First Interstate Bank of Fargo, N.A. v. Rebarchek

• Court: North Dakota Supreme Court
• Writing for the Court: VANDE WALLE
• Citation: First Interstate Bank of Fargo, N.A. v. Rebarchek, 511 N.W.2d 235 (N.D. 1994)
• Decision Date: 05 January 1994
• Docket Number: 930195,Nos. 930117,s. 930117
• Parties: FIRST INTERSTATE BANK OF FARGO, N.A., a corporation, Plaintiff and Appellee, v. David REBARCHEK, Defendant and Appellant. Civ.

Page 235

511 N.W.2d 235

FIRST INTERSTATE BANK OF FARGO, N.A., a corporation Plaintiff and Appellee, v. David REBARCHEK, Defendant and Appellant.

Civ. Nos. 930117, 930195.

Supreme Court of North Dakota.

Jan. 5, 1994.

Brad A. Sinclair, of Serkland, Lundberg, Erickson, Marcil & McLean, Ltd., Fargo, for plaintiff and appellee.

David A. Garaas, of Garaas Law Firm, Fargo, for defendant and appellant.

VANDE WALLE, Chief Justice.

David Rebarchek appealed from a summary judgment granting First Interstate Bank of Fargo [Bank] foreclosure of a mortgage. Rebarchek also appealed from an order denying his Rule 60(b), N.D.R.Civ.P., motion for relief from the foreclosure judgment. We affirm.

Rebarchek, Fred Tuominen and Richard Eveslage were shareholders in Retro Building Systems, Inc. [Retro], a construction company. They subsequently formed a partnership, Prairie Properties [Prairie], to own and manage commercial property. On January 2, 1987, Prairie borrowed $177,000 from the Bank and gave it a promissory note and a real estate mortgage covering the partnership property. The promissory note called for monthly payments of $2,125, commencing February 1, 1987, with the unpaid balance and interest due on January 1, 1992.

On February 7, 1989, the partnership borrowed another $30,000 from the Bank and gave it a promissory note and another mortgage covering the partnership property. This note was payable in 34 monthly installments of $810, with the unpaid balance and interest due on January 1, 1992.

Problems arose among Rebarchek, Tuominen and Eveslage, and on August 4, 1989, they executed a "Workout Agreement" with the Bank to allow them to reorganize their business relationships and to permit the Bank to restructure the indebtedness owed to it by Retro and Prairie. Article II of the workout agreement provided in part:

"... Prairie ... will be dissolved and each of the Partners will receive one-third of the partnership property. Each of the Partners will then convey their interest in the property formally owned by Prairie ... to Retro. Retro will then own all of the property formerly owned by Prairie.... Then Retro will redeem David Rebarchek's stock in Retro and in return Retro will convey all real estate owned by it which had formally been owned by Prairie ... to Rebarchek. All conveyances of the real property owned by Prairie Properties will be and will remain subject to the mortgage interests of [the Bank]. Nothing contained in this Agreement or the fact that [the Bank] consents to it is intended to or will amount to a waiver of any of [the Bank's] mortgage interests....

"At the same time Retro obtains ownership of Prairie['s] real property, Retro shall, and does hereby, assume all indebtedness due [the Bank] by Prairie ... and Retro shall be obligated to pay such indebtedness to [the Bank] as if Retro had been the initial borrower. Although repayment of the notes ... will not be affected by this Agreement except to the extent that those notes will memorialize indebtedness to be due [the Bank] by Retro, David Rebarchek shall pay the monthly payments required by the notes ... in the amounts of $2,125.00 per month and $810.00 per month respectively directly to [the Bank] for the months of June of 1989 and for each and every month thereafter up to and including the month of May of 1990.... Retro and the Guarantors acknowledge and agree that although the effect of the Plan will be that Retro will have assumed the obligation to pay Prairie['s] indebtedness to [the Bank] while, at the same time, conveying real property formally owned by Prairie ... to Rebarchek; Retro and David and Delores Rebarchek will have received consideration sufficient to allow [the] Bank's mortgages ... to remain valid as against David and Delores Rebarchek and their successors in interest if Retro fails to pay to [the Bank] the indebtedness Prairie ... owed [the Bank] because of the notes....

"If David Rebarchek fails to timely pay any payment(s) due [the Bank] because of the notes ... for the months of June 1989, and for each and every month thereafter up to and including the month of May of 1990, then Retro remains liable for paying those payments to [the Bank], but before [the Bank] calls on Retro to do so, [the Bank] shall make a good faith effort to collect those payments form (sic) the letter of credit or cash supplied by Mr. Rebarchek.

