Merchants' Nat. Bank of Fargo v. Miller

• Citation: 59 N.D. 273,229 N.W. 357
• Decision Date: 18 February 1930
• Docket Number: No. 5745.,5745.
• Parties: MERCHANTS' NAT. BANK OF FARGO v. MILLER et al.
• Court: United States State Supreme Court of North Dakota

59 N.D. 273

229 N.W. 357

MERCHANTS' NAT. BANK OF FARGO

v.MILLER et al.

No. 5745.

Supreme Court of North Dakota.

Feb. 18, 1930.

Syllabus by the Court.

Where a debtor gives a second mortgage on land, covenanting that “he is lawfully seized of said premises; that he has good right to convey the same; that the same are free from all incumbrances, excepting incumbrances of record, and that he will warrant and defend the title to the same against all lawful claims, hereby relinquishing and conveying all rights in and to said premises,” and the first mortgage is thereafter foreclosed and sheriff's deed issued to the purchaser, and the debtor thereafter repurchases said land, he is estopped, in an action to foreclose the second mortgage, from denying the validity of the second mortgage which he gave, because of the covenants to warrant and defend contained therein.

In such case, section 6731 of the Code (Comp. Laws 1913), to wit, “title acquired by the mortgagor subsequent to the execution of the mortgage inures to the mortgagee as security for the debt in like manner as if acquired before the execution,” applies, even though the mortgagor had title, lost it, and reacquired it, and is not restricted to a case where the mortgagor had no title at the time of the giving of the mortgage, but acquired title thereafter.

The fact that such mortgagor, after the foreclosure of the first mortgage, and prior to the subsequently acquired title, “went through bankruptcy,” does not remove the bar of this estoppel.

Where such a mortgagor subsequently acquires title, and thereafter conveys the land, the grantee gets no better title than the grantor had.

Appeal from District Court, Ward County; Fred Jansonius, Judge.

Action by the Merchants' National Bank of Fargo against P. W. Miller, the Bankers' Discount Acceptance Corporation, and others. Judgment for plaintiff, and defendant last named appeals. Affirmed.

L. J. Palda, Jr., C. E. Brace, and Robt. W. Palda, all of Minot, for appellant.

Holt, Frame & Nilles, of Fargo, for respondent.

BURR, J.

The trial court found that, prior to October 19, 1922, the defendant Miller known as the son, owned a half interest in the land involved-the other half being owned by one F. Boesch; that Miller gave a mortgage to the plaintiff, on this interest subject to a first mortgage, both mortgages being recorded; that the first mortgage was assigned to Miller's father, who foreclosed it, and bid in the land at the sale; that no redemption was made, and sheriff's deed was issued to the father; that the son “went through bankruptcy” by filing his schedules, listing his indebtedness to plaintiff, and receiving a discharge; that thereafter, about April 16, 1922, the son organized the appellant corporation under the laws of the state of Delaware; that the appellant corporation “was what is commonly termed a ‘one-man corporation;’ * * *” that the father then sold the land to the son, giving him a deed, with the name of the grantee omitted, and with authority to insert the name of any grantee he saw fit; F. Boesch joined in this deed, and conveyed all of his interest in the land involved, the deed being given for the use and benefit of the son; that the son thereafter had one of the directors of the company insert the name of the appellant in the deed as grantee, and then delivered the deed to the grantee.

Plaintiff brings this action to foreclose its mortgage, and the Bankers' Discount Acceptance Corporation says the mortgage is extinguished. The defendant Miller defaulted, and the trial court entered findings of fact, conclusions of law, order of judgment, and judgment in favor of the plaintiff, and decreed the foreclosure of this mortgage. The Bankers' Discount Acceptance Corporation appeals, demanding a trial de novo.

There are fourteen specifications of error, all centering around four of the findings of the trial court and the conclusions of law drawn therefrom.

The appellant says the court was in error in finding that the father sold the land to the son; that the father gave the son a deed for the use and benefit of the son, with the name of the grantee in blank; that the grantee's name was inserted by an officer of the appellant; and finding that the appellant had notice of any interest of the plaintiff in the land subsequent to the foreclosure of the first mortgage.

