Ed Herman & Sons v. Russell

• Decision Date: 30 December 1986
• Citation: Ed Herman & Sons v. Russell, 535 N.W.2d 803 (Minn. 1986)
• Court: Minnesota Supreme Court
• Parties: ED HERMAN & SONS, et al., Respondents, v. James H. RUSSELL and First Bank National Association, Trustees under Trust Agreement Dated

Page 803

535 N.W.2d 803

ED HERMAN & SONS, et al., Respondents, v. James H. RUSSELL and First Bank National Association Trustees under Trust Agreement Dated December 30 1986, Petitioners, Appellants.

No. C7-93-609.

Supreme Court of Minnesota.

June 9, 1995.

Rehearing Denied Aug. 16, 1995.

Syllabus by the Court

1. Minn.Stat. § 582.31 (1994) prevents a mortgagee of agricultural property from pursuing against one party both a mortgage foreclosure and a suit on the note secured by the mortgage. Only a party against whom a mortgagee could have commenced both actions is protected under the statute.

2. When a debtor is a stranger to the mortgage, both a mortgage foreclosure and a suit on the note secured by the mortgage could not be commenced.

3. The trial court's conclusion that payments should be applied to reduce the mortgage debt is not erroneous.

4. Contrary to the general rules governing guaranties, the parties intended to apply the payments immediately to reduce the mortgage debt.

5. Minn.R.Civ.P. 67.01 applies when the parties seek a money judgment or the disposition of any other thing capable of delivery.

6. It was within the discretion of the trial court to allow the deposit of $80,000 for the release of the land when the remaining land encumbered by the mortgage had a fair market value 14 times the amount of the original mortgage.

Lee W. Mosher, Davern, McLeod & Pezalla, Golden Valley, for appellant.

Jo Lynn Isaccson, David W. Skogerboe, Skogerboe & Skogerboe, Ctd., Blaine, for respondent.

Heard, considered and decided by the court en banc.

OPINION

TOMLJANOVICH, Justice.

Under Minn.Stat. § 582.31(a) (1994), a mortgagee of agricultural property may either obtain and execute a judgment for the debt owed on the note secured by the mortgage, or foreclose on the mortgage and obtain a deficiency judgment, if allowed. On March 23, 1990, Ed Herman & Sons, a Minnesota partnership, and Edward Herman, Gerald Herman and Duane Herman, three of its four partners, brought an action against James Russell and First Bank National Association, appellants, to have a $50,000 mortgage against agricultural property owned by the partnership declared void on the grounds Minn.Stat. § 582.31 precluded the appellants from foreclosure, because appellants already had obtained a judgment for the debt the mortgage secured, or, alternatively, for an accounting of the amount due. Appellants, trustees of a trust held for the shareholders of the original mortgagee, counterclaimed for foreclosure of the mortgage, arguing Minn.Stat. § 582.31 did not apply. In an unpublished decision, the court of appeals reversed the summary judgment entered in the trial court and held Minn.Stat. § 582.31 precluded appellants from foreclosing on the partnership property. The court of appeals also affirmed the trial court's judgment allowing the respondents to deposit $80,000 with the trial court for release of a portion of the mortgaged farmland. We reverse in part and affirm in part.

Edward Herman and his sons Duane, Gerald, and Ronald owned and farmed land in Anoka County. The farmland was owned through a general partnership, Ed Herman & Sons, and the farming enterprise was conducted through an equally owned corporation, Herman Farms, Inc. Howe Chemical Corporation and Howe, Inc. supplied fertilizers and farming chemicals to the Herman corporation. In 1982, the Howe companies and the Herman corporation signed a credit agreement. By August 1985, the Herman corporation owed the Howe companies approximately $100,000. Before extending more credit to the Herman corporation, the Howe companies sought additional security. To provide this security, Ronald Herman, in his capacity as a partner of the Herman partnership, executed a $50,000 mortgage on the Herman partnership farmland with the Howe companies. Although no formal documentation existed, both parties agreed and the trial court found that the mortgage created a guaranty. However, the parties differ over the interpretation of the nature of the guaranty.

The mortgage agreement provided that "if the said mortgagor [Herman partnership] * * * shall pay to the said mortgagees [the Howe companies] * * * the sum of $50,000 * * * [d]ue to said mortgages on open account * * * for purchases of fertilizer and agricultural chemicals from mortgagees," the mortgage would then be satisfied and cancelled. The mortgage agreement did not reference a specific "note," or make clear whether the accounts secured by the mortgage were accounts of the Herman partnership or the Herman corporation.

Relying on parol evidence, the trial court determined the 1982 credit agreement between the Howe companies and the Herman corporation constituted a note "because it [was] a promise by the Herman corporation to pay money to [the] Howe [companies]." Moreover, the trial court found the open account referenced in the mortgage agreement to be the account the Herman corporation owed the Howe companies. Finally, the trial court determined the Herman partnership only guaranteed a maximum of $50,000 of the Herman corporation's total debt.

