No. 12262
I N THE SUPREME C U T O THE STATE O MONTANA
OR F F
1972
FIRST NATIONAL BANK O TWIN BRIDGES,
F
P l a i n t i f f and Respondent,
A T U H. §ANT and EDNA SANT,
RH R
Defendants and Appellants.
Appeal from: D i s t r i c t Court of t h e F i f t h J u d i c i a l D i s t r i c t ,
Honorable Frank E. B l a i r , Judge p r e s i d i n g .
Counsel o f Record:
For A p p e l l a n t s :
Landoe and Gary, Bozeman, Montana,
Ronald Olson argued, Bozeman, Montana,
For Respondent :
Chester L. Jones argued, V i r g i n i a C i t y , Montana,
Submitted: December 1, 1972
Decided :
PB?IR~~
PER CURIAM:
T h i s i s an a p p e a l from a judgment e n t e r e d i n t h e d i s t r i c t
c o u r t of t h e f i f t h j u d i c i a l d i s t r i c t , county of Madison, following
t r i a l t o the court s i t t i n g without a jury. Judgment w a s rendered
i n f a v o r of p l a i n t i f f F i r s t National Bank of Twin B r i d g e s , g r a n t i n g
i t f o r e c l o s u r e i n c l u d i n g c o s t s and r e a s o n a b l e a t t o r n e y f e e s ,
a g a i n s t defendants Arthur H. Sant and Edna S a n t , who had mortgaged
v a r i o u s r e a l and p e r s o n a l p r o p e r t y a s c o l l a t e r a l f o r a l o a n from
t h e bank.
H e r e i n a f t e r , p l a i n t i f f w i l l b e r e f e r r e d t o a s t h e Bank;
defendants w i l l b e r e f e r r e d t o a s Sant.
I t appears from t h e r e c o r d t h a t on J u l y 9, 1970, Sant owed
t h e Bank a b a l a n c e due on e x i s t i n g n o t e s and a l s o owed c r e d i t o r s a
c o n s i d e r a b l e amount o f money. O t h a t day, Sant signed and e n t e r e d
n
i n t o a mortgage w i t h t h e Bank whereby Sant gave t o t h e Bank a
mortgage on land i n Madison County t o s e c u r e payment of t h r e e promis-
sory notes. The f a c e v a l u e of t h e r e s p e c t i v e n o t e s was $17,690.62,
$12,968.74, and $2,788.05, w i t h each b e a r i n g i n t e r e s t a t t h e r a t e
of t e n p e r c e n t p e r annum. A t t h e time t h e mortgage was executed
and t h e n o t e s signed, t h e p r e s i d e n t of t h e Bank, P a r i s Robert,
p r e s e n t e d t o Sant z w r i t t e n plan e n t i t l e d '"Plan of P a r i s Robert",
f o r t h e disbursement of t h e funds made a v a i l a b l e t o Sant by v i r t u e
of t h e n o t e s t h a t had been signed, Sant signed t h e disbursement
p l a n and i t was mutually agreed t h e Bank would make t h e payments
t o t h e v a r i o u s c r e d i t o r s as p e r t h e disbursement schedule. The
schedule, p l a i n t i f f ' s e x h i b i t 5 , i s h e r e i n set f o r t h :
"(Plan of P a r i s Robert)
" ~ r t h u rH. Sant
Edna Sant
"July 9 , 1970 Work-out Statement
, -la * > k * $ c * * $ < * * * * * * * * * *
, o
I
"PAYING: WITH C S ADVANCES ON NOTES AT TWIN BRIDGES BANK
AH
F i r s t National Bank of Twin Bridges
Renewal of b a l a n c e s : d t 6/17/70 $1000.00
d t 6/16/70 1500.00
d t 8/20/69 4808.09
I n t e r e s t on above n o t e s : 26.48 $7334.57
Expense t o t h i s time: 50.00 $7,384.57
R u s s e l l Lepp and/or C o n t i n e n t a l O i l Co.
