasonable minds could differ.
Indeed, reasonable minds arguably could conclude
that the statute—which begins with the phrase,
“* t ]o the extent that, at law or in equity, a member
or manager or other person has duties (including
fiduciary duties)”—is consciously ambiguous.”

(Del. Nov. 7, 2012).
X
Call to Action
“That possibility suggests that the
‘organs of the Bar’ (to use the trial
court's phrase) may be well advised
to consider urging the General
Assembly to resolve any statutory
ambiguity on this issue.”

(Del. Nov. 7, 2012).
RESPONSES
Vice Chancellor Laster:
“Until the Delaware Supreme Court
speaks, the long line of Court of
Chancery precedents and the
Chancellor's dictum provide
persuasive reasons to apply fiduciary
duties by default to the manager of a
Delaware LLC. As the managing
member of Oculus, AK–Feel starts
from a legal baseline of owing
fiduciary duties.”
Feeley v. NHAOCG, LLC, 62 A.3d 649,
663 (Del. Ch. 2012).

(Del. Nov. 7, 2012).
RESPONSES
Vice Chancellor Laster:
“Until the Delaware Supreme Court
speaks, the long line of Court of
Chancery precedents and the
Chancellor's dictum provide
persuasive reasons to apply fiduciary
duties by default to the manager of a
Delaware LLC. As the managing
member of Oculus, AK–Feel starts
from a legal baseline of owing
fiduciary duties.”
Feeley v. NHAOCG, LLC, 62 A.3d 649,
663 (Del. Ch. 2012).
Amendment Proposed by the
Corporation Law Section of the
Delaware State Bar Association:
Section 18-1104 would be amended to
read:
In any case not provided for in the
chapter, the rules of law and equity,
including the rules of law and equity
relating to fiduciary duties and the law
merchant, shall govern.

Paul v. Del. Coastal Anesthesia, LLC, No. 7084-VCG,
2012 WL 1934469 (Del. Ch. May 29, 2012) (unpublished).

LLC Operating
Agreement
“A member can be
terminated without
cause at any time upon
ninety (90) days written
notice by . . . the
Company acting by vote
of seventy-five percent
(75%) of the holders of
the Company’s shares.”

LLC Operating
Agreement
“A member can be
terminated without
cause at any time upon
ninety (90) days written
notice by . . . the
Company acting by vote
of seventy-five percent
(75%) of the holders of
the Company’s shares.”
ISSUE: Could the
members act via
written consent
rather than at a
member meeting?

LLC Act 18-302
“Unless otherwise provided in a limited
liability company agreement, on any matter
that is to be voted on, consented to or
approved by members, the members may
take such action without a meeting,
without prior notice and without a vote if
consented to, in writing or by electronic
transmission, by members having not less
than the minimum number of votes that
would be necessary to authorize or take
such action at a meeting at which all
members entitled to vote thereon were
present and voted.”

LLC Act 18-302
“Unless otherwise provided in a limited
liability company agreement, on any matter
that is to be voted on, consented to or
approved by members, the members may
take such action without a meeting,
without prior notice and without a vote if
consented to, in writing or by electronic
transmission, by members having not less
than the minimum number of votes that
would be necessary to authorize or take
such action at a meeting at which all
members entitled to vote thereon were
present and voted.”
?

7.8. Notice of meetings
must be given to each
member “not less than
seven (7) days before the
date of the meeting.” The
notice must state the
“place, date, and hour of
the meeting, and in the
case of a special meeting,
the purpose or purposes
for which the meeting is
called.”
7.12. Members entitled to vote
shall have voting power in
proportion to their Membership
Shares. At a meeting of Members
at which a quorum is present, the
affirmative vote of Members
holding a majority of the
Membership Shares and entitled
to vote on the matter shall be the
act of the Members, unless a
greater number is required by the
Act.