In 1986, Ronald Herman formed his own corporation, Majestic Farms, Inc., and the Herman corporation ceased operations. Majestic Farms assumed the debts of the Herman corporation. In the meantime, the Howe companies were sold and their interests were placed in trust for their shareholders.

In 1989, appellants sued the Herman corporation, Ronald Herman, and Majestic Farms on the open accounts that were owed to the Howe companies for the purchase of fertilizer and chemicals. Appellants obtained a default judgment of $143,225.05. Thereafter, Ronald Herman declared bankruptcy and the Herman partnership began dissolution proceedings. The Herman partnership, and three of the four individual partners, Edward Herman, Gerald Herman, and Duane Herman, brought this action to have the mortgage against the Herman partnership's farmland declared void or, alternatively, for an accounting of the amount due. Appellants counterclaimed for foreclosure of the mortgage.

After litigation had commenced, the trial court allowed the Herman partnership to deposit $80,000 with the trial court for a release of a portion of the mortgaged farmland. The remaining farmland, which was still subject to the mortgage, had an appraised value of approximately $600,000. Upon conclusion of the trial, the trial court determined the $50,000 mortgage was valid, but had been reduced by payments from the Herman corporation and from Majestic Farms to $10,744.57. In addition, the trial court awarded $10,000 in attorney fees to the appellants.

The court of appeals reversed the trial court's judgment and held Minn.Stat. § 582.31 precluded the Howe companies from foreclosing on the Herman partnership's farmland. The court of appeals also determined the Howe companies were not entitled to attorney fees. Finally, the court of appeals affirmed the trial court's judgment allowing the Herman partnership to deposit $80,000 with the trial court for release of a portion of the mortgaged farmland.

The central issue in this case is the application of Minn.Stat. § 582.31 which provides:

(a) For a mortgage on property used in agricultural production entered into on or before March 22, 1986, the mortgagee may only proceed to:

(1) obtain a personal judgment for the debt owed on the note secured by the mortgage and execute on the judgment; or

(2) foreclose on the mortgage and obtain a deficiency judgment, if allowed.

(b) An action under paragraph (a), either clause (1) or (2), bars an action under the other clause.

The interpretation of a statute is a question of law subject to de novo review on appeal. Meister v. Western Nat'l Mut. Ins. Co., 479 N.W.2d 372, 376 (Minn.1992). The primary object in statutory interpretation is to ascertain and effectuate the intention of the legislature. Minn.Stat. § 645.16 (1994). Where the intention of the legislature is clearly manifested by plain and unambiguous language, no construction is necessary or permitted. Lenz v. Coon Creek Watershed Dist., 278 Minn. 1, 9, 153 N.W.2d 209, 216 (1967). If a statute is unclear or ambiguous, a court may refer to the legislative history surrounding the statute's enactment to ascertain its legislative intent. Minn.Stat. § 645.16(7) (1994).

Appellants' principal argument is the statute does not protect the Herman partnership because: 1) the Herman partnership is a guarantor; 2) guarantors are not protected by anti-deficiency statutes; and 3) Minn.Stat. § 582.31 is an anti-deficiency statute. Appellants' first two premises are accurate. Both parties agree and the trial court found the Herman partnership guaranteed the Herman corporation's debt with a mortgage. In addition, Minnesota courts have found that guarantors are not protected by anti-deficiency statutes. National City Bank v. Lundgren, 435 N.W.2d 588 (Minn.App.), pet. for rev. denied, (Minn. March 29, 1989) (citing Victory Highway Village, Inc. v. Weaver, 480 F.Supp. 71 (D.Minn.1979), aff'd, 634 F.2d 1099 (8th Cir.1980)); Miller & Schroeder, Inc. v. Gearman, 413 N.W.2d 194 (Minn.App.), pet. for rev. denied, (Minn., Dec. 13, 1987).

A fundamental flaw in appellants' argument is the premise that Minn.Stat. § 582.31 is an anti-deficiency statute; it is not. An anti-deficiency statute prevents a creditor from seeking a deficiency after foreclosure has occurred. See, e.g., Miller & Schroeder, Inc., 413 N.W.2d at 196 (interpreting Minn.Stat. § 580.23, subd. 2 (1984)). Minn.Stat. § 582.31 is an election of remedies statute and does not prevent a creditor from seeking a deficiency judgment after foreclosure has occurred. In fact, it permits a deficiency judgment if one is allowed under other statutes. ¹ Although appellants' argument is flawed, their conclusion that the Herman partnership is not protected is not necessarily erroneous.

Here, it is unclear whether the statute limits the mortgagee to only the remedies set out in ...