Jefferson Cnty. Bank v. Erickson, 29228.

CourtSupreme Court of Minnesota (US)
Citation247 N.W. 245,188 Minn. 354
Docket NumberNo. 29228.,29228.
Decision Date03 March 1933

188 Minn. 354
247 N.W. 245


No. 29228.

Supreme Court of Minnesota.

March 3, 1933.

Appeal from District Court, Stevens County; S. A. Flaherty, Judge.

Action by the Jefferson County Bank against Herbert Erickson, Nels W. Nelson, and others. From a judgment for Nels W. Nelson, plaintiff appeals.


Syllabus by the Court.

1. The evidence sustains the finding that plaintiff, with knowledge of the conveyance by the mortgagors of the mortgaged land wherein the vendees assumed and agreed to pay the mortgage debt, and without the consent of the mortgagors, extended the time of payment five years.

2. There was a legal consideration for the extension, in that there was an increase in the rate of interest and it was for a definite time binding on both parties thereto.

3. Since the mortgagors and the makers of the promissory notes, when the mortgaged land was conveyed so that the vendees assumed and agreed to pay the notes and mortgage, became (as between the makers of the notes and the vendees) sureties, and the vendees principals, plaintiff, the assignee of the mortgagee, released the sureties when it with knowledge of the conveyance and without the consent of the sureties extended the time of payment of the mortgage debt.

4. The Uniform Negotiable Instruments Act does not control the rights of principals and sureties arising from conveyance of mortgaged premises wherein the vendees assume and agree to pay the mortgage debt. In such cases the mortgagee, or holder of the debt, with knowledge of the conveyance, must deal with the debt and security mindful of the fact that the mortgagors or makers of the notes have become sureties.

[247 N.W. 246]

T. J. Mangan, of Morris, for appellant.

R. G. Cushing, of Hancock, for respondent.

HOLT, Justice.

Plaintiff appeals from the judgment. The action is upon promissory notes executed by defendants, payable to the order of Petters & Co., a corporation, and by it, for value, indorsed to plaintiff before maturity. Respondent's defense was that plaintiff extended the notes without respondent's knowledge or consent. There was no service on defendant Herbert Erickson, and defendant Zeta Rose Erickson did not answer in time to allow a trial as to her at the time the issues as to respondent were tried. The court made findings in favor of respondent. Appellant's motion for amended findings being denied, judgment was entered.

Most of the facts are stipulated. Some of the inferences to be drawn from the testimony are in dispute. On August 18, 1919, defendants executed their twenty-nine promissory notes to Petters & Co. for $15,500, all bearing interest payable semiannually at 5 1/2 per cent. per annum; all of which have been paid except the last seven, upon which $6,092.67 is now due. On the same date, and as part of the same transaction, defendants executed and delivered to Petters & Co. a mortgage upon a 240-acre farm in Pope county, which was duly recorded November 29, 1919. Petters & Co. thereafter, for value, indorsed said notes, without recourse, to plaintiff and assigned to it said mortgage; the assignment being recorded December 24, 1919. This mortgage was duly foreclosed on February 28, 1931, for $10,500, leaving the deficiencies above mentioned. On March 1, 1920, defendants conveyed the mortgaged farm to Louis Petters and G. E. Petters, then and still the principal officers of Petters & Co., who as grantees assumed and agreed to pay said mortgage debt. Such deed was duly recorded on March 15, 1920. All the notes in suit became due March 1, 1925. On March 4, 1925, plaintiff executed a written extension of the notes, and mortgage securing the same, from March 1, 1925, to March 1, 1930; said notes to draw interest at the rate of 6 per cent. per annum, payable semiannually. Respondent was never notified that plaintiff had become owner of the notes and mortgage mentioned, and neither he nor any of defendants paid any interest or principal on the same. The court also found that, with knowledge of the conveyance of the farm to the Petters, the extension agreement set out in the stipulation was made by plaintiff, without the knowledge or consent of respondent, and that it was never authorized, consented to, or ratified by him. The court further found that the farm was worth more on March 1, 1925, than the amount due on the notes secured by the mortgage thereon.

