First Nat. Bank & Trust of Williston v. Ashton, 880299

• Decision Date: 10 February 1989
• Docket Number: No. 880299,880299
• Citation: 436 N.W.2d 215
• Court: North Dakota Supreme Court
• Parties: FIRST NATIONAL BANK & TRUST OF WILLISTON, Plaintiff and Appellee, v. Loye ASHTON, a/k/a Loye A. Ashton, Defendant, Richard Jensen and Verlin Fossum, Defendants and Appellants. Civ.

Page 215

436 N.W.2d 215

FIRST NATIONAL BANK & TRUST OF WILLISTON, Plaintiff and Appellee, v. Loye ASHTON, a/k/a Loye A. Ashton, Defendant Richard Jensen and Verlin Fossum, Defendants and Appellants.

Civ. No. 880299.

Supreme Court of North Dakota.

Feb. 10, 1989.

Anseth & Zander, Williston, for defendants and appellants; argued by Janet Holter Zander.

McIntee & Whisenand, P.C., Williston, for plaintiff and appellee; argued by Terry R. Lorenz, Williston.

ERICKSTAD, Chief Justice.

The defendants Richard Jensen and Verlin Fossum appeal from a judgment issued by the district court which held that Jensen and Fossum were jointly and severally liable to the plaintiff, First National Bank & Trust Company of Williston, as a result of the guaranty they each signed and further dismissed their counterclaim against the Bank. We reverse in part, affirm in part, and remand with instructions.

On October 14, 1983, Jensen, Fossum, and Loye Ashton executed a promissory note in favor of the Bank in the amount of one hundred and eighty-four thousand, one hundred and ninety dollars ($184,190). The note was secured by a mortgage on Williston Basin Mineral Technology Subdivision property, in the amount of $184,190, and was signed by Jensen, Fossum, and Ashton as tenants in common. Additionally, the three men each signed written guaranties. The mortgage and guaranties were executed simultaneously with the note.

On June 4, 1987, the Bank commenced an action against Jensen, Fossum, and Ashton, seeking a monetary judgment, alleging that the promissory note was in default and that the men were personally liable, jointly and severally, based upon the guaranty each had signed. Jensen and Fossum ¹ answered the complaint, asserting that the promissory note was secured by a mortgage signed by each of the co-makers, thus prohibiting the Bank from suing directly on the note. They further asserted that the guaranties were limited. The Bank amended its complaint, alleging more specifically that the guaranties referred to were unconditional. Jensen and Fossum answered the amended complaint, reasserted their position as set forth in the original answer, and brought a counterclaim against the Bank, asserting that "the Plaintiff, by going after the Defendants individually and jointly has caused great and irreparable damage to their reputation and to their well-being and mental condition."

Jensen and Fossum then submitted a motion to the trial court to dismiss the complaint without prejudice. The Bank resisted the motion and made a cross motion for summary judgment in its favor and for dismissal of the counterclaim. On September 9, 1988, the district court denied Jensen's and Fossum's motion for dismissal and granted the Bank's motion for summary judgment and dismissal of the counterclaim.

The issues on appeal are:

1. Whether or not the district court erred in denying Jensen's and Fossum's motion for dismissal of the Bank's complaint;

2. Whether or not the district court erred in granting summary judgment in favor of the Bank; and

3. Whether or not the district court erred in dismissing Jensen's and Fossum's counterclaim.

On August 20, 1982, Ashton, Jensen, and Fossum signed a promissory note in the amount of $96,139.45 at 16.5% interest. On October 14, 1983, that first note was renewed and incorporated into another promissory note in the amount of $184,190 at 15% interest, signed by all three men. The second note indicated that it was secured by a separate real estate mortgage. A mortgage in the amount of $184,190 describing property known as the Williston Basin Mineral Technology Subdivision, was signed by Ashton, Jensen, and Fossum, as tenants in common, on October 14, 1983.