P a r t i a l payment
Williams Feed Co. D i l l o n : OLD $1821.59
'70 buys, 1160.00 2,981.59
Peavy co, Manhattan Bal $ 495.74 495,74
Robert Insurance Agency, Whitehall 717 717,OO
1st ~ a t ' Rank
l Great F a l l s - S p r i n k l e r 401.29
Idaho 1 s t Nat ' 1, ( S h e l l y ) (Bob Gibbons) Crawler t r a c t o r 357,40
Idaho 1st ~ a t ' l ,Idaho F a l l s Harvestor p o t a t o e 353.03
Main Note Due 2/5/71 11,690.62
"PAYING, w i t h Notes, owned by: b u t a s subdinated p a r t n e r s
in collateral:
C o n t i n e n t a l QilCo. v i a R u s s e l l Lepp (due 2/5/71) 2,788.05
A.R.Smith: Old n o t e $8240.00
I n t . above 728.74
1970 l e a s e 4000,OO $12,968.74
I n t . on Renewal from m a t u r i t y :
New n o t e matures 4/1/71 - - - ------- 12,968.7b.
$33,441.41
"APPROVED F R DISBURSEMENT
O 7/9/70
'IS/ Arthur H. Sant C o l l a t e r a l : 2nd Mortgage on RE.
Crop & Machinery
~ o r t g a g e dv i a s e c u r i t y
Agreement ,
3 Vehicles,"
Following t h e s i g n i n g of t h e t h r e e n o t e s , t h e mortgage, and
t h e disbursement schedule, a l l on J u l y 9 , 1970, seven checks were
w r i t t e n by P a r i s Robert on t h e " O f f i c e r ' s S p e c i a l Account" of t h e
F i r s t National Bank of Twin Bridges, i n t h e s e amounts:
PAYEE AMOUNT
R u s s e l l Lepp ........,........e..e$ 5,000.00
Williams Feed Co....,...... ...... 2,981.59
Peavy Co........... ........,.,..,. 495.74
Robert I n s . Agency ................ 647.00
1st M a t ' l Bank-Great F a l l s . . . . . , . . 401.29
Idaho 1st M a t ' l B a n k - S h e l l e y ..... 357.40
Idaho 1st at ' 1 Rank - Idaho F a l l s . .-353.03
One a d d i t i o n a l check was w r i t t e n by P a r i s Robert on t h i s
account payable t o t h e o r d e r of "Dcposj-t A r t Sant Acct" f o r $70.00.
This was explained a s t h e d i f f e r e n c e between t h e d e b t t o Robert
I n s u r a n c e Agency of W h i t e h a l l i n t h e amount of $717.00 l i s t e d i n
t h e "Plan of P a r i s Robert" and t h e check a c t u a l l y w r i t t e n t o
Robert Insurance Agency of $647.00.
The t r i a l c o u r t ' s Eindings of f a c t i n d i c a t e t h a t P a r i s
Robert i n making t h e seven disbursements t o c r e d i t o r s had c e r t a i n
n e g o t i a t i o n s w i t h t h r e e of t h e c r e d i t o r s without t h e knowledge o r
consent of Sant. A s a r e s u l t of t h e s e n e g o t i a t i o n s Robert caused
t h e following r e b a t e s t o b e made t o t h e Bank:
CREDITOR AMOUNT % O PY ET
F A MN
R u s s e l l Lepp $750.00 15%
Williams Feed Co, 364.32 20%
Peavy Company 100.00 20%
$19214.32
A t t r i a l P a r i s Robert t e s t i f i e d t h a t t h e n e g o t i a t i o n s w i t h
t h e s e t h r e e c r e d i t o r s concerning t h e r e b a t e s were simultaneous w i t h
t h o s e w i t h Sant r e g a r d i n g t h e loan. He d i d admit, however, t h a t
t h e y were n o t r e v e a l e d t o Sant.
The t r i a l c o u r t ' s Eindings of f a c t d i d n o t c o n s i d e r t h e
q u e s t i o n of whether t h e t h r e e c r e d i t o r s involved i n r e b a t e s knew
t h e Bank had o r w a s i n t h e p r o c e s s of o b t a i n i n g , secured n o t e s from
Sant c o v e r i n g t h e e n t i r e amount o f t h e indebtedness n o r whether
they knew P a r i s Robert was a c t i n g w i t h o u t ant's knowledge o r
consent i n seeking t h e r e b a t e s .