The assignments of error are principally leveled at those parts of the sixth and seventh findings which are: First, that with knowledge of the conveyance from defendants to the officers of Petters & Co., wherein the vendees assumed and agreed to pay the mortgage debt, the promissory notes in suit, plaintiff executed the extension agreement; and, second, that the extension agreement was made by plaintiff without the knowledge or consent of respondent and it was never authorized, consented to, or ratified by him. In regard

[247 N.W. 247]

to the last-mentioned finding, it is enough to state that the evidence so requires. We shall confine our opinion to a consideration of the finding that plaintiff entered the extension agreement with knowledge of the conveyance from defendants to the Petters. If that finding is sustained the judgment must be affirmed, unless the agreement itself lacks validity, or the Uniform Negotiable Instruments Act prevents. The conveyance from defendants wherein the vendees assumed and agreed to pay the promissory notes in suit was recorded in March, 1920; about three months after the record of the assignment of the mortgage to plaintiff. Plaintiff cannot be charged with constructive knowledge of the assumption agreement by virtue of the recording of the conveyance, for its purchase of the notes and mortgage occurred before. Anderson v. Liston, 69 Minn. 82, 72 N. W. 52;Norton v. Metropolitan Life Ins. Co., 74 Minn. 484, 77 N. W. 298, 539; section 8291, 5 Dunnell, Minn. Dig. ‘Actual notice is synonymous with knowledge.’ Section 7230, 5 Dunnell, Minn. Dig. ‘Whenever a person has knowledge of facts relating to a matter in which he is interested which would naturally lead an honest and prudent person to inquire concerning the rights of others in such matter, he is chargeable with notice of everything which such an inquiry, pursued in good faith, with reasonable diligence and ordinary intelligence, would disclose.’ 5 Dunnell, Minn. Dig. (2d Ed. & Supp.) § 7231. Among the cases cited to sustain the text may be noted Niles v. Cooper, 98 Minn. 39, 107 N. W. 744,13 L. R. A. (N. S.) 49;Bergstrom v. Johnson, 111 Minn. 247, 126 N. W. 899;Twitchell v. Glenwood-Inglewood Co., 131 Minn. 375, 155 N. W. 621;Brockman v. Brockman, 133 Minn. 148, 157 N. W. 1086;Swaney v. Crawley, 154 Minn. 263, 191 N. W. 583;Lydiard v. Coffee, 167 Minn. 389, 209 N. W. 263. See, also, Fuller v. Quesnel, 63 Minn. 302, 65 N. W. 634. In determining whether the finding of knowledge is sustained, we need not point out any particular time when plaintiff obtained knowledge, except that it must be before March 1, 1925; nor, under the principles above stated, need actual knowledge be shown. If, according to Brockman v. Brockman, supra, there was notice enough to incite attention, and put the ordinarily prudent person on inquiry which, if pursued, would have led to actual knowledge of the deed and its contents the finding should stand. The evidence tends to show that defendants had sold the farm to the two officers of Petters & Co. on contract; and to finance the transaction, defendants gave the notes and mortgage to Petters & Co. for the purpose of negotiating the same so as to raise the money to pay the purchase price to defendants. After the notes and mortgage were sold to plaintiff, defendants conveyed the land to the Petters, father and son, and principal owners of Petters & Co. Before the notes and mortgage were assigned to plaintiff, one of its chief executive officers examined the mortgaged land, no doubt to ascertain whether it was ample security for the notes. A tenant of the Petters was then in possession. An inquiry of him would have revealed that he was the tenant of the vendees, and not of defendants. Plaintiff knew that its assignor, Petters & Co., was not the agent of defendants or representing them. While it accepted the notes indorsed by Petters & Co. without recourse, it took a separate contract from the company guaranteeing payment of the interest and principal of the mortgage. By another contract Petters & Co. also agreed to repurchase the paper on demand, to collect principal and interest, and remit to plaintiff without charge, and to look after the loan until fully paid. The evidence is conclusive that respondent had nothing to do with the mortgaged premises after the conveyance to the Petters, and that none of defendants paid either taxes or any sum upon the mortgage after it was given. The correspondence between plaintiff and Petters & Co. clearly permitted the court to draw the inference, or conclusion, that plaintiff knew that Petters & Co. was interested in the land and that the mortgagors had parted with their interest and title. There was some testimony that the vendees of defendants, the two officers of Petters & Co., had quitclaimed to the company. On February 5, 1925, plaintiff wrote Petters & Co. saying: ‘Are you willing to deed these lands to us at this time which will relieve us of the expense of foreclosure.’ Petters & Co. answered, four days later, saying: ‘There is no question in our minds but what our proposal to continue to pay interest and taxes is better from the bondholders' standpoint than it would be to foreclose or to take title to the land in some other manner. However, you are apparently convinced that it is better to foreclose the mortgage than to accept our proposal and be assured that taxes will be paid each year as well as the interest regardless of the income derived from the security. We can see no reason why we should deed the land to you, but we might...

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