Merchants' State Bank of Fargo v. Tufts

• Decision Date: 19 May 1905
• Parties: MERCHANTS' STATE BANK OF FARGO v. TUFTS et al.
• Court: North Dakota Supreme Court

14 N.D. 238

103 N.W. 760

MERCHANTS' STATE BANK OF FARGO

v.TUFTS et al.

Supreme Court of North Dakota.

May 19, 1905.

Syllabus by the Court.

1. A deed absolute on its face, but intended to be a mortgage under a parol contract, is properly recorded in a book provided for the record of deeds, and such record is notice to subsequent incumbrancers or purchasers.

2. A bank organized under the state banking act has authority, under section 3230, Rev. Codes 1899, to receive deeds of real property as security for past indebtedness, as well as for contemplated advances agreed upon.

3. A deed absolute in terms, but in equity a mortgage under a parol agreement for reconveyance, is security for the present indebtedness for which it was given, as well as for moneys advanced, after its execution, pursuant to a parol contract that such deed should be security therefor; and, before a reconveyance will be decreed, payment must be made, or a willingness to do so shown, of all sums due thereon in accordance with the contract, whether furnished before or after the deed was executed.

4. A grantee in a deed intended as security for a present debt and for future advances, based on a parol agreement, is not permitted to make advances under such parol contract after actual notice that subsequent incumbrancers or purchasers have a lien on the property covered by the deed taken without notice of the parol contract for future advances.

5. All advances made under such a deed before actual notice of a judgment obtained against the grantor are secured by such deed as against the judgment lien.

6. In such a case the judgment creditor stands in the same position as the grantor in the deed, so far as his right to contest the amount secured by the deed or mortgage is concerned.

7. In an action brought to have a deed declared to be a mortgage and for its foreclosure, in which judgment creditors are made defendants, and it appears that the grantee in the deed has other security for his indebtedness besides the deed, and that the judgment creditors have security on the land only, a court of equity will, in a proper case, compel the grantee to exhaust his security in the property not covered by the judgment lien.

Appeal from District Court, Cass County; Charles A. Pollock, Judge.

Action by the Merchants' State Bank of Fargo against De Witt Clinton Tufts and others. Judgment for plaintiff, and defendants appeal. Reversed.H. R. Turner, for appellants. Spalding & Stambaugh, for respondent.

MORGAN, C. J.

This is an action to have a deed of real estate declared a mortgage, and for the foreclosure thereof. The facts are that one Tufts was indebted to the plaintiff on and prior to November 10, 1902, in the sum of $7,307.37. On that day Tufts and his wife made and delivered to the plaintiff the deed in suit, for the purpose of securing the payment of a note for that sum, given on that day. This deed was not recorded until October 28, 1903, and was then recorded as a deed, and not as a mortgage. On November 10, 1902, Tufts also made and delivered to plaintiff a chattel mortgage on property belonging to him to secure the same note. The chattel mortgage was filed on the same day that the deed was recorded-October 28, 1903. The amended complaint alleges the execution and delivery of the note for $7,307.37, and the execution and delivery of the deed to secure the payment of the same, and also to secure the payment of all future indebtedness of said defendants to plaintiff. The complaint further alleges that, upon the payment by defendants of such existing indebtedness incurred after the giving of such deed, the plaintiff was to reconvey the premises to the defendants. It is further alleged that plaintiff advanced to the defendants, after the giving of such deed, the sum of $1,644.46, and paid taxes on the lands amounting to $126.09, and paid interest on a prior mortgage on said land at the request of Tufts, amounting in all to $528.04. Judgment is demanded declaring said deed to be mortgage security for all of said sums. The evidence shows that the plaintiff and Tufts entered into a parol agreement, at the time that the deed was executed and delivered, to the effect that the deed should be security for said amount as a present indebtedness, and for all future indebtedness incurred for advances made by plaintiff to Tufts. Neither the deed nor the note nor chattel mortgage contain any reference to the indebtedness to be incurred for advances, but the same rests wholly in parol. The defendant Tufts appeared, but interposed no answer or defense. The defendants McCormick Harvesting Machine Company and the Northwestern Port Huron Company answered, and alleged that they secured and owned judgments against the defendant Tufts for the purchase price of goods sold to him before the deed and chattel mortgage were given to plaintiff, and prayed that the plaintiff be ordered to foreclose the chattel mortgage and apply the proceeds of a sale of the personal property upon the amount due on the $7,307.37 note. The McCormick Harvesting Machine Company procured its judgment against Tufts for $957.89 on December 8, 1903, and the same was docketed on that day. The Northwestern Port Huron Company judgment was docketed on November 12, 1903, and was for $141.92.