One of t h e t h r e e c r e d i t o r s , R u s s e l l Lepp, t e s t i f i e d t h a t
a t t h e time he agreed t o make t h e r e b a t e , h e f e l t he was under
p r e s s u r e t o t a k e what h e could g e t ,
From t h e r e c o r d , i t appears t h e n o t e s f o r $2,788.05 and
$12,968.74 were h e l d by t h e Bank and no a c t u a l disbursement was
made t o C o n t i n e n t a l O i l Co, v i a R u s s e l l 1,epp o r t o A , R . Smith,
both of whom were l i s t e d a s corresponding c r e d i t o r s t o t h e s e n o t e s
on t h e "plan of P a r i s R,obertl'. These p e n c i l n o t a t i o n s appear on
t h e r i g h t hand margins of t h e n o t e s :
NOTE AMOUNT NOTATION
$2,788.05 R u s s e l l Lepp-Whitehall
$12,968.74 A.R. Smith T r u s t
P a r i s Robert t e s t i f i e d t h e s e p e n c i l n o t a t i o n s were made by him
f o r t h e purpose of i n d i c a t i n g , although t h e Bank was payee on t h e
n o t e s , t h a t they were h e l d i n t r u s t f o r t h e two persons i n d i c a t e d ,
The f i n d i n g s of f a c t d i s c l o s e t h a t none of t h e t h r e e n o t e s
was p a i d on t h e due d a t e . A t t h e time t h i s f o r e c l o s u r e a c t i o n was
brought t h e only payments which had been made were $1,542.86 f o r
i n t e r e s t and $27.64 on t h e p r i n c i p a l . A.R. Smith d i e d p r i o r t o
commencement of t h e t r i a l . A f t e r t h e a c t i o n was commenced, an
a d d i t i o n a l $2,600 was c r e d i t e d t o t h e p r i n c i p a l of t h e $2,788.05 n o t e .
Two assignments of e r r o r a r e p r e s e n t e d on appeal. F i r s t ,
r e g a r d i n g t h e disbursements made t o c r e d i t o r s under t h e l a r g e s t
n o t e , Sant contends t h e Bank a s agent breached i t s f i c u c i a r y duty t o
Sant a s p r i n c i p a l , i n seeking and o b t a i n i n g r e b a t e s from t h r e e
c r e d i t o r s , and consequently t h e Bank i s e n t i t l e d t o no r e l i e f from
a c o u r t of e q u i t y . Second, w i t h r e g a r d t o t h e two s m a l l e r n o t e s ,
Sant contends t h e s e n o t e s were n o t supported by l e g a l c o n s i d e r a t i o n
and t h e Bank was n o t a p a r t y i n i n t e r e s t , consequently t h e Bank was
n o t e n t i t l e d t o judgment o r d e r i n g f o r e c l o s u r e ,
The f i r s t i s s u e p e r t a i n s only t o t h e l a r g e s t of t h e t h r e e
n o t e s and t h e disbursements made thereunder. The Bank on appeal
contends i t became S a n t ' s s p e c i a l agent only f o r t h e l i m i t e d purpose
o f d i s b u r s i n g funds t o c r e d i t o r s i n accordance w i t h t h e w r i t t e n
a u t h o r i t y Sant gave when he signed t h e "Plan of P a r i s Robert".
I n t h i s contention it i s correct. The Bank then contends t h e
d u t i e s of t h i s l i m i t e d o r s p e c i a l agency were c a r r i e d o u t and
discharged when t h e Bank's p r e s i d e n t wrote t h e checks t o t h e
seven c r e d i t o r s f o r t h e f u l l amounts of t h e i r r e s p e c t i v e d e b t s
and t h a t any p r i o r , contemporaneous, o r subsequent a c t i o n of
s e e k i n g r e b a t e s from t h e s e c r e d i t o r s was a s e p a r a t e f u n c t i o n i n
t h e i n t e r e s t of t h e Bank and n o t r e l a t e d t o o r i n breach of i t s
s p e c i a l agency d u t i e s t o Sant. I n t h i s contention, i t i s i n
error.
The g r a n t i n g of t h e l o a n , t h e payment of t h e c r e d i t o r s
under t h e "Plan of P a r i s Robert", and t h e t a k i n g of " r e b a t e s "
11
or expenses" from t h e c r e d i t o r s were n o t s e p a r a t e and d i s t i n c t
t r a n s a c t i o n s ; r a t h e r , they were i n e x t r i c a b l y r e l a t e d p a r t s of t h e
same t r a n s a c t i o n , I n l i g h t of t h e t o t a l . economic r e a l i t i e s of
t h e s i t u a t i o n then e x i s t i n g between S a n t , h i s c r e d i t o r s , and t h e
Bank, t h e s e p a r a t e and d i s t i n c t t r a n s a c t i o n s t h e o r y propounded by t h e
Bank i s n o t supported by t h e r e c o r d .
