Borsheim v. Owan

• Decision Date: 19 March 1991
• Docket Number: No. 900322,900322
• Citation: 467 N.W.2d 95
• Court: North Dakota Supreme Court
• Parties: Violet O. BORSHEIM and George R. Borsheim, Plaintiffs and Appellants, v. Charles OWAN, Jr., Vernon Owan, Mitchell Owan, individually, and O & J Properties, a partnership consisting of R.E. Jacobsen, Charles Owan, Jr., Vernon Owan and Mitchell Owan, Defendants and Appellees, and R.E. Jacobsen, Defendant. Civ.

Page 95

467 N.W.2d 95

Violet O. BORSHEIM and George R. Borsheim, Plaintiffs and Appellants, v. Charles OWAN, Jr., Vernon Owan, Mitchell Owan, individually and O & J Properties, a partnership consisting of R.E Jacobsen, Charles Owan, Jr., Vernon Owan and Mitchell Owan Defendants and Appellees and R.E. Jacobsen, Defendant.

Civ. No. 900322.

Supreme Court of North Dakota.

March 19, 1991.

Charles L. Neff, of Bjella, Neff, Rathert, Wahl & Eiken, P.C., Williston, for plaintiffs and appellants.

Max D. Rosenberg, of Rosenberg Law Firm, Bismarck, for defendants and appellees.

VANDE WALLE, Justice.

Violet O. Borsheim and George R. Borsheim have appealed from a district court judgment dismissing their action against Charles Owan, Jr., Vernon Owan, Mitchell Owan and R.E. Jacobsen, individually, and O & J Properties, a partnership consisting of those individuals, to recover under a guaranty executed by the individual defendants. We affirm.

On December 12, 1986, the Borsheims secured a judgment against O & J Properties and the individual defendants, holding them jointly and severally liable for specific performance of a contract for deed and payment of the principal balance due under the contract for deed, plus interest. The parties thereafter negotiated for the release of that judgment. In 1987, the Borsheims released their judgment in exchange for a cash payment; a promissory note signed by all of the individual defendants; a mortgage on unimproved property; and a general continuing guaranty signed by all of the individual defendants, by which they jointly and severally guaranteed payment of the indebtedness evidenced by the promissory note. The guaranty also provided that each individual guarantor "specifically waives and releases his right to rely upon or seek protection against a deficiency judgment by virtue of any statutes or Supreme Court decisions."

After the defendants defaulted on the promissory note, the Borsheims brought this action for recovery under the defendants' guaranty. The district court dismissed the action and the Borsheims appealed, raising the following issues: 1) whether our anti-deficiency statutes apply to a mortgage and guaranty given to obtain a release of a judgment; 2) whether the district court erred in holding that the defendants' waiver of their right to seek protection against a deficiency judgment under our anti-deficiency statutes was void as a violation of public policy; and 3) whether, if not void, the waiver is sufficient to allow enforcement of the defendants' general continuing guaranty. ¹

Relying on Sec. 32-19-07, N.D.C.C., the Borsheims contend that "no money was loaned by the Borsheims 'upon real estate or to secure the purchase price of real estate' " and that "[n]owhere in this statute does the legislature make any attempt to apply the statute to a situation where a mortgage and personal guarantees are taken to secure a negotiated release of a prior valid judgment lien." Section 32-19-07, N.D.C.C., provides in part: "Except as otherwise provided in sections 32-19-04 and 32-19-06, neither before nor after the rendition of a judgment for the foreclosure of a real estate mortgage ... shall the mortgagee ... be authorized or permitted to bring any action in any court in this state for the recovery of any part of the debt secured by the mortgage ... foreclosed. It is the intent of this section that no deficiency judgment shall be rendered upon any note, mortgage, or contract given after July 1, 1951, to secure the payment of money loaned upon real estate or to secure the purchase price of real estate, and in case of default the holder of a real estate mortgage ... shall be entitled only to a foreclosure of the mortgage ... except as provided by sections 32-19-04 and 32-19-06."

The Borsheims' interpretation of the words "payment of money loaned upon real estate" is too narrow. Their construction would limit the prohibition on deficiency judgments to those transactions wherein the mortgage was given for the immediate exchange of money. For example, the Borsheims would deny the protection of the statute wherein an original loan which was unsecured is refinanced with a mortgage but without any new money loaned. We cannot conclude that was the intent of the legislation. Any obligation capable of being reduced to a money value may be secured by a mortgage. E.E.E., Inc. v. Hanson, 318 N.W.2d 101 (N.D.1982). Section 32-19-06, N.D.C.C., which is incorporated by reference in Section 32-19-07, N.D.C.C., provides in part "[w]here a note or other obligation and a mortgage upon real property have been given to secure a debt ... the plaintiff may, in a separate action, ask for a deficiency judgment" as provided in that section. (Emphasis supplied.) Thus we have said that "[w]here a promissory note is executed in conjunction with the taking of a mortgage, the provisions of the state's anti-deficiency statutes apply." First Nat'l Bank & Trust Co. v. Ashton, 436 N.W.2d 215, 216-217 (N.D.1989). See also Mischel v. Austin, 374 N.W.2d 599 (N.D.1985). In H & F Hogs v. Huwe, 368 N.W.2d 553, 556 (N.D.1985), we said:

"A lender that takes a mortgage on real property as security for a debt foregoes its right to proceed initially against the mortgagor directly on the debt, but receives in return the added protection of an interest in the property.... If we were to adopt the reasoning of H & F and allow a mortgagee to proceed against the mortgagor directly on the debt, the protections afforded mortgagors by the anti-deficiency judgment statutes would be largely vitiated."

In Mischel, we rejected an argument that the anti-deficiency statutes apply only to original mortgages and not to someone holding a note outside the original transaction. We held that "where a promissory note is executed in conjunction with the taking of a mortgage, the provisions of the State's anti-deficiency statutes apply." Mischel v. Austin, supra, 374 N.W.2d at 600. Furthermore, the term "money loaned" or "money lent" is not a precise term of art. Great American Insurance Co. v. Nat'l Health Services, Inc., 62 Cal.App.3d 785, 133 Cal.Rptr. 420 (1976) [manual passage of money into hand of borrower cannot be essence of loan. Courts have frequently discerned a loan where the ordinary inspector might not have]; Huss v. Maras, 77 Ill.App.3d 554, 33 Ill.Dec. 16, 396 N.E.2d 92 (1979) [balance due on installment contract for sale of real estate was "money loaned"]. But see Section 47-14-01, N.D.C.C. [Loan of money is a contract by which one delivers a sum of money to another and the latter agrees to return at a...