Mechtle v. Topp

• Decision Date: 08 April 1952
• Docket Number: No. 7301,7301
• Citation: 78 N.D. 789,52 N.W.2d 842
• Parties: MECHTLE v. TOPP.
• Court: North Dakota Supreme Court

Page 842

52 N.W.2d 842

78 N.D. 789

MECHTLE v. TOPP.

No. 7301.

Supreme Court of North Dakota.

April 8, 1952.

Syllabus by the Court.

1. In this state a mortgage conveys no title to or estate in the property covered by the mortgage, but is merely a contract by which specific property is hypothecated as security for the performance of an act.

2. In distinguishing between a trust and a mortgage, it may be stated as a general rule that an express trust in real property vests the whole estate in the trustee, subject to the execution of the trust, while a mortgage creates no estate in the mortgagee.

3. When a simple deed is executed and delivered a fee simple title is presumed to be intended to pass, unless it appears from the deed that a lesser estate was intended, and to overcome this presumption the evidence must be clear, specific, satisfactory, and convincing. But when it is shown by evidence meeting these standards that a deed purporting to be absolute on its face is a part of or an incident to a transaction other than an absolute conveyance, the presumption has been overcome and questions pertaining to the nature of the transaction are thereafter resolved upon the basis of the preponderance of the evidence. If at this stage of the proof doubt arises whether the transaction resulted in a mortgage or in some other type of contractual relationship, the law which jealously guards a debtor's right of redemption will be given effect and the transaction will be held to result in a mortgage under which the grantor or mortgagor will be afforded the right to redeem.

4. It is essential to the existence of a mortgage that there be an agreement, express or implied, on the part of the mortgagor or other person in whose behalf the mortgage is executed to discharge an obligation in some form owing to the mortgagee.

5. In an action to have a deed absolute declared to be a mortgage, inadequacy of consideration is a circumstance that may be considered.

6. Where, in an equitable action, a deed absolute upon its face is determined to be a mortgage and the plaintiff who is the grantor has asked for an accounting from the defendant grantee who is in possession, the plaintiff is entitled to have the defendant account for the profits that have accrued during his possession and to have them applied in liquidation of plaintiff's indebtedness.

F. E. Foughty, Devils Lake, and Melvin M. Christianson, Minnewaukan, attorneys for plaintiff-appellant.

Edgar P. Mattson, New Rockford, attorney for defendant-respondent.

MORRIS, Chief Justice.

This is an appeal by the plaintiff from a judgment determining that the defendant is the owner of the fee simple title to certain lands in Eddy County free of any right, title, interest in, lien, or encumbrance upon the same by the plaintiff, Mechtle.

For some time prior to 1950 the plaintiff was the owner of the tracts of land involved in this suit containing approximately 1,200 acres. A mortgage on this property was foreclosed in 1949, and at the foreclosure sale on July 18 of that year, one James Casey became the purchaser and a sheriff's certificate of sale was on that date issued to him. Under the terms of that certificate Casey was entitled to a sheriff's deed at the expiration of one year from the date of sale unless redemption was made in the meantime. Chapter 28-24, NDRC 1943. The plaintiff and the defendant had been neighboring farmers, but after the foreclosure sale the plaintiff moved to the city of New Rockford. About a week before the period of redemption expired, the plaintiff saw the defendant in town and asked the defendant to purchase the property. The defendant told him that he was not interested.

On the last day of redemption, July 18, 1950, the plaintiff drove out to the defendant's farm, where a discussion was had which resulted in the transaction now in litigation. From the defendant's farm the parties drove by separate conveyances to New Rockford, where further negotiations were had. They made two calls at a lawyer's office and one call at the sheriff's office. The sequence of these events is not clear from the record, but before the day was over the defendant wrote out his check payable to the sheriff for $3,853.80, the amount required to redeem the land, and a certificate of redemption was issued by the sheriff in the name of Robert B. Mechtle. The same afternoon that the redemption was made the plaintiff executed and delivered to the defendant a quitclaim deed to the land, and at the same time the parties entered into a written agreement which is as follows:

'This agreement made and entered into this 18th. day of July, 1950, by and between Forrest Topp, of Brantford, No. Dak, party of the first part, and R. B. Mechtle, of New Rockford, No. Dak., party of the second part.