The f a c t t h e ~ a n k ' sagency s t a t u s was of a s p e c i a l o r
l i m i t e d c h a r a c t e r h a s been r e l i e d upon by t h e Bank t o support i t s
c o n t e n t i o n t h a t i t b o r e no f i d u c i a r y r e s p o n s i b i l i t i e s t o Sant.
This c o n t e n t i o n i s a l s o erroneous. The f a c t t h a t an agency r e -
l a t i o n s h i p i s of a l i m i t e d o r s p e c i a l n a t u r e does n o t e x t i n g u i s h
t h e f i d u c i a r y d u t y , b u t r a t h e r t h a t f i d u c i a r y duty i s l i m i t e d i n
scope and o p e r a t i o n t o t h e same degree a s t h e agency t o which i t
applies. V i r t u a l l y any r e l a t i o n s h i p between a p r i n c i p a l and agent
w i l l have some l i m i t a t i o n i n t h e degree of a u t h o r i t y and scope of
purpose, 3 C.J.S. Agency § 138, s t a t e s t h e g e n e r a l r u l e :
"As has been p o i n t e d o u t i n !j 1 of t h i s T i t l e ,
t h e r e l a t i o n s h i p e x i s t e n t between p r i n c i p a l and
agent i s a f i d u c i a r y one, demanding c o n d i t i o n s
of t r u s t and confidence, Accordingly, i n a l l
t r a n s a c t i o n s concerning o r a f f e c t i n g t h e s u b j e c t
m a t t e r of h i s a g e n c y , i t i s t h e d u t y of t h e agent
t o a c t w i t h t h e utmost good f a i t h and l o y a l t y f o r
t h e f u r t h e r a n c e and advancement o f t h e i n t e r e s t s
of t h e p r i n c i p a l . " (Emphasis added),
Tn t h e i n s t a n t case, the s u b j e c t m a t t e r of t h e agency
was of a s p e c i a l l i m i t e d n a t u r e , i . e , making disbursements t o
c r e d i t o r s d e s i g n a t e d under and i n accordance w i t h t h e "Plan of
P a r i s Robert". W f i n d t h e Bank d i d n o t " a c t w i t h t h e utmost good
e
f a i t h and l o y a l t y f o r t h e f u r t h e r a n c e and advancement of t h e
i n t e r e s t s o f t h e p r i n c i p a l " Sant.
It would appear from t h e t r i a l c o u r t ' s asis is of Decision1',
p.2, para. VT, t h a t i t reached a s i m i l a r c o n c l u s i o n b u t f a i l e d
t o pursue i t on t h e ground of l a c k of a " c l e a r - c u t remedy". The
t r i a l court said:
"It must b e admitted t h a t t h e t r a n s a c t i o n s amount t o
unorthodox banking. I n f a c t , t h e bank i n e n t e r i n g
i-nto such t r a n s a c t i o n s w i t h o u t t h e knowledge o r con-
s e n t of t h e defendants s k a t e d on v e r y t h i n i c e and
t h e m a t t e r h a s t r o u b l e d t h e Court v e r y g r e a t l y , But
d e s p i t e i t s misgivings and i n t h e absence of a c l e a r -
c u t remedy t h e Court has h e l d t h e t r a n s a c t i o n s v a l i d
a s between a l l p a r t i e s t o t h i s a c t i o n . I I
3 C.J.S. Agency 5 139, e l a b o r a t e s f u r t h e r on t h e n a t u r e
of d u t i e s imposed by t h i s r e l a t i o n s h i p :
"An agent should n o t , without t h e knowledge of
h i s p r i n c i p a l , engage i n t r a n s a c t i o n s which tend
t o bring h i s personal i n t e r e s t i n t o c o n f l i c t with
h i s obl.igations t o h i s p r i n c i p a l , n o r should he
p l a c e himself i n a p o s i t i o n where h i s i n t e r e s t s
may become a n t a g o n i s t i c t o t h o s e of h i s p r i n c i p a l ,
o r s p e c u l a t e i n t h e s u b j e c t m a t t e r of t h e agency.
