Bank Midwest v. Lipetzky, No. C1-02-1747.

• Decision Date: 15 January 2004
• Docket Number: No. C1-02-1747.
• Parties: BANK MIDWEST, MINNESOTA, IOWA, N.A., Respondent, v. Jerome LIPETZKY, et al., Appellants, James Lipetzky, et al., Respondents.
• Court: Minnesota Supreme Court

674 N.W.2d 176

BANK MIDWEST, MINNESOTA, IOWA, N.A., Respondent, v. Jerome LIPETZKY, et al., Appellants, James Lipetzky, et al., Respondents.

No. C1-02-1747.

Supreme Court of Minnesota.

January 15, 2004.

Michael S. Dove, Peter D. Favorite, Gislason & Hunter LLP, New Ulm, MN, for Respondent Bank Midwest, Minnesota, Iowa, N.A.

Thomas W. Van Hon, Fairfax, MN, for Respondent James Lipetzky, et al.

John H. Schnobrich, Jennifer L.J. Gilk, Redwood Falls, MN, for Appellant Jerome Lipetzky, et al.

Heard, considered, and decided by the court en banc.

OPINION

HANSON, Justice.

The question presented in this appeal is whether the grant of a mortgage by a contract for deed vendee without the consent of the contract for deed vendor is a breach of a consent clause that provides "Buyer agrees they cannot sell, transfer or assign this property without written permission or consent of seller." The district court concluded that it is, but the court of appeals disagreed, holding that the grant of a mortgage is not a "transfer." We reverse the court of appeals and reinstate the decision of the district court.

On November 9, 1993, James and Tamara Lipetzky¹ entered into a contract for deed with James' parents, Jerome and Marion Lipetzky, for the purchase of a portion of the family farm located in Redwood County, Minnesota. The farm had been in Jerome's family for over 80 years. The contract provided a purchase price of $72,000, which was less than half of the Assessor's Estimated Market Value of $184,300. The contract contained the consent clause quoted above.

In January 1994, Jerome and Marion conveyed fee title to the property and their vendor's interests in the contract for deed to their respective revocable trusts, the trustees of which have joined as appellants in this proceeding (hereinafter referred to collectively as the "Trusts.").

Almost 4 years after they acquired their vendees' interests, James and Tamara granted a mortgage on those interests to respondent Bank Midwest² in the amount of $110,000. Eighteen months later, they granted a substitute mortgage in the increased amount of $215,000. At the time of the substitute mortgage, James and Tamara also assigned their rights in the contract for deed to the Bank as additional security. James and Tamara did not obtain written consent from Jerome and Marion or their Trusts for any of these transactions.³ At the time of the substituted mortgage and assignment, James and Tamara were still subject to a prepayment restriction in the contract for deed that precluded prepayment "for the first seven (7) years of the contract without the written consent of the seller."⁴

When James and Tamara defaulted on their loan to the Bank, the Bank commenced foreclosure proceedings. Jerome and Marion deny that they had any knowledge of the mortgages or the assignment until they were made aware of them by the foreclosure proceedings. In March 2001, the Trusts served a Notice of Cancellation of Contract for Deed, pursuant to Minn. Stat. § 559.21, subd. 2a (2002), on James and Tamara and the Bank. The notice described the event of default as the breach of the contract for deed by granting the assignment and the mortgages. The Bank then brought this action to enjoin the cancellation of the contract for deed and for a declaratory judgment that the mortgage and assignment are valid and enforceable.

Both parties filed cross-motions for summary judgment, agreeing that the critical issue was whether the consent clause prohibited the mortgage and assignment without the consent of the vendors. The district court granted the Trusts' motion for summary judgment, holding that the consent clause prohibited the grant of the mortgage and the assignment without the consent of the vendors and that the mortgage and assignment to the Bank were invalid.

The court of appeals affirmed in part and reversed in part, holding that the consent clause prohibited the assignment but not the mortgage. Bank Midwest, Minnesota, Iowa, N.A. v. Lipetzky, 661 N.W.2d 290, 294 (Minn.App.2003). The court remanded the case for further proceedings, expressly declining to "speculate on the parties' future positions that may or may not result from our holding." Id. at 294, n. 7. We granted the Trusts' petition for further review on the issue whether the mortgage is valid but denied the Bank's cross-petition on the issue whether the assignment is valid. On appeal from the grant of summary judgment, we must review the record to determine whether there are any genuine issues of material fact and the trial court erred in the application of the law. Hermeling v. Minnesota Fire and Cas. Co., 548 N.W.2d 270, 273 (Minn.1996). Summary judgment is inappropriate where terms of a contract are at issue and those terms are ambiguous or uncertain. Donnay v. Boulware, 275 Minn. 37, 45, 144 N.W.2d 711, 716 (1966). If, however, terms of the contract may be given their plain and ordinary meaning, construction of the contract is a matter for the court and summary judgment may be appropriate. Denelsbeck v. Wells Fargo & Co., 666 N.W.2d 339, 346-47 (Minn.2003).