7.8. Notice of meetings
must be given to each
member “not less than
seven (7) days before the
date of the meeting.” The
notice must state the
“place, date, and hour of
the meeting, and in the
case of a special meeting,
the purpose or purposes
for which the meeting is
called.”
7.12. Members entitled to vote
shall have voting power in
proportion to their Membership
Shares. At a meeting of Members
at which a quorum is present, the
affirmative vote of Members
holding a majority of the
Membership Shares and entitled
to vote on the matter shall be the
act of the Members, unless a
greater number is required by the
Act.
Operating Agreement does not “otherwise provide,” so as to preempt
the statutory default allowing actions by written consent.

Ross Holding & Magmt Co. v. Advance Realty Group,
LLC, No. 4113-VCN, 2013 WL 764688 (Del. Ch. March
7, 2013) (unpublished).

Ross Holding & Magmt Co. v. Advance Realty Group,
LLC, No. 4113-VCN, 2013 WL 764688 (Del. Ch. March
7, 2013) (unpublished).
“Rayevich cannot avoid liability simply by pointing out that he had no
discretion—as restricted by the ARG Operating Agreement—to vote as a board
members. He is correct that Cocoziello controlled his vote, but fiduciary duties
extend beyond voting. They may involve, for example:
• studying the proposed action,
• determining the appropriateness of the proposed action,
• setting forth a dissenting view to fellow board members, and
• in the proper circumstances, informing unit holders about the potential
adverse affects of a proposed action.”

Gerber v. EPE Holdings, LLC, No. 3543-VCN, 2013 WL
209658 (Del. Ch. Jan. 18, 2013) (unpublished).

“EPE”
Enterprise GP
Holdings, L.P.
GENERAL PARTNER
EPE Holdings, LLC

“EPE”
Enterprise GP
Holdings, L.P.
GENERAL PARTNER
EPE Holdings, LLC
DFI GP
Teppco GP
$1.1 billion in EPE
limited
partnership units

“EPE”
Enterprise GP
Holdings, L.P.
GENERAL PARTNER
EPE Holdings, LLC
DFI GP
Teppco GP
$1.1 billion in EPE
limited
partnership units
Common
Ownership

DRULPA 17-1101(d) – “*T+he partner's or other person's duties may
be expanded or restricted or eliminated by provisions in the
partnership agreement; provided that the partnership agreement
may not eliminate the implied contractual covenant of good faith
and fair dealing.”

LPA 7.9(c) – “Except as set forth in this Agreement,
neither the General Partner nor any other Indemnitee
shall have any duties or liabilities, including fiduciary
duties, to the Partnership or any Limited Partner . . .”

LPA 7.9(c) – “Except as set forth in this Agreement,
neither the General Partner nor any other Indemnitee
shall have any duties or liabilities, including fiduciary
duties, to the Partnership or any Limited Partner.”
Duties imposed
by LPA
Implied covenant of
good faith & fair
dealing

LPA 7.6(e) – Transactions involving the sale or purchase of partnership property
must be “fair and reasonable” to EPE.

LPA 7.9(a) – “*W+henever a potential conflict of interest exists or arises between
the General Partner or any of its Affiliates, on the one hand, and the Partnership
or any Partner, on the other hand, any resolution or course of action by the
General Partner or its Affiliates . . . shall not constitute a breach of this
Agreement . . . or of any duty stated or implied by law or equity, if the resolution
or course of action in respect of such conflict of interest is . . . approved by
Special Approval.”

Approval by a
majority of the
members of the
Conflicts Committee.

Approval by a
majority of the
members of the
Conflicts Committee.
Is there a “good
faith” overlay on the
Special Approval?

LPA 7.9(b) – “Whenever the General
Partner . . . takes any other action, or any
of its Affiliates causes it to do so, in its
capacity as the general partner of the
Partnership . . . then, . . . the General
Partner, or such Affiliates causing it to do
so, shall . . . take such other action in
good faith.”
Is there a “good
Special Approval?

good faith.”
Is there a “good
Special Approval?
Definition: “must believe that the
determination or other action is in
the best interests of the Partnership”

Subjective
standard
good faith.”
Is there a “good
Special Approval?