Also an agent should n o t , without a f u l l d i s c l o s u r e
o f t h e f a c t t o h i s p r i n c i p a l , seek compensation
from both p a r t i e s * * *,
" ~ l t h o u g h t h i s r u l e i s g e n e r a l l y h e l d adopted on
t h e ground of p u b l i c p o l i c y , c o u r t s have v a r i o u s l y h e l d
t h e t h e o r y t o b e based on 'moral o b l i g a t i o n ' , 1 p o s i t i v e
l a w ' , 1 p l a i n r e a s o n ' and a d e s i r e t o remove from t h e
agent a l l temptation t o n e g l e c t h i s p r i n c i p a l ' s i n t e r e s t . "
The p a r t i c u l a r circumstances and e x i g e n c i e s o f t h i s c a s e
are such t h a t t h e p r i n c i p l e of j u d i c i a l d i s c r e t i o n t o g r a n t
e q u i t a b l e r e l i e f g i v e s way t o j u d i c i a l duty t o g r a n t i t . Equity
follows t h e law i n a p p l i c a t i o n of f i d u c i a r y d u t i e s . 3 ~orneroy's
Equity J u r i s p r u d e n c e , 5 t h Ed,, 3 959, p. 819, s t a t e s :
11P r i n c i p a l and Agent--Generally. Equity r e g a r d s and
t r e a t s t h i s r e l a t i o n i n t h e same g e n e r a l manner, and
with n e a r l y t h e same s t r i c t n e s s , a s t h a t of t r u s t e e
and b e n e f i c i a r y . The underlying thought i.s t h a t
an agent should n o t u n i t e h i s p e r s o n a l and h i s
r e p r e s e n t a t i v e c h a r a c t e r s i n t h e same t r a n s a c t i o n ;
and e a u i t v w i l l n o t ~ e r m i t him t o be exposed t o
temptatioA o r brought i n t o a s i t u a t i o n &here h i s
.'
p e r s o n a l i n t e r e s t s c o n f l i c t w i t h t h e i n t e r e s t s of
h i s p r i n c i a 1 and w i t h t h e d u t i e s h e owes t o h i s
principal (Emphasis added).
Tn Middlefork C a t t l e Co, v. Todd, 49 Mont. 259, 262, 141
P. 641, t h i s Court s t a t e d :
I1
Common honesty d e n i e s t o an a g e n t t h e r i g h t t o
p r o f i t a t t h e expense of h i s p r i n c i p a l by chicane and
m i s r e p r e s e n t a t i o n . I f t h e r e a r e any i n s t a n c e s wherein
t h e law and j u s t i c e a r e o u t of harmony, t h i s i s n o t
one of them, f o r t h e c o u r t s a r e of one opinion i n
d e c l a r i n g t h a t t h e u n f a i t h f u l agent under such circum-
s t a n c e s should be made t o d i s g o r g e t h e amount of t h e
p r o f i t so wrongfully r e a l i z e d . "
Here, t h e Bank, i n f a c t , made an a c t u a l cash o u t l a y of
$9,091.73 under t h e l a r g e s t n o t e . The t o t a l of t h e e i g h t checks
w r i t t e n by t h e Bank w a s $10,306.05, s u b t r a c t i n g t h e $1,214.32 i n
r e b a t e s l e a v e s $9,091.73. The remainder of $7,384.57 of t h e n o t e
i s a renewal of a p r e e x i s t i n g d e b t .
W a r e n o t h e r e h o l d i n g t h a t an a g e n t cannot d e a l s e p a r a t e l y
e
i f the f a c t s a r e disclosed. W a r e h o l d i n g t h a t h e r e , where t h e
e
p r i n c i p a l was charged $50 f o r expenses of s e t t i n g t h e m a t t e r up,
and where t h e agent was charging i n t e r e s t a t t e n p e r c e n t on t h e
money loaned, and t h e a g e n t was s e c r e t l y n e g o t i a t i n g a t t h e same
time w i t h c r e d i t o r s f o r o t h e r c o l l e c t i o n f e e s i n t h e form of
d i s c o u n t s o r r e b a t e s , t h e f a i l u r e t o d i s c l o s e i s a breach of duty
owing between t h e agent and h i s p r i n c i p a l ,
Therefore we hold a s t o t h e n o t e f o r $17,690.62, Sant
was e n t i t l e d t o a c r e d i t f o r t h e amount of $1,214.32, t h e r e b a t e s
mentioned h e r e t o f o r e .
