AETNA LIFE INS CO v MCELVAIN

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No. 85-08 IN THE SUPREME COURT OF THE STATE OF MOIVTANA 1986 AETNA LIFE INSURANCE COMPANY, a corporation, Plaintiff and Appellant, R. J. McELVAIN, JR., et al., Defendant and Respondent. APPEAL FROM: District Court of the Sixteenth Judicial District, In and for the County of Fallon, The Honorable Alfred B. Coate, Judge presiding. COUNSEL OF RECORD: For Appellant: Dorsey & Whitney; James Dorsey argued, Minneapolis, Minnesota For Respondent: Huntley & Eakin; Gene Huntley argued, Raker, Montana -- Submitted: November 6, 1985 Decided: April 22, 1956 Filed: APR 2 2 1986 Mr. Justice 1. , Court. C. Gulbrandson delivered the Opinion of the Aetna Life Insurance Company (Aetna) appeals the lower court's order in this case origin~lly brought by Aetna to foreclose on its first mortgage on certain Montana farmland. The Fallon County District Court ruled that Aetna foreclose but Shepherds, held the that Aetna second had could defrauded respondents mortgagees. The court awarded Shepherds the first $149,821.19 (plus $40,000 for attorney's fees) from the foreclosure sale of the ranch. raises issues of judgment whether collaterally relitigating the a estops South Dakota Shepherds district from issue of Aetna's alleged This appeal court successFully fraud; whether Shepherds had actual or constructive notice of the fraudulent scheme, which precludes them from recovering whether Western Farm Management Company for fraud; (Western Farm), a loan broker, was the agent of Aetna and, if so, whether the fraudulent acts of Western Farm are imputable to Aetna. We conclude that Shepherds cannot successfully allege fraud on Aetna's part because the South Dakota judgment collaterally estops them from relitigating this issue and because Shepherds had imputed knowledge of the fraudulent scheme. Thus, we reverse the District Court and remand this case for the entry of jud.gment in Aetna's favor. In 1979, Shepherds owned the Box Elder Ranch, which lies at the juncture of Montana, South Dakota and North Dakota and includes land in all three states. Shepherds, desiring to sell the ranch, listed it for sale with Ranch Mart, a realty agency, and employed Ranch Mart to find a buyer. In May 1979, McElvains agreed to buy the ranch and signed a buy/sell agreement. upon McElvains purchase. securing The agreement was contingent financing from Aetna for the The total sales price agreed upon was $1,385,000; $1,235,000 as payment for the ranch and $150,000 as payment for ranch machinery. Under the agreement, McElvains were to pay $1,100,000 in cash at the closing after securing a loan from Aetna in that amount. Shepherds agreed that Aetna would have the first mortgage (from McElvains) on the ranch with the understanding that Aetna's loan to McElvains would be for $1,100,000 and would not exceed that amount. The balance of the purchase price was to be secured by a second mortgage on the ranch from McElvains to Shepherds. Shepherds would not have entered this transaction if they had known that Aetna's loan to McElvains (and resulting mortgage) would be for an amount well in excess of $1,100,000. R.J. McElvain, Jr., one of the prospective buyers of the ranch, worked for Western Farm. Western Farm was a loan broker, helping people to arrange loans. R.J. McElvain, Jr., sought the help of a fellow Western arranging financing for McElvains ' Farm employee in purchase of the ranch. Western Farm agents contacted Shepherds at the ranch to inspect and appraise the property. Western Farm, through its agents and McElvains, knew that the agreed upon sales price was $1,385,000 and that the sale was contingent upon an Aetna loan to McElvains for $1,100,000. The mortgage loan application to Aetna, submitted in McElvains' name through Western Farm, stated that the total sales price for the ranch was $2,185,000. requested a loan from Aetna of $1,555,000. The application A forged buy/sell- agreement was also submitted to Aetna through Western Farm. Shepherds' s i g n a t u r e s were forged on the agreement. The agreement s t a t e d t h a . t t h e t o t