Without setting forth the testimony, it is sufficient to say the findings of the trial court are fully sustained by the evidence. It is true the son denies that he received such a deed. He says the father and Boesch issued the deed to the appellant, but the testimony of a director of the appellant corporation is full and complete, showing that, when the deed was presented by the son, there was no grantee named therein, that the son said he bought the land from his father, and received this deed for his own use and benefit with the name of the grantee omitted, and that, at the direction of Miller, the director inserted the name of the appellant as grantee, and thereafter the deed was delivered. The testimony also shows, almost without dispute, that at the time the deed was delivered by Miller it was agreed he was to receive five hundred shares of stock in the corporation for this land and other lands which he was selling to the corporation; that these lands were all the assets of the corporation at that time; that the stock issued was all of the stock of the company issued at that time, and that four hundred eighty-nine shares of stock were issued to Miller, and eleven shares issued to others whom he named, for the purpose of enabling him to carry on the corporation. It is clear that the son had the company organized in Delaware, that the resident directors of Delaware immediately thereafterwards resigned, and Miller and two others were elected in their place; in fact, that the defendant corporation was merely Miller operating under another name, and the other shares were issued at that time merely to allow him to operate.

[1] Appellant says that, in any event, plaintiff cannot recover; that there was no redemption from the foreclosure of the first mortgage; that, before the defendant went through bankruptcy, the lien of the second mortgage was extinguished; that, by going through bankruptcy, the defendant Miller was discharged from his indebtedness and any liability on his covenants and warranties contained in the mortgage.

The mortgage given to the plaintiff contains the following covenants:

“The said party of the first part (P. W. Miller) does covenant with the said party of the second part, (the plaintiff) its successors and assigns, that he is lawfully seized of said premises; that he has good right to convey the same; that the same are free from all incumbrances, except incumbrances of record, and that he will warrant and defend the title to the same against all lawful claims, hereby relinquishing and conveying all rights in and to the said premises.”

The covenants and warranties in this mortgage are independent of each other. They are of “materially different import and directed to different objects.” See Bush v. Cooper, 26 Miss. 599, 59 Am. Dec. 270, 273. While the mortgagor did not warrant the land free from incumbrances, nevertheless he agreed with the plaintiff that he would defend this title to the premises against all lawful claims, and therefore he agreed to defend it against the first mortgage. See Smith v. Gaub, 19 N. D. 337, 123 N. W. 827. The covenant of warranty and to defend the title is not restricted by the exception as to the incumbrances. The fact that a restriction was placed on the warranty against incumbrances does not in any way show the parties intended to restrict and qualify the covenant of warranty to defend.

Appellant criticizes Smith v. Gaub, saying:

“We consider the reasoning of the case of Smith v. Gaub, 19 N. D. 337, 123 N. W. 827, relied upon by plaintiff to be indefensible, except as it is strictly limited to the facts in that case, since in that case, the warranty was contained in a deed. And even then, it is scarcely defensible.”

This case was decided in 1910. It has plenty of support in authority, representing, as it does, one line of opinion. Even if this court, as now constituted, was of the opinion the other line of authority should have been adopted, this principle has become the established rule of property for this jurisdiction, and should not be disturbed.

[2] Such warranty “to defend the title * * * against all lawful claims” estops the defendant Miller from asserting any adverse rights in any subsequently acquired title. See Smith v. Gaub, supra; Martin v. Yager, 30 N. D. 577, 153 N. W. 286. Our statute, section 6731 of the Code (Comp. Laws 1913), says:

“Title acquired by the mortgagor subsequent to the execution of the mortgage inures to the mortgagee as security for the debt in like manner as if acquired before the execution.”

This applies to a case where the mortgagor had title, lost it, and subsequently reacquired title, as much as it does to a case where the mortgagor did not have title at first, but gave a mortgage and afterwards acquired title.

The son could not assert that the foreclosure of the first mortgage cut off the second mortgage. Subsequently acquiring title to the same land estops him. The law presumes that, when he repurchased the land, he had a good motive in mind; that he purchased it for the purpose of protecting the warranty he had given in this mortgage, and where without such protection the warranty would fail. Consequently the law presumes he was trying to live up to his agreement, and will not permit him to assert a bad motive. “The law, in circumvention of dishonesty, will conclusively presume that it was made in the performance of duty, and not in repudiation of it.” Brown et al. v. Avery et al., 119 Mich. 384, 78 N. W. 331, 332.

In Yerkes v. Hadley, 5 Dak. 324, 40 N. W. 340, 2 L. R. A. 363, a married woman executed a mortgage with her...