Sant a t t h i s p o i n t urges t h a t under what h e c a l l s t h e
"clean hands" d o c t r i n e , t h e a c t s of t h e Bank w e r e f r a u d u l e n t
and t h e r e f o r e t h e e n t i r e t r a n s a c t i o n i s v o i d ; thus Sant would be
excused from t h e d e b t . W keep i n mind h e r e t h a t t h e defense
e
was based upon claims of u s u r i o u s i n t e r e s t r a t e s which were
abandoned, and t h e p l e a d i n g s were deemed amended t o conform t o t h e
proof. The proof i n o u r view i s more i n t h e way of accounting,
I t was n o t t r i e d a s a c a s e on f r a u d ,
However, s i n c e t h e mortgage was based upon t h e n o t e and s i n c e ,
a s w i l l h e r e i n a f t e r a p p e a r , t h e o t h e r two n o t e s were f o r moneys
n o t due t h e Bank a t a l l , t h e s e c u r i t y of t h e mortgage f a i l s . The
underlying d e b t s , however, do n o t .
The second i s s u e p e r t a i n s t o t h e n o t e s f o r $2,788.05 and
$12,968,74 given by Sant t o t h e Bank under t h e "plan of P a r i s
Robert", The s u b - i s s u e s a r e : ( a ) Was t h e r e l e g a l c o n s i d e r a t i o n
t o support t h e s e i n d e n t u r e c o n t r a c t s ? (b) Was t h e Bank a r e a l
p a r t y i n i n t e r e s t so a s t o have s t a n d i n g t o sue f o r f o r e c l o s u r e
on them?
From t h e r e c o r d i t appears no disbursement was made by
t h e Bank t o Sant, A. R. Smith o r R u s s e l l Lepp under e i t h e r n o t e ,
Since t h e Bank paid no money under t h e s e two i n d e n t u r e c o n t r a c t s ,
Sant contends t h e y a r e n o t based on any l e g a l c o n s i d e r a t i o n , The
Bank contends t h a t under t h e s t a t u t e s and precedent of Montana law
a p r i o r e x i s t i n g d e b t can be c o n s i d e r a t i o n f o r a subsequent new
i n d e n t u r e instrument. The ~ank!s c o n t e n t i o n i s c o r r e c t and t h e r e
does appear t o have been a p r i o r indebtedness o f Sant i n f a v o r
o f A. R. Smith and R u s s e l l Lepp. However f o r t h i s t y p e of p r i o r
e x i s t i n g d e b t t o be v a l i d a s c o n s i d e r a t i o n , i t must be between
the parties to the contract. The Bank cannot r e l y on p r i o r e x i s t i n g
d e b t t o t h i r d p a r t i e s a s c o n s i d e r a t i o n f o r an i n d e n t u r e c o n t r a c t
between i t and S a n t , u n l e s s i n making t h e c o n t r a c t and s u i n g on i t ,
i t i s a c t i n g i n some c a p a c i t y of t r u s t e e s h i p , agency, o r p a r t n e r s h i p
f o r t h e two p a r t i e s whose p r i o r c r e d i t a g a i n s t Sant formed t h e
consideration f o r the contract.
Sant contends t h e Bank was never a c t i n g i n any c a p a c i t y
of j o i n t v e n t u r e , t r u s t e e s h i p , agency, o r p a r t n e r s h i p f o r A.R.
Smith o r R u s s e l l Lepp i n making t h e s e two i n d e n t u r e c o n t r a c t s o r i n
s u i n g f o r f o r e c l o s u r e on them. Looking back t o t h e "plan of P a r i s
Robert", t h e c a p t i o n thereon preceding t h e l i s t i n g of t h e n o t e
f o r $2,788.05 and t h e n o t e f o r $12,868.74 r e a d s :
"PAYING, w i t h Notes, owned by: b u t a s subdinated
partners i n collateral:"
it
The words owned by" e v i d e n t l y r e f e r s t o t h e Bank, s i n c e i t i s
t h e s o l e payee and had continuous possession of t h e n o t e s , The
word I'subdinated" i s n o t t o b e found i n t h e d i c t i o n a r y , p o s s i b l e
t h e intended word was subordinated. "Subdinatedtl a p p e a r s t o be
II
used a s an a d j e c t i v e which modifies t h e noun p a r t n e r s t 1 , This
then would i n d i c a t e t h a t A. R. Smith, R u s s e l l Lepp and t h e Bank
were i n some kind of a p a r t n e r s h i p concerning t h e s e two n o t e s .