a l s a l e s p r i c e wa.s $2,185,000. R.J. McElvain, J r . , who had worked f o r Western Farm, stated a t d e p o s i t i o n t h a t t h e f o r g e d b u y / s e l l agreement was s e e n i n Aetna approved a l o a n i n t h e t h e o f f i c e s o f Western Farm. t o t a l amount o f $1,555,000. The e f f e c t o f t h e l o a n was t h a t Aetna would have a f i r s t mortgage f o r $1.,555,000 on a r a n c h v a l u e d a t a p p r o x i m a t e l y $1,235,000. Thus, Shepherds' mortgage essentially for $135,000 O July n for mortgages on rendered 1979, F c E l v a i n s 6, and Shepherds $135,000, ranch secured property by in three the 1979. place agent, that Aetna Ranch had Mart, approved Shepherds' the d e p o s i t i o n , Wallace Mading, copy o f a Western Farm t o loan to R.J. second states. The The c l o s i n g t o o k received McElvains. l e t t e r r e c e i v e d by Ranch Mart. 1979. the notice A t his owner o f Ranch Mart, produced a McElvain, Jr., l o a n had been approved f o r $1,550,000. June 7, closed separate three documents were b a c k d a t e d t o June 2 9 , after worthless. McElvains e x e c u t e d a p r o m i s s o r y n o t e t o s a l e of t h e ranch. Shepherds was second The l e t t e r , stated that from t h e Aetna The l e t t e r was d a t e d Mading s t a t e d a t d e p o s i t i o n t h a t n e i t h e r h e , h i s s e c r e t a r y , nor t h e c l o s i n g a g e n t knew when t h e l e t t e r was r e c e i v e d by Ranch Mart. Ranch Mart r e c e i v e d t h e l e t t e r i n r e s p o n s e t o i t s r e q u e s t t o Western Farm t o n o t i f y Ranch Mart of t h e a p p r o v a l o f t h e l o a n . Mading agreed. t h a t , i n t e r m s o f Ranch M . a r t l s normal p r a c t i c e , Ranch Mart had received 1 - e t t e r b e f o r e t h e c l o s i n g on J u l y 6 , 1979. Mading t e s t i f i e d a t d e p o s i t i o n : ... I am s u r e t h a t I was aware t h a t Aetna L i f e I n s u r a n c e Company was g o i n g t o dollar be i n a m i l l i o n and a h a l f the mortgage p o s i t i o n , b u t I d i d n o t know I knew that this what all on p r o p e r t y was c e r t a . i n l y a p a r t o f it. ... Q. You d i d know t h e n t h a t t h e y were g o i n g t o have a mortgage i n e x c e s s o f a m i l l i o n and a h a l f d o l l a r s , and t h a t t h e i r mortgage would be s u p e r i o r t o t h e second mortgage o f t h e Shepherds? A. Yes, I am s u r e t h a t I would ha.ve, I would have been aware o f it j u s t t h e way you s a i d i t . Ranch H a r t a p p a r e n t l y d i d n o t t e l l Shepherds a b o u t t h e s i z e of Aetna's loan t o ~ c E l v a i n s . 1979, Aetna c l o s e d i t s l o a n t o McElvains O August 2 , n for $1,555,000. totaling notes) that in McElvains amount Aetna's mortgages and executed t h r e e promissory n o t e s three favor. three notes mortga.ges The and transaction so that a (to secure required mortgage the three could be r e c o r d e d i n e a c h one o f t h e t h r e e s t a t e s i n which t h e r a n c h is located. 1979, These f i r s t mortgages were i n t h e appropriate o f f i c e of r e c o r d e d August 2, the respective counties and s t a t e s . Shepherds recorded the three second mortgages as follows: on November 29, 1979, i n F a l l o n County, Montana; on November 30, December 3, 1979, 1979, i n Bowman County, North Dakota; and on i n Harding County, South Dakota. These mortgages e x p l i c i t l y r e c i t e d t h a t t h e y were Aetna's filed first a mortgages. satisfaction of O n January mortgage for mortgages given to Shepherds by underlying debt had not paid. been 24, Mading. R.onald Shepherd 1980, each McElvains, of testified Shepherds the three although Shepherds s a t i s f a c t i o n s of mortgage on t h e r e q u e s t o f Wallace subordinate t o filed the the their realtor, that Mading's r e a s o n f o r t h i s was t h a t Shepherds had m i s t a k e n l y f i l e d t h e i r mortgages ahead of Aetna and "they had to have it reversed." This reasoning apparently reflects that (I) part of Aetna's loan to McElvains was not to