Pries v. Hurning

• Decision Date: 21 July 1944
• Docket Number: No. 33840.,33840.
• Parties: PRIES v. HURNING et al.
• Court: Minnesota Supreme Court

15 N.W.2d 515

218 Minn. 189

PRIES v. HURNING et al.

No. 33840.

Supreme Court of Minnesota.

July 21, 1944.

Appeal from District Court, Olmsted County; Vernon Gates, Judge.

Action on a note by Albert F. Pries against Roe S. Hurning and another. Judgment for defendants, and plaintiff appeals.

Affirmed.

Christensen & Ronken, of Rochester, for appellant.

Clarence T. Perkins, of Chatfield, and Richard Manahan, of Rochester, for respondents.

PETERSON, Justice.

This is an action on a promissory note for $1,100 executed and delivered by defendants to one Knud Pedersen as the difference between the amount due on a note secured by a mortgage on their farm, executed and delivered by them to him, and the amount received by him upon a mortgage loan made by the Federal Land Bank of Saint Paul to defendants. The loan was made for the purpose of paying the defendants' secured and unsecured indebtedness and to provide a "reserve" of $300 for painting and repairing the buildings. The defense was that the note was void as against public policy and that it was without consideration, because it was given for an indebtedness discharged by the proceeds of the land bank loan received by Pedersen.

In 1926 defendants executed the note and mortgage to Pedersen. In 1933 there was approximately $9,000 due thereon. Defendants procured a loan from the land bank to pay off their indebtedness. The Pedersen mortgage constituted the principal debt and the principal reason for the land bank loan. In November, 1933, the land bank approved defendants' application for a loan of $8,000.

Instead of one loan, two separate loans secured by mortgages on defendants' farm were made: one by the Federal Land Bank of Saint Paul in the sum of $5,000, and the other by the Land Bank Commissioner in the sum of $3,000. The entire commitment was handled through the land bank. For convenience we shall refer to the entire transaction as one loan by the Federal Land Bank. It sent to its loan agent at Rochester the necessary vouchers for closing the loan, including a remittance statement and authorization for the disbursement of the sum of $7,751.88 from the amounts loaned. So far as here material, the authorization directed the local agent to pay the proceeds of the loan for the purpose of liquidating all of defendants' existing debts, of discharging all liens on their property, and of paying out of the $300 reserve for the painting and repairing of the farm buildings. It directed the agent that the proceeds were to be used exclusively for the purposes mentioned, to procure and file releases of all liens and encumbrances prior to payment of any of the proceeds of the loan, and, if those conditions could not be fulfilled, to return the vouchers for closing the loan to the land bank. The agent was notified that it had no power to deviate from the written directions. Pedersen was informed of these directions. He stated that he would not accept the money upon the terms and conditions stated. But, notwithstanding his verbal refusal, he accepted and cashed vouchers for the amount tendered him, and, in order to obtain the amounts mentioned, executed and delivered a satisfaction of the mortgage reciting that the indebtedness (the note) described in and secured by the mortgage given to him by defendants, had been fully paid and satisfied. At the same time, or immediately afterward, defendants gave the note here involved to Pedersen. For reasons to be presently stated, the precise time is immaterial.

Defendants made some payments on the note. Pedersen died, and plaintiff became the owner of the note by a bequest thereof to him.

Defendants prevailed below, and plaintiff appeals.

Numerous assignments of error have been made. We deem it necessary to discuss only the question whether upon the undisputed facts defendants are liable.

Plaintiff contends that the note was given contemporaneously with the closing of the loan from the federal agency and that it is valid for that reason. Defendants contend that the note is void as against public policy, whether given contemporaneously with or after the closing of the loan, and, further, that if it was given afterward it is unenforceable for lack of consideration under the rule of such cases as Clark v. Abbott, 53 Minn. 88, 55 N.W. 542, 39 Am.St.Rep. 577; Lankton v. Stewart, 27 Minn. 346, 7 N.W. 360; and Mason v. Campbell, 27 Minn. 54, 6 N.W. 405, to the effect that the creditor's acceptance from a third person, not under a prior legal or moral obligation to pay, of a sum less than the whole debt in full payment operates as a satisfaction of the whole debt, and no action will lie by the creditor against the debtor to recover the balance of the debt.

The question as to the validity of the note sued on is foreclosed by our decision in Kniefel v. Keller, 207 Minn. 109, 290 N.W. 218, where we held that such loans are authorized by the Emergency Farm Mortgage Act of 1933, 48 Stat. 48, § 32, 12 U.S.C.A. § 1016(e), for the purpose of liquidating and discharging the indebtedness of distressed farmers and that any obligation assumed by such borrowers to pay an indebtedness which such a loan was made to discharge is contrary to public policy as tending to bring about a result which the law seeks to prevent, citing our decision in Pye v. Grunert, 201 Minn. 191, 275 N.W. 615, 276 N.W. 221, involving a similar question under Home Owners' Loan Act of 1933, 12 U.S.C.A. § 1461 et...