There are other material facts shown by the evidence. One Kerr obtained a judgment against Tufts on November 27, 1903, for the sum of $504.96, and execution was by him caused to be issued and levied upon the personal property described in plaintiff's chattel mortgage, and duly sold on execution sale on January 2, 1904, to one Lathrop for the sum of $50, subject to plaintiff's chattel mortgage lien. On January 7, 1904, said Lathrop sold the personal property so purchased by him to the plaintiff for the sum of $600. Thereafter, on April 2, 1904, the plaintiff sold part of the personal property covered by the chattel mortgage to it, and received as proceeds therefrom the sum of $2,369.03. The balance of the personal property covered by that mortgage was not sold for want of bidders. This sale was not made by plaintiff under its chattel mortgage, but was made by it as the owner of the property under the sale of the same to it by said Lathrop. The proceeds of this sale were not applied in payment of the Tufts indebtedness. The value of the unsold property is not given, but it consisted of a threshing machine, separator, some binders, a Plano header, and a road grader.

The trial court found that the plaintiff was entitled to judgment for $7,307.37, the original indebtedness, and $1,644.46, the sum advanced under the parol agreement as to future advances, and the sums paid as accrued interest on a prior mortgage, and taxes paid, and decreed a sale of the real estate to satisfy said indebtedness, and adjudged that the deed was a mortgage and secured these various sums, and was in all respects prior to the judgments owned by the defendants and set forth in their answers. The defendants, as owners of such judgments, appeal from the judgment, and demand a review of the entire case under section 5630, Rev. Codes 1899.

It is claimed that the recording of the deed in the record for deeds, instead of the record for mortgages, was not notice to the defendants of the fact that the deed was security for future advances. The contention is that the judgment creditors are classed as innocent purchasers under the provisions of section 3594, Rev. Codes 1899, as amended by chapter 152, p. 202, of the Laws of 1903. Conceding, without deciding, such to be the fact, the evidence conclusively shows that no money was paid to Tufts after the judgments were rendered. The deed was properly recorded as a deed, as it was such in form. It was not accompanied by a writing to the effect that it was intended to be a mortgage, hence its recording is not governed by section 4729, Rev. Codes 1899. Section 3570 provides that all “grants absolute in terms are to be recorded in one set of books and mortgages in another.” It seems clear, therefore, that the deed was properly recorded, and that its recording is provided for under section 3570, Rev. Codes 1899. This seems to be the only conclusion that can reasonably be reached by construing sections 4729 and 3570 together. See, also, Webb on Record Title, §§ 137-139.

It is also insisted that the deed is void for the reason that the plaintiff bank had no authority to receive it under the provisions of the act authorizing the organization of state banks. Section 3230, Rev. Codes 1899, is as follows: “Banking associations formed under this chapter shall have power to purchase, hold and convey real estate for the following purposes and no other. * * * (2) Such as shall be mortgaged to it in good faith by way of security for loans or for debts previously contracted. (3) Such as shall be conveyed to it in good faith in satisfaction of debts previously contracted in the course of its dealings.” The deed in question was given for loans previously contracted and for loans made. We deem the transaction within the terms of the statute. It would be extremely technical to hold that the bank had no right to take a deed in form, but a mortgage in equity, to secure a past indebtedness as well as contemplated advances.

It is contended by the appellants that the deed found to be a mortgage gave the plaintiff no lien upon any property for advances made to Tufts after its execution and delivery. The claim is made that a mortgage for future advances is not operative as a lien therefor unless the mortgage is given for a fixed sum, which may include future advances, or the mortgage recites that it is given to cover future advances. This would be true of a mortgage in form and terms. Union National Bank v. Moline, Milburn & Stoddard Co., 7 N. D. 201, 73 N. W. 527. This principle is not applicable to the case at bar. The plaintiff had a deed absolute in...