Subjective
standard
good faith.”
Is there a “good
Special Approval?
Implied contractual duty of good
faith and fair dealing

Subjective
standard
good faith.”
Is there a “good
Special Approval?
• Discretion must be exercised
reasonably
• Limited gap-filling tool that
allows court to impose
contractual terms to which
parties would have agreed had
they anticipated a situation that
they failed to address

Subjective
standard
good faith.”
Is there a “good
Special Approval?
• Discretion must be exercised
reasonably
• Limited gap-filling tool that
allows court to impose
contractual terms to which
parties would have agreed had
they anticipated a situation that
they failed to address
Good faith requirement
doesn’t impose an implied
condition of objectively
fair value

DelJack, Inc. v. U.S. Bank Nat’l Ass’n, No. 1:11-CV-65,
2012 WL 4482049 (D. Idaho Sept. 26, 2012).

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
For Deposit Only
/s/ DelJack, Inc.

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
For Deposit Only
/s/ DelJack, Inc.
I.C. 28-3-206(3)(c) – “A payor
bank . . . that takes the
instrument for immediate
payment over the counter
from a person other than a
collecting bank converts the
instrument unless the
proceeds of the instrument are
received by the indorser or
applied consistently with the
indorsement.”

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
I.C. 28-3-118(7) –
“*A+n action (i) for
conversion of an
instrument . . . must
be commenced
within three (3) years
after the cause of
action accrues.”

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
“You may not start a legal
action against us because
of any problem unless (a)
you have given us the
above notice [within 30
days after receipt of
account statements] and
(b) the legal action begins
within 1 year after we
send or make your
statement available to
you.”
I.C. 28-3-118(7) –
“*A+n action (i) for
conversion of an
instrument . . . must
be commenced
within three (3) years
after the cause of
action accrues.”

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
I.C. 28-1-302(a) – “Except as
otherwise provided in
subsection (b) of this section
or elsewhere in the uniform
commercial code, the effect of
provisions of the uniform
commercial code may be
varied by agreement.”

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
I.C. 28-1-302(a) – “Except as
I.C. 29-110(1) – “Every
stipulation or condition
in a contract . . . which
limits the time within
which he may thus
enforce his rights, is void
as it is against the public
policy of Idaho.

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
I.C. 28-1-302(a) – “Except as
I.C. 29-110(1) – “Every
stipulation or condition
in a contract . . . which
limits the time within
which he may thus
enforce his rights, is void
as it is against the public
policy of Idaho.
“The Court will resolve the issue by relying on the more specific
statute. Idaho Code 29-110 speaks specifically to the issue presented
here—the ability to contractually shorten limitations period. Idaho
Code 28-1-302 speaks more generally to the ability to modify
‘provisions of the uniform commercial code.’”

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
Actual Authority?
• “can be created by written or
spoken words or other
conduct of the principal
which, reasonable
interpreted, causes the agent
to believe that the principal
desires him so to act on the
principal’s account”

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
Actual Authority?
which, reasonable
FACT ISSUE

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
Actual Authority?
which, reasonable
FACT ISSUE
Apparent Authority?
• “exists when the principal
voluntarily places an agent in
such a position that a person
of ordinary prudence,
conversant with the business
usages and the nature of a
particular business, is
justified in believing that the
agent is acting pursuant to
existing authority”

2012 WL 4482049 (D. Idaho Sept. 26, 2012).
Actual Authority?
which, reasonable
FACT ISSUE
Apparent Authority?
• “exists when the principal
voluntarily places an agent in
such a position that a person
of ordinary prudence,
conversant with the business
usages and the nature of a
particular business, is
justified in believing that the
agent is acting pursuant to
existing authority”
NO TRIABLE ISSUE

MWI Veterinary Supply Co. v. Wotton, No. 1:12-CV-55,
896 F. Supp. 2d 905 (D. Idaho Sept. 14, 2012).