In addition to the promissory note and mortgage, Jensen, Fossum, and Ashton also executed individual guaranties in the amount of $184,190. The language of the guaranty indicated that it was an unconditional, continuing guaranty, but also made reference to specific liens against the property securing the mortgage. The Bank contends that "by executing these guaranties, each of the Defendants obligated themselves to pay the total debt of this entity or group of individuals, should the matter go into default." Jensen and Fossum argue that to permit the Bank to "circumvent the anti-deficiency statutes by the use of the guaranties executed by the same individuals as executed the promissory note and mortgage under the ... argument that the guarantors were not promising to answer for their own obligation but were in effect promising to answer for the debts of their co-mortgagors, would literally destroy the purpose of the anti-deficiency statutes and would allow lenders to avoid the effect of the anti-deficiency statutes by requiring multiple mortgagors to sign individual guaranties." Jensen and Fossum claim that the guaranties were limited to certain judgments and claims of interest against the property as related to a third party.

We have said that "[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." H & F Hogs v. Huwe, 368 N.W.2d 553, 556 (N.D.1985). 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, 374 N.W.2d 599, 600 (N.D.1985).

Section 32-19-07, N.D.C.C., provides in pertinent 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 or for the cancellation or foreclosure of a land contract made after July 1, 1951, shall the mortgagee or vendor, or the successor in interest of either, 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 or contract so 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 or land contract shall be entitled only to a foreclosure of the mortgage or the cancellation or foreclosure of the contract except as provided by sections 32-19-04 and 32-19-06."

Sections 32-19-04 ² and 32-19-06, N.D.C.C., ³ set forth the procedure to be followed in seeking a deficiency judgment, and provide that a mortgagee may seek a deficiency judgment in a separate action brought after the foreclosure and sheriff's sale.

We have previously construed these statutes to prohibit an action by a mortgagee against a mortgagor directly on the debt. See H & F Hogs, 368 N.W.2d at 556, citing McKee v. Kinev, 160 N.W.2d 97 (N.D.1968); Loraas v. Connolly, 131 N.W.2d 581, 586 (N.D.1964). As we stated in Loraas v. Connolly, 131 N.W.2d at 586:

"Sections 32-19-04 and 32-19-06, supra, permit separate actions for deficiencies, and actions after foreclosure in the case of mortgages executed subsequent to July 1, 1951. They do not authorize actions upon a debt secured by a real property mortgage only, without resort to foreclosure. Since all actions upon the debt, or any part thereof, except as authorized by the foregoing sections, are barred, it follows that a mortgagee may not bring an action upon the secured debt, against the mortgagor, without resort to foreclosure."

The Bank did not proceed to foreclose the real estate mortgage securing the promissory note. The Bank instead sought a judgment against Jensen, Fossum, and Ashton, jointly and severally, pursuant to the guaranty agreement executed by them, noting that the judgment was sought separately and apart from any remedy that might be available to the Bank as a result of the promissory note and other loan documents that had been executed.

The Bank relies on Bank of Kirkwood Plaza v. Mueller, 294 N.W.2d 640 (N.D.1980), and Mandan Security Bank v. Heinsohn, 320 N.W.2d 494 (N.D.1982), to support its position that the guaranties were each separate contracts and that the guaranty obligations of the individuals were separate from the obligation of the group of individuals who signed the promissory note.

Section 22-01-01, of the North Dakota Century Code, defines a guaranty as "a promise to answer for the debt, default, or miscarriage of another person." In Bank of Kirkwood Plaza, supra, 294 N.W.2d at 643, we described a contract of guaranty as follows:

" 'The contract of a guarantor is his own separate contract. It is in the nature of a warranty by him that the thing guaranteed to be done by the principal shall be done, and not merely an engagement jointly with the principal to do the thing.... [Citations omitted.] A liability such as this, although it may result in requiring a guarantor to pay the note, is not predicated upon "the terms of the instrument," but upon a contract entirely separate and distinct.' Northern State Bank v. Bellamy, 19 N.D. 509, 125 N.W. 888, 890 (1910)."

In Bank of Kirkwood Plaza, a corporation executed three promissory notes and secured them with three mortgages. The same day, three individuals executed a continuing guaranty agreement whereby they individually and unconditionally guaranteed payment of any obligation between the corporation and the Bank. None of the guarantors signed the mortgages and only one signed the promissory notes. Upon default, the Bank foreclosed against the corporation on the mortgages and also brought an independent action against the guarantors based on the guaranty agreement. The guarantors contended that such an action was barred under North Dakota's anti-deficiency statutes.

We reviewed the language of the anti-deficiency statutes (Secs. 32-19-04, 32-19-06, and 32-19-07, N.D.C.C.) and, although it was clear that...