* * * * * *

"Retro will remain liable for paying all of ... Prairie['s] indebtedness once memorialized by the notes ... to [the Bank]. [The Bank] waives none of its rights to proceed against any letters of credit or collateral pledge agreements given by David Rebarchek to ensure that he makes the payments to [the Bank] required by this Article II. After Retro assumes the indebtedness due [the Bank] from Prairie ... repayment of that indebtedness shall also be secured by all security interests Retro has given [the Bank]."

Retro conveyed the real estate to Rebarchek by a warranty deed, which stated that "[Retro] does hereby GRANT to [Rebarchek] all of the following real property ... subject to two mortgages of record to [the Bank], which mortgages [Rebarchek] assumes and agrees to pay according to its terms...." ¹ Rebarchek, Tuominen and Eveslage also signed personal guaranties for the debt.

The parties executed another workout agreement on June 6, 1991, when the real estate taxes on the property were delinquent. According to Tuominen, Retro, which was leasing some of the property from Rebarchek, was responsible for payment of the real estate taxes under the terms of the lease agreement. The workout agreement provided in pertinent part:

"The notes attached to the August 4, 1989, Workout Agreement ... memorialize indebtedness which has been assumed by Retro and their repayment is secured by, among other things, mortgages held by [the Bank] in real property once owned by Prairie ..., a North Dakota partnership, but which real property is now owned by David and/or Delores Rebarchek....

* * * * * *

"To allow Retro to cure the defaults in the notes and mortgages attached to the August 4, 1989, Workout Agreement ... [the Bank] shall loan Retro $15,000.00 according to the terms and conditions of the promissory note attached.... When Retro signs the promissory note ... it shall also sign the setoff disclosure and disbursement request and authorization attached.... Repayment of the $15,000.00 loan described in this Article II shall be secured by all of the security interests given by Retro to [the Bank] either before or at the time of this Agreement."

Rebarchek tendered all payments to the Bank pursuant to the January 2, 1987 promissory note and real estate mortgage until November 1991 when he was unable to make the payment because of a lack of cash flow from the real estate and exhaustion of his personal funds. Tuominen, Eveslage and Retro thereafter settled their obligations to the Bank and the Bank released them from "all its (sic) obligations in connection with" Retro, Prairie and Rebarchek. The Bank sued Rebarchek to foreclose the January 2, 1987 promissory note and real estate mortgage.

Rebarchek raises numerous arguments why summary judgment should not have been granted in this case. Summary judgment allows the disposal of a controversy if either party is entitled to judgment as a matter of law, if no dispute exists as to either the material facts or the inferences to be drawn from undisputed facts, or if resolving disputed facts would not alter the result. Ebach v. Ralston, 469 N.W.2d 801 (N.D.1991). Applying these principles, we believe the trial court properly granted summary judgment for the Bank.

I

Rebarchek contends the workout agreements show that the Bank never accepted him as the principal debtor, but looked to Retro as the principal debtor on the promissory note. Rebarchek asserts that he was nothing more than a surety for the debt. Thus, according to Rebarchek, he was discharged from any obligation to pay the promissory note when the Bank released Tuominen, Eveslage and Retro. We reject these contentions.

A

A surety is defined as "one who, at the request of another and for the purpose of securing to him a benefit, becomes responsible for the performance by the latter of some act in favor of a third person or hypothecates property as security therefor." Section 22-03-01, N.D.C.C. The South Dakota Supreme Court has explained:

"Suretyship is a contractual relationship, which results from two persons becoming obligated to the same creditor with one of them bearing the ultimate liability. In other words, if the debt is enforced against the surety, he then is entitled to be indemnified by the one who should have paid the debt before the surety was compelled to do so. However, 'one who receives and retains the consideration or benefit of a contract cannot occupy the position of surety.' 74 Am.Jur.2d Suretyship Sec. 3 (1974). Hence, a person who makes a contract for the purpose of securing to himself a benefit rather than for securing to another a benefit, may be classified as a principal. Heinrich v. Magee, 52 S.D. 371, 217 N.W. 631 (1928).

"It is immaterial in what form the relation of principal and surety is established, or whether the creditor was or was not contracted with in that relation. The relation is vested by the arrangement and equities between the debtors, and may or may not be known to the creditor....

"....

" '[Suretyship] is determined by inquiring who received the consideration of the contract, or who, according to the arrangements between the parties, ought to pay the debt.'

"Heinrich, 52 S.D. at 378, 217 N.W. at 634 (citations omitted); 72 C.J.S. Principal & Surety, Secs. 4, 9 (1987)."

State of Wis. Inv. Bd. v. Hurst, 410 N.W.2d 560, 562-563 (S.D.1987).

Although a conveyance made subject to an existing and specified incumbrance does not alone obligate the grantee to pay the mortgage debt, Brown v. Leeak, 52 N.D. 398, 203 N.W. 185 (1925), a grantee who assumes a...