Asset Purchase
Agreement
• 5-year non-compete,
beginning on the day of
closing – June 8, 2007 –
and ending on June 8,
2012
Key Employee Employment
Agreement
• 2-year non-compete, beginning on the
date that employment ceased

Asset Purchase
Agreement
2012
Equitably
extended for 1
year
Agreement

Asset Purchase
Agreement
2012
Agreement
• Banned engaging in “the business of
veterinary orthopedic equipment
design, manufacture . . . *or+ selling”
Equitably
extended for 1
year

Asset Purchase
Agreement
2012
Agreement
Equitably
extended for 1
year
• Phrase has an unambiguous meaning: “implements
used on animals to correct or prevent injuries or
disorders of their bones or associated structures like
tendons and ligaments.” Therefore, under Idaho
contract law, cannot consider trade usage.

Asset Purchase
Agreement
2012
Agreement
Equitably
extended for 1
year
• Phrase has an unambiguous meaning: “implements
used on animals to correct or prevent injuries or
disorders of their bones or associated structures like
tendons and ligaments.” Therefore, under Idaho
contract law, cannot consider trade usage.
• Even when considered together with the APA, does
not predominantly involve the sale of goods. So, I.C.
28-2-202 does not allow trade usage to be used to
interpret this contract.

St. Luke’s Magic Valley Reg’l Med. Ctr. v. Luciani, 293
P.3d 661 (Idaho 2013).

P.3d 661 (Idaho 2013).
Magic Valley
Regional
Medical Center
Attorney A represented
it in litigation

P.3d 661 (Idaho 2013).
Magic Valley
Regional
Medical Center
it in litigation
St. Luke’s
Magic Valley
Regional
Medical Center
Effectively an
asset & liability
transfer
Sale and Lease Agreement
“*I+t is the intent of the Parties that all property and
interests of the Hospital whether real or personal,
tangible or intangible, be leased, sold, assigned,
licensed or transferred by [Twin Falls] County and the
[Magic Valley] Subsidiaries, as applicable, to [St.
Luke’s+, . . . whether or not reflected on the Hospital’s
Balance Sheet and whether known or unknown,
contingent or otherwise.”

P.3d 661 (Idaho 2013).
Magic Valley
Regional
Medical Center
it in litigation
St. Luke’s
Magic Valley
Regional
Medical Center
Effectively an
asset & liability
transfer
Attorney A
Asserted
claim for
legal
malpractice

P.3d 661 (Idaho 2013).
Magic Valley
Regional
Medical Center
it in litigation
St. Luke’s
Magic Valley
Regional
Medical Center
Effectively an
asset & liability
transfer
Attorney A
Asserted
claim for
legal
malpractice
CERTIFIED QUESTION: Is a legal malpractice claim that is
transferred to an assignee in a commercial transaction, along with
other business assets and liabilities, assignable?

P.3d 661 (Idaho 2013).
YES

P.3d 661 (Idaho 2013).
YES
Generally, claims are
assignable, but not
legal malpractice
claims for policy
reasons.

P.3d 661 (Idaho 2013).
YES
Policy reasons not
implicated here.
assignable, but not
legal malpractice
claims for policy
reasons.

P.3d 661 (Idaho 2013).
YES
Policy reasons not
implicated here.
In Bishop v. Owens, 272 P.3d
1247 (Idaho 2012), the Court
held that a legal malpractice
claim sounding in tort does not
survive the death of an injured
party.
assignable, but not
legal malpractice
claims for policy
reasons.

P.3d 661 (Idaho 2013).
YES
Policy reasons not
implicated here.
held that, at common law, a legal
malpractice claim sounding in
tort does not survive the death
of an injured party.
Survival and assignability are
different.
assignable, but not
legal malpractice
claims for policy
reasons.

P.3d 661 (Idaho 2013).
YES
Policy reasons not
implicated here.
different.
In MacLeod v. Stelle, 249 P.
held that actions of a personal
nature are not assignable, but
an injury that “lessens the
estate of the injured party
does survive and . . . is
assignable.”
assignable, but not
legal malpractice
claims for policy
reasons.

