Amsterdam Lumber, Inc. v. Dyksterhouse
| Citation | 586 P.2d 705,179 Mont. 133 |
| Decision Date | 08 November 1978 |
| Docket Number | No. 14025,14025 |
| Parties | AMSTERDAM LUMBER, INC., a Montana Corporation, Plaintiff and Respondent, v. Jake DYKSTERHOUSE et al., Defendants and Appellants. |
| Court | Montana Supreme Court |
Berg, Angel, Andriolo & Morgan, Gregory O. Morgan argued, Nash & Nash, Donald A. Nash argued, Bozeman, for defendants and appellants.
Landoe, Gary & Planalp, Joseph B. Gary argued, Brown, Pepper & Kommers, James M. Kommers argued, Heath & Kirwan, Bozeman, James, Sogard & Fopp, Great Falls, for plaintiff and respondent.
On August 4, 1977, the District Court for the Eighteenth Judicial District, County of Gallatin, entered judgment of foreclosure on a mortgage in favor of Amsterdam Lumber, Inc. This foreclosure was based on the default of defendant Jake Dyksterhouse to pay the indebtedness under a promissory note dated July 23, 1974 for the original sum of $22,083.00. On the date of the judgment of foreclosure, principal and interest due was found to be $27,692.04, with interest accruing at the rate of $5.52 per day, and further, attorneys fees were awarded in the sum of $3,500.00.
Specifically excepted from the judgment of foreclosure was another but prior indebtedness under a promissory note dated April 17, 1973, in the original sum of $40,000.00, for which defendant Jake Dyksterhouse had executed a trust indenture to the First Montana Title Insurance Company, as trustee, and the Empire Federal Savings and Loan Association of Livingston, as beneficiary. The trust indenture described the same real property as the Amsterdam mortgage and was recorded June 6, 1973. The District Court found in its judgment of foreclosure that the trust indenture constituted a first lien upon the property and was not affected by the foreclosure proceedings of Amsterdam Lumber, Inc.
The court further ordered in its judgment that other defendants, being judgment creditors of Jake Dyksterhouse, had the following priorities with respect to any proceeds of foreclosure, after Amsterdam and the first lien right of Empire under the trust indenture:
Paul E. Elting $1,250.00 Dated September 25, 1975
Martin Douma 519.69 Dated November 13, 1975
Mountain Supply
Company 1,893.05 Dated January 21, 1976
Gallatin Valley
Furniture Company 1,855.75 Dated April 8, 1976
Appellants are Paul E. Elting, Mountain Supply Company and Gallatin Valley Furniture Company. They dispute the findings and judgment of the District Court awarding Empire, as the trust indenture holder, a first lien over all of the parties, on the ground the trust indenture is in violation of the law and the public policy of the State of Montana. Appellants do not dispute the priority of the Amsterdam mortgage over their judgment liens.
The real property described in the recorded trust indenture is as follows:
"The NW 1/4 NW 1/4 NW 1/4 of Section 36, Township 2 South, Range 5 East, M.P.M., EXCEPTING THEREFROM that portion of land within the right-of-way of the Gallatin Valley Electric Railway, and EXCEPTING THEREFROM that portion of land conveyed to the State of Montana for highway right-of-way."
It will be seen that the description of the real estate purports to convey 10 acres in the trust indenture, less whatever acreage is contained in the exceptions noted in the description. The undisputed testimony is that the tract conveyed in the trust indenture is 7.61 acres.
The use of a trust indenture of real property to secure an indebtedness is made possible in Montana under the Small Tract Financing Act of Montana, enacted in 1963. At the time of the trust indenture here, section 52-404, R.C.M.1947, within that act, provided:
(Section 52-404 was amended in 1974 so as to increase the area which could be transferred under a trust indenture from 3 acres to 15 acres.)