As a preliminary matter, we note that we have held that similar consent clauses in contracts for deed are valid and enforceable and can defeat the rights of third parties who deal with the contract vendee. Larson v. Johnson, 175 Minn. 502, 505-06, 221 N.W. 871, 873 (1928).⁵ We have also held that a contract vendor may cancel the contract for deed based upon the breach of such a consent clause. Karim v. Werner, 333 N.W.2d 877, 879 (Minn.1983); see also 25 Eileen Roberts, Minnesota Practice—Real Estate Law § 6.08(b) (2003).

I.

The Trusts argue that the consent clause is not ambiguous and that the plain meaning of the word "transfer" includes a mortgage. The determination of whether a contract is ambiguous is a question of law and is reviewed de novo. Republic Nat'l. Life Ins. Co. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn. 1979)

. "If a contract is unambiguous, then the language must be given its plain and ordinary meaning and will be enforced by the courts even if the results are harsh." Denelsbeck, 666 N.W.2d at 346-47.

The Bank likewise argues that the clause is not ambiguous but proposes the opposite interpretation, that the plain and ordinary meaning of the word "transfer" does not include a mortgage. The district court and the court of appeals each determined that the clause was not ambiguous, but came to different conclusions on its plain and ordinary meaning. These differing interpretations might support an argument that reasonable minds may differ on the plain and ordinary meaning and that the clause is thus ambiguous. But the mere fact that a court has disagreed on the interpretation of contract language is not determinative that the contract language is ambiguous. Republic Nat'l Life Ins. Co., 279 N.W.2d at 354.

One reason why the parties and the courts found support for opposite interpretations is that each focused unduly on the word "conveyance." Thus, the district court looked to the language in the mortgage that the "mortgagee shall convey to the lender all right, title and interest in [the property]" and determined that the term "transfer" in the consent clause was synonymous with the word "convey." The court of appeals also focused on the word "convey" but, relying on Minn.Stat. § 559.17, subd. 1 (2002), determined that a mortgage is not a conveyance. Section 559.17 reads in part: "A mortgage of real property is not to be deemed a conveyance, so as to enable the owner of the mortgage to recover possession of the real property without a foreclosure, except as permitted in subdivision 2." Minn.Stat. § 559.17, subd. 1 (2002). The court of appeals dissent disagreed with the majority's reliance on section 559.17 as being misplaced because the consent clause does not use the word "convey." Further, the dissent concluded that section 559.17 cannot reasonably be read to mean that a mortgage is not a conveyance of any kind, but only that it is not the type of conveyance that enables the holder of the mortgage to recover immediate possession. Lipetzky, 661 N.W.2d at 295-96.⁶

We agree with the court of appeals dissent that the word "convey" is not controlling. Our task, instead, is to interpret the word "transfer" and, in that context, the meaning of "convey" is only helpful by analogy or comparison. In fact, we conclude that, in common usage, the term "transfer" is understood to be broader than the more technical term "convey," and the broader term should not be limited by the narrower one.⁷

The Trusts refer us to the Black's Law Dictionary definition of "transfer," when used as a noun, to include:

The sale and every other method, direct or indirect, of disposing of or parting with property or with an interest therein, or with the possession thereof, or of fixing a lien upon property or upon an interest therein, absolutely or conditionally, voluntarily or involuntarily, by or without judicial proceedings, as a conveyance, sale, payment, pledge, mortgage, lien, encumbrance, gift, security or otherwise * * *.

Black's Law Dictionary 1497 (6th ed.1990) (emphasis added). This definition conceptually and expressly includes a mortgage.

In addition, the Trusts refer by analogy to the definition of "transfer" under Minn. Stat. § 513.41(12) (2002) (with respect to fraudulent transfers): "`Transfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance."

The Bank counters that some of these definitions of transfer are for its use as a noun and the consent clause uses it as a verb. The Bank suggests that the definition of the word as a verb is: "[t]o convey or remove from one place or one person to another; to pass or hand over from one to another, esp. to change over the...