be disbursed until on or before February 28, 1980 (Shepherds' mortgages having been recorded in November and December of 1979); and (2) Aetna sought to amend its mortgages to show this disbursement (although this was not shown at trial). In any event, Shepherds filed three satisfactions of mortgage and then, in March 1980, filed three new second mortgages (otherwise identical to their prior mortgages) on the ranch land in the three states. These new second mortgages also explicitly recited that they were junior and subordinate to Aetna's first mortgage. McElvains were in default under the terms of the second mortgage as soon as the first payment became due. McElvains' default on the second mortgage to Upon Shepherds, Shepherds foreclosed the mortgage on the Montana property and purchased the Montana property at a sheriff's sale. Shepherds' received a sheriff's deed to this property after the period of redemption had passed. McElvains also defaulted on the three senior mortgages to Aetna. On July 10, 1981, Aetna filed this foreclosure action in Montana Montana mortgage. District Court, Fallon County, on the In August 1981, Aetna filed a foreclosure action in South Dakota on the South Dakota mortgage. Aetna filed a similar action in North Dakota on the North Dakota property. The North Dakota court entered summary judgment by default against Shepherds in October 1983. In July 1984, the North Dakota Supreme Court dismissed Shepherds' appeal of the summary judgment order. In the South Dakota action, Shepherds raised a defense alleging that Western Farm was the agent of Aetna and, as such, induced Shepherds to sell the ranch through fraudulent misrepresentations that Aetna would loan McElvains $1,100,000 and take a mortgage for that amount. because Aetna Shepherds asserted that loaned McElvains $1,555,000 and got a first mortgage in that amount, when the value of the ranch was substantially less than the amount of the first mortgage, Aetna fraudulently valueless. rendered Shepherds Shepherds' also claimed second that mortgage Western Farm defrauded them by submitting a forged buy/sell agreement to Aetna which inflated the true sales price and caused Aetna to make an inflated loan and take an inflated mortgage on the ranch. Thus, valueless. Shepherds' second mortgage was rendered Shepherds based their defense on the contention that Western Farm was an agent of Aetna and its fraud should be imputed to Aetna. On September 20, 1983, the South Dakota district court issued a memorandum decision finding that there was no merit to Shepherds' allegations of fraud. The court held that: (I) Ranch Mart acted at all relevant times as the exclusive agent of Shepherds; (2) Shepherds, through their agent Ranch Mart, had actual knowledge of Aetna's loan commitment to Shepherds prior to accepting McElvains on June 29, 1979; the second mortgage from (3) Shepherds had constructive knowledge of the amount of Aetna's mortgage as of August 2, 1979, when it was recordation of their second mortgage mortgage, which recorded, and prior second mortgage; and states the precludes priority Shepherds of from to Shepherds' (4) Shepherds ' Aetna's denying first the existence and priority of the first mortgage as a matter of law. The South Dakota court issued its findings of fact and conclusions of law on December 5, 1983, repeating the above findings. The court granted summary judgment to Aetna on December 5, 1983. The South Dakota Supreme Court affirmed this decision in February 1985 stating that: We conclude that Shepherds had both actual and constructive notice of the amount of the loan and the extent of the mortgage, thus precluding any reliance on fraud or misrepresentations. Therefore, the trial court did not err in its grant of summary judgment. Aetna Life Ins. Co. v. McElvain (S.D. 1985), 363 N.W.2d 186, Aetna's foreclosure action on the Montana portion of Box Elder Ranch went to trial December 7, 1983. As a defense to the action, Shepherds again raised the issue of fraud. Shepherds alleged that Aetna, through its agents, knew of the fraud practiced upon representations made to Shepherds; Shepherds