N such r e l a t i o n s h i p i s evidenced on t h e f a c e of t h e n o t e s , which
o
show t h e Banlc a s s o l e payee. Nor does i t appear from t h e t e s t i -
mony of P a r i s Robert o r R u s s e l l Lepp t h a t t h e r e was any e x p r e s s
w r i t t e n o r o r a l agreement between A , R, Smith and t h e Bank nor
between R u s s e l l Lepp and t h e Bank c r e a t i n g a p a r t n e r s h i p , agency
or trust. There a r e only t h e p e n c i l n o t a t i o n s i n t h e margins of
t h e n o t e s and t h e e x p l a n a t i o n given of them by Robert, The b i n d i n g
e f f e c t of t h e s e n o t a t i o n s i s q u e s t i o n a b l e a t b e s t , The burden
of proof t o e s t a b l i s h t h e e x i s t e n c e of a t r u s t , p a r t n e r s h i p , j o i n t
v e n t u r e , agency o r any o t h e r such r e l a t i o n s h i p i s upon t h e p a r t y
who c l a i m s i t , T r u s t s must be founded on evidence which i s un-
mistakable, c l e a r , s a t i s f a c t o r y and convincing. Bender v. Bender,
144 Mont. 470, 397 P.2d 957; P l a t t s v. P l a t t s , 134 Mont. 474, 334
P.2d 722.
I n F i r s t S t a t e Bank v , Mussigbrod, 83 Mont. 68, 271 P,
695, c i t e d by t h e Bank, t h i s Court a f f i r m e d a f o r e c l o s u r e d e c r e e
i n a s u i t by one of t h r e e n o t e owners, where a l l t h r e e n o t e s were
secured by one mortgage. There, however, t h e Court d i d f i n d t h e
e x i s t e n c e of an e x p r e s s t r u s t between t h e t h r e e n o t e owners.
I n t h e i n s t a n t c a s e t h e Bank i s t h e owner of a l l t h e n o t e s ;
A.R, Smith and R u s s e l l Lepp own no i n t e r e s t b~hatsoever. Presumably,
t h e Bank would t u r n over t h e money r e a l i z e d i n a f o r e c l o s u r e on
t h e s e n o t e s t o t h e A . R. Smith E s t a t e and t o R u s s e l l Lepp. However,
if t h e Bank chose t o keep t h e money, Smith and Lepp n o t b e i n g
p a r t i e s t o t h e n o t e s and n o t having any e x p r e s s t r u s t , p a r t n e r s h i p ,
agency, j o i n t v e n t u r e o r o t h e r such r e l a t i o n s h i p w i t h t h e Bank,
would have no r e c o u r s e a g a i n s t t h e Bank. Since t h e r e was never
a n y r e l e a s e of t h e indebtedness siven t o Sant b y e i t h e r Smith o r
Lepp, t h e i r only r e c o u r s e would be a g a i n s t Sant on t h e o r i g i n a l
debt, W f i n d t h a t i t would be c o n t r a r y t o law and would ill
e
s e r v e t h e ends of j u s t i c e and e q u i t y t o all-ow f o r e c l o s u r e under
t h e s e circumstances,
W hold t h e r e f o r e , r e g a r d i n g t h e n o t e f o r $2,788.05 and
e
t h e n o t e f o r $12,968,74, t h a t they were n o t supported by l e g a l
c o n s i d e r a t i o n between p a r t i e s t o them and t h a t p o r t i o n of t h e
l i e n of t h e mortgage which s e c u r e s them should be r e l e a s e d . This
h o l d i n g does n o t a f f e c t any p r e e x i s t i n g o r p r e s e n t d e b t between
$ a n t and Smith, o r Sant and Lepp.
Summarizing t h e h o l d i n g o f t h e Court a s i t concerns a l l
t h r e e n o t e s between Sant and t h e Bank: Sant i s e n t i t l e d t o c r e d i t
i n t h e amount of $1,214.32 on t h e n o t e f o r $17,690.62. The Bank
i s n o t e n t i t l e d t o f o r e c l o s e on t h e n o t e s f o r $2,788.05 and
$12,968.74.
The judgment of t h e d i s t r i c t c o u r t i s v a c a t e d and t h e
cause i s remanded t o t h e d i s t r i c t c o u r t f o r f u r t h e r proceedings
c o n s i s t e n t herewith.