'Witnesseth, that whereas the said party of the first part has this day paid to the said party of the second part, sufficient funds to make redemption from mortgage foreclosure, of the following described real property, situated in the County of Eddy and State of North Dakota, and described as follows, to-wit:

'The SW 1/4 of Section 2; The NW 1/4, the W 1/2 NE 1/4 and SE 1/4 of Section 11, The NE 1/4 of Section 15, The N 1/2 and N 1/2 S 1/2 of Section 14, all in Township 148 N. Range 64 West of the 5th. P.M.

and such redemption has now been made by the party of the second part, and

'Whereas the said party of the second part has this day executed and delivered to the said party of the first part, a quit claim deed to the said above described real property.

'Now therefore, in consideration of the premises it is understood and agreed, as follows, to-wit:

'That in addition to the amount advanced to second party by first party to make such redemption, the said party of the first part will also advance sufficient funds to pay the 1947 and 1949 taxes on said property; that the said party of the first part will hold the title to the said property for a period of four months from the date hereof, in trust for the second party during which period of time the second party will have the option to sell the said property or a part thereof sufficient to repay the first party for the advances that he has made; that in the event the said property is not sold within the said four months period, or the second party does not repay first party for his advances so made, then and in that event the party of the first part is to have the whole title to said property, in fee simple and without any further claim thereon by the second party, and title shall be absolute in first party.

'It is further understood and agreed by and between the parties hereto that if said property is not sold within two weeks from the date hereof, the first party shall have the right to lease out said premises or to go upon said land himself for the purpose of summer fallowing the crop land thereon, and any lease he might make therefore, or for any part thereof, shall be binding on second party, if the same is redeemed by him, or sold, and shall be binding on any subsequent purchaser, that is to say the tenant under any such lease shall have the right to farm the said land for the season of 1951, in order to receive the benefit of any summer fallowing, or shall receive payment for said summer fallowing at a reasonable going price for the work he might do thereon.

'Party of the first part shall have the right to lease out the hay land on said premises, any time after July 23rd. 1950, and if so leased the landlord's share of the hay crop shall be divided 50-50 between the parties hereto.

'In witness whereof the parties have hereunto set their hands the day and year first above written.'

We will consider applicable statutes and pertinent rules of law to which we look for guidance in order to determine whether the transaction was one of security or whether it resulted in the transfer of absolute title to the defendant Topp. Section 35-0203, NDRC 1943 provides that:

'Every transfer of an interest in property, other than in trust, made only as a security for the performance of another act, is a mortgage, except that a transfer of personal property accompanied by an actual change of possession, is a pledge.'

And the next section, 35-0204, says:

'The fact that a transfer was made subject to a defeasance on a condition, although not appearing by the terms of the instrument, may be proved, except as against a subsequent purchaser or encumbrancer for value and without notice, for the purpose of showing such transfer to be a mortgage.'

In this state a mortgage conveys no title to or estate in the property covered by the mortgage, but is merely a contract by which specific property is hypothecated as security for the performance of an act. Section 35-0201, NDRC 1943; Federal Farm Mortgage Corp. v. Berzel, 69 N.D. 760, 291 N.W. 550; First National Bank of Waseca v. Paulson, 69 N.D. 512, 288 N.W. 465; State v. Divide County, 68 N.D. 708, 283 N.W. 184.

In view of the fact that the agreement provides that the defendant is to hold the property for a certain period of time 'in trust,' it is appropriate to here point out the distinction between mortgages of real property and trusts in real property. The latter are provided for by Chapter 59-03, NDRC 1943. As a general rule an express trust in real property vests the whole estate in the trustee, subject to the execution of the trust, Section 59-0314, NDRC 1943, while a mortgage creates no estate in the mortgagee. The distinction is well stated in Scott on Trusts, Section 9, from which we quote:

'The interest of a mortgagee is a security interest. He holds this interest for his own benefit and not for the benefit of the mortgagor. A trustee, on the other hand, has an interest in the trust property which he holds for the beneficiaries, and not for his own benefit. A mortgagee cannot be compelled to surrender his interest in the mortgaged property until the debt secured by the mortgage is paid or otherwise...