the that fraud being Aetna's the loan to McElvains would not exceed $1,100,000. At trial on December 7, 1983, Aetna introduced into evidence the South Dakota judgment from December 5, 1983, and the other South Dakota court documents. Aetna argued that the South Dakota judgment was res judicata as to Shepherds' defense of fraud. The Montana District Court, in its judgment of October 29, 1984, conceded that Shepherds pleaded affirmative defenses in the foreign court foreclosure actions which were "essentially the same as the affirmative defenses they have pleaded in this action." court acknowledged that (Emphasis added.) the South Dakota The Montana court entered judgment on the merits. The Montana court apparently rejected the res judicata effect of the foreign judgment because the judqment was on appeal. The Montana trial court ruled that: (1) Shepherds were defrauded by R.J. McElvain, Jr., and other employees of Western Farm in that Shepherds1 second mortgage was rendered valueless; Aetna; (3) (2) McElvain and Western Farm were the agents of therefore, Aetna defrauded Shepherds; (4) Ranch Mart, Shepherds' agent, did not have notice of the size of the Aetna loan before the closing of the ranch sale; (5) even if Ranch Mart had notice, that notice would not be imputed to Shepherds under these circumstances because Aetna did not exercise good faith; and (6) Shepherds1 constructive notice of Aetnals prior recorded mortgage could not relieve Aetna of responsibility for its fraudulent acts. The court ruled that Aetna was entitled to foreclose its mortgage but imposed a lien in Shepherds' favor, superior to Aetna's, on the ranch. The amount of the lien was the unpaid balance McElvains owed to Shepherds on the sale of the ranch, with interest, plus $40,000 as attorney's fees. This appeal followed. The first issue is whether the trial court erred in failing to give collateral estoppel effect to the South Dakota judgment. Aetna asserts that the South Dakota decision, holding that Aetna did not defraud Shepherds, is entitled to full faith and credit in Montana and conclusively defeats the fraud allegations. This issue raises only questions of law and, therefore, the standard of review is clear. This Court is not bound by the determinations of the trial court on questions of lew and we are free to draw our own conclusions from the evidence presented. Sharp v. Hoerner Waldorf Corporation (1978), 178 Mont. 419, 584 P.2d The United States Constitution provides that "Full Faith and Credit shall be given in each State .to the public Acts, Records, State: " judicial Proceedings U. S. Const., art. IV, S 1. codification of s and of every other The federal statutory this constitutional guarantee, 28 U.S.C. 1738, requires that, ... Acts, records and judicial shall have the same proceedings full faith and credit in every court as they within the United States have by law or usage in the courts of from which they are such State taken. ... ... ... Finally, Montana law provides: The effect of a judicial record of a sister state is the same in this state as in the state where it was made, except that it can only be enforced here by an action or special proceeding ... Section 26-3-203, MCA. The Fallon County District Court apparently declined full faith and credit to the South Dakota judgment because that decision, at the time of the Montana trial, was on appeal- to the South Dakota Supreme Court. That approach ignores the fact that, in South Dakota, a judgment on appeal can have collateral estoppel. or res judicata effect. See, Black Hills Jewelry Mfg. v. Felco ~ e w e l 1nd. (s.D. e.g., 1983), 336 N.W. 2d 153, 157 ("The doctrine of res judicata serves as claim preclusion to prevent relitigation of an issue actually litigated or which could have been properly raised and determined in a prior action . . . Of course, the earlier court must have had jurisdiction and its decision must must be final and unreversed." (citations omitted)); Arcon Const. v. South Dakota Dept. of Transp. 