P.3d 661 (Idaho 2013).
YES
Policy reasons not
implicated here.
different.
In MacLeod v. Stelle, 249 P.
held that actions of a personal
nature are not assignable, but
an injury that “lessens the
estate of the injured party
does survive and . . . is
assignable.”
The alleged malpractice
substantially impacted the
value of the assets acquired.
assignable, but not
legal malpractice
claims for policy
reasons.

Mickelsen Construction, Inc. v. Horrocks, No. 38634-
2011, 2013 WL 1276523 (Idaho March 29, 2013).

2011, 2013 WL 1276523 (Idaho March 29, 2013).
Accelerated
Paving, Inc.
Mickelsen
Construction
Owed
$35K

2011, 2013 WL 1276523 (Idaho March 29, 2013).
Accelerated
Paving, Inc.
Mickelsen
Construction
Owed
$35K
Ms.
Horrocks
Agreed not to file
materialmen’s lien
Gave check, payable for
$35K, drawn on account of her
business, Sunshine Secretarial

2011, 2013 WL 1276523 (Idaho March 29, 2013).
Accelerated
Paving, Inc.
Mickelsen
Construction
Owed
$35K
Ms.
Horrocks
Gave check, payable for
$35K, drawn on account of her
business, Sunshine Secretarial
Agreed not to file
materialmen’s lien

2011, 2013 WL 1276523 (Idaho March 29, 2013).
I.C. 9-505(2) - In the following cases the agreement is invalid, unless the same or some
note or memorandum thereof, be in writing and subscribed by the party charged, or by
his agent. . . . : … A special promise to answer for the debt, default or miscarriage of
another, except in the cases provided for in section 9-506, Idaho Code.

2011, 2013 WL 1276523 (Idaho March 29, 2013).
Sunshine Secretarial Services, Inc. Jan. 8, 2009
Pay to the order of ____Mickelsen Construction_______$34,980.00.
DRAWEE BANK
For Accel. Lesa D. Horrocks

2011, 2013 WL 1276523 (Idaho March 29, 2013).
Sunshine Secretarial Services, Inc. Jan. 8, 2009
Pay to the order of ____Mickelsen Construction_______$34,980.00.
DRAWEE BANK
For Accel. Lesa D. Horrocks
Court: “There is nothing on the check indicating that either Ms.
Horrocks or Sunshine Secretarial agreed to guaranty any
obligation of Accelerated Paving to Mickelsen Construction.”

2011, 2013 WL 1276523 (Idaho March 29, 2013).
I.C. 9-506(2) - A promise to answer for
the obligation of another, in any of
the following cases, is deemed an
original obligation of the promisor,
and need not be in writing: . . .
Where the creditor parts with value,
or enters into an obligation, in
consideration of the obligations in
respect to which the promise is made,
in terms or under circumstances such
as to render the party making the
promise the principal debtor, and the
person in whose behalf it is made, his
surety.

2011, 2013 WL 1276523 (Idaho March 29, 2013).
surety.
Court: Overruling Reed v. Samuels, 249 P.
893 (1926), the value is not required to
inure to the benefit of the promisor, as long
as the promisee parts with value.

Court: Overruling Reed v. Samuels, 249 P.
893 (1926), the value is not required to
inure to the benefit of the promisor, as long
as the promisee parts with value.
2011, 2013 WL 1276523 (Idaho March 29, 2013).
surety.
Court: An agreement under I.C. 9-506(2)
and a guaranty are mutually exclusive
because a person cannot be both the
principal debtor and the guarantor.

Phillips v. Blazier-Henry, No.38666, 2013 WL 1458641
(Idaho April 11, 2013).

