Norwest Bank North Dakota, Nat. Ass'n v. Christianson

• Decision Date: 22 December 1992
• Docket Number: No. 920208,920208
• Citation: 494 N.W.2d 165
• Parties: NORWEST BANK NORTH DAKOTA, NATIONAL ASSOCIATION, Plaintiff and Appellee, v. James D. CHRISTIANSON, Christopher A. Carlson, and James P. Beck, Defendants and Appellants. Civ.
• Court: North Dakota Supreme Court

Page 165

494 N.W.2d 165

NORWEST BANK NORTH DAKOTA, NATIONAL ASSOCIATION, Plaintiff and Appellee, v. James D. CHRISTIANSON, Christopher A. Carlson, and James P Beck, Defendants and Appellants.

Civ. No. 920208.

Supreme Court of North Dakota.

Dec. 22, 1992.

Lawrence R. Klemin of Bucklin & Klemin, P.C., Bismarck, for plaintiff and appellee.

Irvin B. Nodland of Nodland & Dickson, Bismarck, for defendants and appellants.

VANDE WALLE, Justice.

James D. Christianson, Christopher A. Carlson, and James P. Beck appealed from a judgment finding them liable on guaranties to Norwest Bank North Dakota, N.A., in the amount of $132,654.90. We affirm.

In 1985, Soo Hotel Associates [Soo], a limited partnership in which Christianson Carlson, and Beck [Partners] are general partners, executed a promissory note in favor of Norwest Bank North Dakota, N.A., [Norwest] in the amount of $132,500.00. The note was secured by a mortgage in the amount of $132,500.00 on real property owned by Soo in downtown Bismarck. Both the note and the mortgage were signed by Partners. Additionally, at the time the loan was negotiated, Partners were asked to sign personal and unconditional guaranties in the event Soo, as the mortgagor, defaulted. Partners claimed that at the time of the loan negotiation, Thomas Gietzen, a loan officer with Norwest, advised them that there was sufficient equity in the real estate for which the bank was taking the mortgage to cover the indebtedness, and regardless, Norwest would only pursue the personal guaranties if the real estate value turned out to be less than the balance due on the note. Partners claimed they were assured that Norwest would only pursue the personal guaranties if a deficiency existed after sale of the real estate. Gietzen, by way of affidavit, denies any such conversation took place, and the guaranty agreements signed individually by Partners make no provisions which would support Partners' contention.

After several renewals, the note became due in late 1991. In early 1992, Norwest commenced an action against Partners on their personal guaranties without foreclosing on the real estate on which Soo's note was secured.

Partners admitted Soo's default in repayment, admitted signing the personal guaranties, and attested to the genuineness of the guaranties as proffered by Norwest. The trial court resolved the legal issues against Partners and granted Norwest's motion for summary judgment.

Partners raises these issues for our consideration:

(1) In a direct real estate mortgage action, if a bank pursues personal guaranties of general partners of a limited partnership without first foreclosing the mortgage, is its recovery limited to the difference between the amount owed and the fair market value of the real estate as determined by a jury?

(2) Are the guaranty agreements sufficiently vague, ambiguous, or inconsistent so as to permit Partners to introduce parol evidence to vary their terms?

(3) Do the guaranty agreements contain illegal and unconscionable provisions that should prevent or impair their enforceability?

Guaranty Limitations

Partners contend that after a mortgagor's default, a mortgagee may sue the guarantors of the mortgagor's debt, but the recovery is limited to the difference between the amount owed and the fair market value of the mortgaged real estate if the mortgagee does not first foreclose on the real estate.