365 N.W.2d 866, 868 ("There must, (S.D. 1985), however, be a final unreversed judgment or decree of a court of competent jurisdiction before the doctrines of res judicata, collateral estoppel, or issue preclusion apply" emphasis added)) . (citations omitted; The rule consistently declared by the United States Supreme Court is that, "'the judgment of a state court should have the same credit, validity, and effect, in every other court of the United States, which it had in the state where omitted.) it was pronounced.'" Underwriters Assur. Co. v. N.C. (Citations Guaranty Assn. (1982), 455 U.S. 691, 704, 102 S.Ct. 1357, 1365, 71 L.Ed.2d 558, 570. Given that the South Dakota judgment, although on appeal, would be entitled to collateral estoppel effect in South Dakota, that judgment is entitled to the same effect in Montana if the other requirements for collateral estoppel are met. In Fontana, the test to determine the applicability of collateral estoppel is a three part inquiry: " (1) Was the issue decided in the prior adjudication identical with the one presented in the action in question? (2) Was there a final judgment on the merits? (3) Was the party against whom the plea is asserted a party or in privity with a party to the prior adjudication?" In Re Marriage of Stout (Mont. 1985), 701 P.2d 729, 733-734, 42 St.Rep. 856, 861, Insurance Company v. 1279, 41 St.Rep. introduced quoting Johnson 40, 42. Aetna Life and Casualty (Mont. 1984), 673 P.2d 1277, At the trial court 1-evel, Aetna into evidence the South Dakota district court judgment, findings of fact and conclusions of law, memorandum decision, and pleadings. These documents show that the second and third requirements of the collateral estoppel test are undoubtedly met. In the prior South Dakota adjudication, there was a final judgment on the merits of the fraud issue and the party in this action is identical to the party there. The only real question requirement of the then is test is met; whether i.e. the remaining whether the issue decided in the South Dakota action is identical to the issue here. After evaluating and comparing the pleadings, evidence and circumstances of the South Dakota action and the case at bar, we make the following observations. Both cases arise from the sale of one ranch, which sale, although requiring the use of three mortgages and three notes, was conducted as one transaction. complained of The misrepresentations which in South Dakota are Shepherds exactly those misrepresentations which they complain of in the instant case. In this regard, we note that Shepherds' answer (in which they raised the fraud defense) to the South Dakota complaint is an identical, word for word amended answer in the Montana action. copy of their We also note that the Montana trial court agreed that Shepherds raised essentially the same defenses in Montana as they had raised in South Dakota. The South Dakota judgment and Supreme Court decision rely on much of the same, crucial evidence that was admitted in the Montana action. The foreign court looked at the exact same evidence as the Montana court in determining whether Shepherds had actual or constructive notice of the fraudulent scheme. We conclude that the issue resolved in South Dakota, whether Shepherds' actual and constructive notice of the fraudulent scheme defeated their fraud defense, is identical to the issue presented in the instant case. Therefore, we hold that the South Dakota judgment is entitled to full faith and credit in Montana and that judgment collaterally estops Shepherds from successfully raising their fraud defense. Shepherds argue that giving the South Dakota judgment full faith and credit in Montana impermissibly invests the foreign court with in rem jurisdiction over Montana real property. This argument is without merit. Given in personam jurisdiction, a court may adjudicate the rights and equities of parties in jurisdiction. reference to real property in a foreign That is not an impermissible exercise of in rem jurisdiction. A court may - act directly upon the not title to real property in a foreign jurisdiction. In Gammon v. Gammon (Mont. 1984), 684 P.2d 1081, 41 St.Rep. 1161, Mr. Justice Weber made that distinction abundantly clear. In Gammon, this Court