Complaint for Foreclosure
of Deed of Trust
Phillips &
Chance
Blazier-
Henry

of Deed of Trust
Phillips &
Chance
Blazier-
Henry
Default Judgment
Writ of Execution, with $87K owing

of Deed of Trust
Phillips &
Chance
Blazier-
Henry
Default Judgment
Sheriff’s Sale – sold lot 20 acres for $1,000

of Deed of Trust
Phillips &
Chance
Blazier-
Henry
Default Judgment
No credit
bid

of Deed of Trust
Phillips &
Chance
Blazier-
Henry
Default Judgment
No credit
bid
District Court Set Aside the Sale: “*T+his Court concludes that the disparity between the
value of the real property sold and the successful $1,000.00 price paid is so grossly
inadequate as to shock the judicial conscience.”

of Deed of Trust
Phillips &
Chance
Blazier-
Henry
Default Judgment
No credit
bid
Supreme Court reviewed
for abuse of discretion.

Court: The “shock the conscience” standard doesn’t apply in Idaho.

Rather, the standard stated in Fed’l
Land Bank of Spokane v. Curtis, 262 P.
877 (1927), applies in Idaho:
“As a general rule mere inadequacy of
consideration is not sufficient ground
for setting aside a sheriff’s sale, but it
is uniformly held that
gross inadequacy of consideration,
coupled with very slight additional
circumstance,
is sufficient.”

Rather, the standard stated in Fed’l
Land Bank of Spokane v. Curtis, 262 P.
877 (1927), applies in Idaho:
“As a general rule mere inadequacy of
consideration is not sufficient ground
for setting aside a sheriff’s sale, but it
is uniformly held that
gross inadequacy of consideration,
coupled with very slight additional
circumstance,
is sufficient.”
“Chance offers no
authority for the
proposition that an
attorney’s
misunderstanding of the
law constitutes a slight
additional circumstance
that, when paired with an
inadequate purchase price,
warrants setting a sheriff’s
sale aside.”

of Deed of Trust
Phillips &
Chance
Blazier-
Henry
Default Judgment
No credit
bid
Supreme Court reviewed
for abuse of discretion.
Supreme Court: “The order setting aside the sheriff’s sale and the judgment are
reversed.”

Insight LLC v. Gunter, No.38158, 2013 WL 1730149

6/19/06 – Summit executed IM (lender’s) mortgage

6/19/06 – Summit executed deed of trust in favor of Gunters (vendors)

6/20/06; 4:16 p.m. – deed from Gunters to Summit recorded

6/20/06; 4:17 p.m. – IM/Summit mortgage recorded

6/20/06; 4:18 p.m. – Gunter/Summit deed of trust recorded

I.C. 45-112 – A purchase money mortgage “has priority over all other liens
created against the purchaser, subject to the operation of the recording laws.”

As a matter of first
impression, the taking of
additional security on the
mortgage, beyond the
land being purchased, did
not destroy the purchase
money status of the
mortgage.

6/19/06 – Summit executed IM (lender’s) purchase money mortgage
6/19/06 – Summit executed purchase money deed of trust in favor of Gunters (vendors)
PMM
PMM
I.C. 55-812 – “Every conveyance of real property . . . is void as against any subsequent purchaser
or mortgagee of the same property, or any part thereof, in good faith and for a valuable
consideration, whose conveyance is first duly recorded.”

PMM
PMM
I.C. 55-812 – “Every conveyance of real property . . . is void as against any subsequent purchaser
or mortgagee of the same property, or any part thereof, in good faith and for a valuable
consideration, whose conveyance is first duly recorded.”
PRIOR
CONVEYANCE

PMM
PMM
Court: “Since the Gunters’ deed of trust was a subsequent
encumbrance, the only way it could take priority over the IM
mortgage as the first encumbrance . . . is if the Gunters were
the first to record. The Gunters were not the first to record.
Therefore, their deed of trust is junior to the IM mortgage.”
PRIOR
CONVEYANCE

Thank you!
Wendy Gerwick Couture
wgcouture@uidaho.edu

Top 10 Business Law Cases From the Past Year (2013)

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