In First Interstate Bank of Fargo v. Larson, 475 N.W.2d 538 (N.D.1991), we held that the anti-deficiency statute, NDCC Sec. 32-19-07, applies to general partners who guaranty their partnership's notes which are secured by a mortgage. Because a general partner's guaranty is not a separate obligation from the underlying note, the general partner's liability is not founded on the guaranty, but on the note itself. Therefore, a mortgagee suing on a general partner's guaranty after the partnership's (mortgagor's) default, is subject to the rights and limitations enumerated in the anti-deficiency statute. Larson would have been dispositive of this appeal, but we specifically held that its application would be applied prospectively only. As the mortgage, note, and guaranties were signed by Partners in 1985, Larson, decided in 1991, has no bearing on their case. Larson, supra, at 545 citing State v. Klein, 63 N.D. 514, 249 N.W. 118 (1933) ["The rights and obligations of contracting parties cannot be altered by subsequent legislation or judicial decision."].

In 1985, the law with respect to the liability of general partners as a result of their guaranties of the partnership's mortgage, was controlled by the Court's decision in Mandan Sec. Bank v. Heinsohn, 320 N.W.2d 494 (N.D.1982) overruled by Larson, supra. In Heinsohn, the majority of this Court held that a general partner who personally guaranteed payment of a partnership note secured by a mortgage, changed the nature of the partner's obligation on the debt--and as a result the partner was not only jointly liable on the note, but was jointly and severally liable on the guaranty. Because the liability of the general partner on the guaranty was not founded on the underlying note secured by the mortgage, the anti-deficiency statute did not preclude recovery on the individual guaranty and the creditor could collect on the guaranty without first foreclosing on the real property. See also Bank of Kirkwood Plaza v. Mueller, 294 N.W.2d 640 (N.D.1980) [shareholder's personal guaranty of corporation's note secured by mortgage was a separate and distinct obligation as opposed to their obligations as shareholders, so creditor not bound by anti-deficiency statute and may sue on guaranty without first foreclosing]. ¹

Partners' reliance on Stewart v. Henning, 481 N.W.2d 230 (N.D.1992) and First Nat'l Bank & Trust of Williston v. Ashton, 436 N.W.2d 215 (N.D.1989) is misplaced. In Ashton, individuals executed a promissory note secured by a mortgage and simultaneously executed personal guaranties on the mortgage debt. Upon default, the mortgagee sued the individuals on their personal guaranties, and we concluded that the individuals had not executed "guaranties" as defined under section 22-01-01, NDCC, because the signers were both the principal debtors and guarantors. Therefore, the anti-deficiency statutes were applicable. In Partners' case, Partners were not the principal debtors on the mortgage under the majority holding in Heinsohn.

In Stewart, two shareholders, as individuals, and a corporation executed a promissory note in favor of Stewart. The corporation, as security for the note, gave Stewart a mortgage on real property and a security interest on personal property. After default on the promissory note, Stewart sued the individuals for its balance. The notes were secured by a mortgage on real property and a security interest on personal property. Relying on First State Bank of Cooperstown v. Ihringer, 217 N.W.2d 857 (N.D.1974), we held that a creditor may proceed against the personal property or the real property in no particular order. Because the shareholders were not mortgagors, the creditor could also proceed on the debt before foreclosing on the properties, but if that option is taken, the anti-deficiency statute, NDCC Sec. 32-19-07, limited the creditor's recovery to the difference between the amount due on the note plus cost and the fair market value of the property as determined by a jury. Stewart is factually inapposite to Partners' case. Partners guaranteed the partnership's note, the guaranties were separate obligations from the note, and so the anti-deficiency statutes do not apply.

Applying the law at the time the contract was entered into, Partners' obligation of repayment is not founded on the note, but on their personal guaranties. Heinsohn, supra. Therefore, the anti-deficiency statutes do not apply to this action, and Norwest is not bound by their limited options upon the default of the mortgagor. See NDCC Sec. 32-19-07; Ihringer, supra. Norwest is free to collect the entire amount guaranteed jointly and severally by Partners without first resorting to foreclosing on the real estate, and without limiting its recovery to the difference between the fair market value of the real estate and the amount due on the...