refused to enforce that part of an Oregon divorce decree which purported to directly transfer Montana property. The Court - enforce the Oregon decree insofar as did it determined the equities of the parties in the Montana land. Here, conceding full faith and credit to the South Dakota judgment would honor the foreign court's determination of the rights and equities between the parties but would not impermissibly allow the foreign court to a.ct directly upon the title to Montana real property. An alternative ground for our holding in this case arises from our resolution of the second issue addressed here. This issue requires a two part inquiry: (1) Did Shepherds have imputed notice of the fraudulent scheme? and (2) If so, The lower negative, does court such n o t i c e d e f e a t t h e i r c l a i m o f answered both of these questions fraud? in the r u l i n g t h a t Shepherds d i d n o t have n o t i c e imputed t o them t h r o u g h Ranch Mart, and even i f Shepherds had s u c h n o t i c e , t h a t would n o t " s e r v e a s a s h i e l d f o r u n f a i r d e a l i n g by" Aetna. Cou-rt w i l l This conclusions of not disturb findings of law t h a . t a r e based on s u b s t a n t i a l , fact and credible evidence. [We] w i l l view t h e e v i d e n c e i n t h e l i g h t most f a v o r a b l e t o t h e p r e v a i l i n g p a r t y and w i l l n o t o v e r t u r n t h e f i n d i n g s and c o n c l u s i o n s based on such e v i d e n c e u n l e s s there is a clear preponderance of e v i d e n c e a g a i n s t them. Napier v. St.Rep. Adkison 619A, Ranch (Mont. 19841, c i t i n g Cameron v. Mart, a g e n t o f Shepherds. the realty of the size P.2d Cameron agency, 1143, 1144, 41 ( 1 9 7 8 ) , 179 Mont. was indisputably the The e v i d e n c e i n t r o d u c e d a t t r i a l showed t h a t Ranch Mart ha.d n o t i c e , sale, 678 of the b e f o r e t h e consummation o f t h e Aetna loan and resulting first Wallace Mading, t h e owner o f Ranch Mart, t e s t i f i e d mortgage. by d e p o s i t i o n . Mading produced a l e t t e r r e c e i v e d by Ranch Mart which s t a t e d t h a t t h e Aetna l o a n had been approved f o r $1,550,000. agreed t h a t The l e t t e r was d a t e d J u n e 7 , Ranch Mart had r e c e i v e d t h e c l o s i n g o f t h e r a n c h s a l e on J u l y 6 , 1979. 1979, and Mading letter before t h e Although Mad-ing d e n i e d t h a t h e knew t h e c o n t e n t s o f t h e l e t t e r p r i o r t o t h e c l o s i n g , he t e s t i f i e d t h a t : I am s u r e t h a t I was aware t h a t Aetna L i f e I n s u r a n c e Company was g o i n g t o be i n a. m i l l i o n and a h a l f d o l l a r mortgage p o s i t i o n , b u t I d i d n o t know what a l l on ... I knew that this certainly a part of it. property was Q. You did know then that they were going to have a mortgage in excess of a million and a half dollars, and that their mortgage would be superior to the second mortgage of the Shepherds? A. Yes, I am sure that I would have, I would have been aware of it just the way you said it. Thus, Ranch Mart had notice of the size of the A.etna loan and resulting first mortgage. This notice is imputed to Shepherds under S 28-10-604, MCA, which provides: As against a principal, both principal and agent are deemed to have notice of whatever either has notice of and ought, in good faith and the exercise of ordinary care and diligence, to communicate to the other. Mading, knowing that Aetna's should have been $1,100,000, should have communicated to Shepherds the actual amount mortgage. first mortgage on the land ($1,555,000) of Aetna's first Therefore, we hold that Shepherds had imputed notice of the actual amount of the first mortgage prior to their closing the sale. Contrary to the lower court's ruling, the imputed knowledge of Shepherds defeats their claim of fraud. The rule in Montana is that, When it appears that a party, who claims to have been deceived to his prejudice, has investiaated for himself or that the means were at hand to ascertain the truth . of any representations made to him, his reliance upon