The court is aware that the popularity of the trust indenture statutory authorization is attested to by the fact that such instruments have largely supplanted mortgages in the financing of small tracts. The chief advantage to the borrower (grantor) in a trust indenture arrangement is that no deficiency judgment can be recovered against him upon foreclosure (section 52-414, R.C.M.1947). The chief advantage to the lender (beneficiary) is that upon default, the trustee's deed operates to convey to the purchaser from the trustee the title to the real property, without any right of redemption in the grantor (section 52-410(3), R.C.M.1947).
That recitation of the advantages to the parties to a trust indenture points up the difficulty facing the appellants in this case. The indebtedness under the trust indenture here is not in default. Amsterdam Lumber, Inc. has taken over the payments due under the trust indenture indebtedness. It appears the value of the property subject to the trust indenture may not be sufficient to cover all of the encumbrances and liens upon the property, including the trust indenture indebtedness, but is more than sufficient to cover the mortgage indebtedness of Amsterdam Lumber, Inc. and of the appellants, if the trust indenture in this case does not constitute an enforceable first lien as to the judgment creditors.
The public policy of this state with respect to trust indentures is declared in section 52-402, R.C.M.1947:
"Because the financing of homes and business expansion is essential to the development of the State of Montana, and because such financing, usually involving areas of real estate of not more than three (3) acres, has been restricted by the laws related to the mortgages of real property, and because more such financing of homes and business expansion is available if the parties can use security instruments and procedures not subject to all of the provisions of the mortgage laws, it is hereby declared to be the public policy of the State of Montana to permit the use of trust indentures for estates in real property of not more than three (3) acres, as hereinafter provided."
The trust indenture in this case violates the public policy of this state because the real estate covered by the trust indenture exceeds the permitted 3 acres, there being an area of 7.61 acres involved here. Such being the case, we must now determine the effect of such illegality (section 13-801, R.C.M.1947) on the parties here.
First we determine that the Empire instrument is not a statutory trust indenture. This position arises from the force of definitions contained within the Small Tract Financing Act. A "trust indenture" is defined as an indenture "executed in conformity with this act" conveying real property to a trustee in trust to secure the performance of an obligation of the grantor to a beneficiary. (Section 52-403(3), R.C.M.1947). Moreover, the statute which authorizes such trust indentures, section 52-404, R.C.M.1947, above quoted, authorizes transfers in trust of real property not exceeding 3 acres. Thus the purported trust indenture of Empire is not a trust indenture as defined by the act, nor is it a trust indenture authorized by the act. The conclusion is inescapable therefore that the instrument is not a statutory trust indenture contemplated by Montana law.
If not a statutory trust indenture, what kind of a legal animal is it? Respondent suggests several alternatives: that it is at least a mortgage, or failing that a common law deed of trust, or failing that an equitable mortgage.
Respondent's argument that the instrument is at least a mortgage arises out of the provisions of section 52-417, R.C.M.1947. There it is provided that "a trust indenture is deemed to be a mortgage on real property and is subject to all laws relating to mortgage on real property except to the extent that such laws are inconsistent" with the act. In construing section 52-417, however, we must meet up again with the definition of "trust indenture", section 52-403(3), R.C.M.1947, which states that such an instrument must be an indenture "executed in conformity with this act". If we accorded the Empire instrument the status of a mortgage, we would be according an illegal instrument the same status as a legal instrument under the act. This could not have been the intent of the legislature which in declaring its public policy, stated that the acreage of a legal trust indenture could not exceed 3 acres. Therefore we conclude the Empire instrument is not to be accorded the status of a mortgage because the Empire instrument does not meet the definition required for such status under the Small Tract Financing Act.
It is possible the Empire instrument could be construed as a common law deed of trust. However, deeds of trust have always had a somewhat uncertain status in Montana, particularly with regard to foreclosure proceedings or sales under such trust deeds. Empire points to the holding in Banking Corporation of Montana v. Hein (1916), 52 Mont. 238, 156 P. 1085, as a case recognizing the...
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Estate of Gleason v. Cent. United Life Ins. Co.
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