such representations made to him, however false they may have been, affords no ground of complaint. (Citations omitted. ) (Emphasis in original.) .. Turley v. Turley (Mont. 1982), 649 P.2d 434, 439, 39 St.Rep. 1336, 1343; citing, among others, Van Ettinger v. Pappin (1978), 180 Mont. 1, 588 P.2d 988, 994. hand The means were at for Shepherds to ascertain the truth of the false representations and they cannot, as a matter of law, rely on those representations in claiming fraud. Shepherds' fraud defense is therefore defeated, as the hearer's reliance on the representation and the hearer's right to rely on the representation are critical. elements of a prima facie showing of fraud. Turley, 649 P.2d at 438. We hold that the lower court erred in ruling that Aet.na defrauded Shepherds. We do not consider the issues of whether Western Farm, the loan broker, was the agent of Aetna or whether the fraudulent acts of Western Farm are imputable to Aetna. We reverse the District Court and remand this cause for the entry of an unqualified judgment in Aetna's favor -;7 . ,/ We concur: C t ef Justfce Justices f/ Mr. J u s t i c e John 6. Sheehy, d i s s e n t i n g : I dissent. The m a j o r i t y o p i n i o n p r o c e e d s on two p r e m i s e s : ShepherdsYraud claim against is Aetna that the precluded by c o l l a t e r a l e s t o p p e l by r e a s o n o f t h e South Dakota d e c i s i o n ; and a l t e r n a t i v e l y , t h a t Shepherds' a g e n t had a c t u a l n o t i c e o f the fraudulent scheme and therefore Shepherds had imputed n o t i c e o f t h e scheme. W e s h o u l d n o t e x t e n d f u l l f a i t h and c r e d i t t o t h e South Daltota decision in this case for two reasons: 1) South Dakota's opinion a s t o t h e operation of a r e l e a s e i s a g a i n s t t h e p u b l i c pol-icy o f t h i s s t a t e ; end 2 ) i t i s n o t c l e a r from the South Dakota decision t h a t the precise issue of fraud r a i s e d by t h e Shepherds was c o n s i d e r e d by t h e South Dakota court. South Dakota denied the Shepherds' claim of fraud a g a i n s t Aetna on two g r o u n d s , t h a t t h e i r a g e n t had n o t i c e o f the fraudulent Shepherds fraudulent ground, to act, McElvains claim that and the release given by the to relieve Aetna of any operated from the Shepherds. As to the second a t l e a s t e q u a l w e i g h t was g i v e n by South Dakota t o i t s determination t h a t the r e l e a s e and s a t i s f a c t i o n by t h e Shepherds o p e r a t e d t o merge S h e p h e r d s ' mortgage l i e n i n t h e title and thereby precluded any claim of the Shepherds a g a i n s t Aetna on t h e grounds o f f r a u d . However, the release gi-ven by the Shepherds to the XcElvains i n r e t u r n f o r a q u i t c l a i m deed on t h e South Dakota land expressly provided t h a t released: " [n]o only the o t h e r persons, McElvains firms, and expressly o r e n t i t i e s other than those expressly mentioned above are in any way released by this document." It has been the law in this state since Rlack v. Martin (1930), 88 Mont. 256, 292 P. 577, that a plaintiff may release a joint tortfeasor and still preserve a cause of action against another joint tortfeasor if there is language to that effect in the written release. See also McCloskey v. Porter (1973), 161 Mont. 307, 506 P.2d 845. When the law enunciated by a court of a sister state is against the public policy of the forum state, the decision of the court of the sister state is not entitled to full faith and credit. In In Re Anderson's Estate (1948), 121 Mont. 515, 524, 194 P.2d 621, 626, we stated: Unless the public policy - - state would prevent of the the recognition - - decree - of the or such recogllition would be injurious - - to the best interests - of the state wemust recognize the force and effect of the decrees of our sister states (Emphasis .. added. ) ... Further, contrary opinion, it cannot be to what is determined said from in the majorjty the South Dakota opinion what was Shepherds' precise claim of fraud against Aetna. There is no mention in the South Dakota opinion that Aetna's agent, McElvain, forged a buy-sell agreement to show a sales price of $2,185,000 instead of the true agreement of $1,385,000. Knowledge of the true nature of NcElvain's fraud is necessary to determine whether the knowledge acquired by Ranch Mart and imputed to the Shepherds hy both the South Dakota Court and this Court constitutes notice that fraud was afoot. Both South Dakota and this Court decide that point against the Shepherds by a selective reading of the testimony of Kading, the Ranch Hart testimony of Mading foLLows: agent. The full pertinent A. I wasn't that aware of the amounts, Mr. Huntley. If McElvain was borrowing a million five hundred thousand dollars, it. wasn' t-readily obvious to me as to what he was going to do with it. He was- the land, and also - in the process of improvinq -- - had properties - - of h E own, - - - -did not know how and I - that tied - - - - - in with a million five hundred thousand dollars. I am sure that is the case, hut is it your testimony that you did not know that Aetna Life Insurance Company was going to be in a first mortgage position on this property with a mortgage in excess of a million and a half dollars? A. State your question one more time. Q. Okay. Maybe it would be just as handy if I read it back. I think (Last question repeated by reporter.) A. That is not my testimony. I am sure that I was aware that Aetna Life Insurance Company was going to be in a million and a half dollar mortgage position, but I did not know what all on [sic] is what I am telling you. Q. ... Okay. A. (Continuing.) I knew that this property was certainly a part of it. Q. You did know then that they were going to have a mortgage in excess of a million and a half dollars, and that their mortgage would be superior to the second mortgage of the Shepherds? A. Yes, I am sure that T would have, I would have been aware of it just the way you said it. Q. Q. And when were you a.ware of that? A. I don't know that I was blatantly aware of it at any time, Mr. Huntley. It wasn't a glaring thing in that the YcElvains, we knew were in a position of improving the property, and, you know, we did not know even to what extent they had improved it by the time that we closed the agreement. We also knew that the money to be advanced on it was evidently being advanced in different stages, or at least we had been told that. ever tell the Shepherds, or Q. - - you - - Well, did that the either - - one of them, - - Aetna position was going & be first mortgage - - excess - of in of a millionn- - - half dollars? A. No, . a'd a & s 7 . Would that? A. you explain why you did not tell them to tell It - - -was not our business - - - them that, - - -we did - -knowin that - - not - what all the funds were being -used for. (Emphasis added.) The full testimony of Mading puts a quite different light on his knowledge of the amount of the mortgage, and the reasons why he did not convey the information to the Shepherds. While I accede that the recorded documents constituted constructive notice to the Shepherds of the contents of the mortgages, yet the circumstances of the recording in this case led to the ability of McElvain to deceive the Shepherds. The mortga.ges were recorded in three different states, in three different amounts in such manner that if the Shepherds went to the three different courthouses, they could determine the total amount but The Fallon County not otherwise. mortgage was for $664,000; the Harding County, South Dakota mortgage was for $751,000 and the Bowman County, North Dakota mortgage was for $140,000. This circumstance of separate recording of the instruments has made it possible for Aetna's agent, McElvain, to hide the true total amount of the mortgages against the Shepherds' property. Under these circumstances, I would agree with the District Court and hold that the Shepherds lien was entitled to preference ahead of Aetna on the Montana property and affirm the District Court. n Justice 1 ' 6 joln in the dissent of Mr. Justice John C. Sheeny. I join in the dissent of Mr. Justice John C. Sheehy.

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