Ressen v. Northwestern Nat. Bank & Trust Co. of Minneapolis

• Citation: 56 N.W.2d 663,238 Minn. 314
• Decision Date: 16 January 1953
• Docket Number: No. 35830,35830
• Parties: RESSEN et al. v. NORTHWESTERN NAT. BANK & TRUST CO. OF MINNEAPOLIS et al.
• Court: Supreme Court of Minnesota (US)

Page 663

56 N.W.2d 663

238 Minn. 314

RESSEN et al. v. NORTHWESTERN NAT. BANK & TRUST CO. OF MINNEAPOLIS et al.

No. 35830.

Supreme Court of Minnesota.

Jan. 16, 1953.

Syllabus by the Court.

1. The unimpeached and uncontradicted testimony of a witness may not be disregarded by the court.

2. A second mortgage, taken as part of a refinancing transaction together with bonds of the Home Owners' Loan Corporation in a redemption from a foreclosure sale, is not void if taken with the knowledge and consent of the Home Owners' Loan Corporation but is void if secretly taken or fraudulently exacted.

C. C. Champine, Samuel Dolf, Minneapolis, for appellants.

Chas. M. Bank, Minneapolis, for respondents.

KNUTSON, Justice.

Appeal from a judgment for plaintiffs entered upon findings of fact, conclusions of law, and order for judgment of the trial court.

Plaintiffs were the owners of certain real property in the city of Minneapolis, the description of which is not important. At a foreclosure sale on September 12, 1933, the property was bid in by C. Arthur Lyman, mortgagee, for the sum of $3,620.10. On October 10, 1933, Lyman signed a written consent to accept $3,620.10 face value of bonds of the Home Owners' Loan Corporation (referred to hereinafter as HOLC) in full satisfaction of the amount for which the property was bid in at the foreclosure sale. The consent, by its terms, was to be binding for 60 days. Plaintiffs had applied for a loan of $4,218.56. HOLC refused to grant a loan for the amount of the application but did grant a loan of $3,480. After payment of preferred items, the proceeds of the loan available for payment of the foreclosed mortgage amounted to $2,861.81. The note and mortgage to HOLC were signed on May 17, 1934. On May 18, 1934, plaintiffs executed to defendants a second note, secured by a mortgage on the property, in the amount of $906.71, that being the difference between the net proceeds of the HOLC loan and the amount due defendants, with interest. In the meantime, C. Arthur Lyman had died. C. C. Champine, who acted as attorney for defendants in the matter, testified at the trial that shortly before May 18, 1934, plaintiffs asked if the holders of the sheriff's certificate would be willing to discount the amount due and that they were told that there would be no discount. He said that the holders then were asked if they would take a second mortgage and that plaintiffs were informed that defendants would consent to accept a second mortgage for the balance but that HOLC would have to have knowledge of the transaction. Defendants were told by plaintiffs that one L. F. Anderson was handling the loan for HOLC. Champine, on objection of plaintiffs, was not permitted to disclose his conversation with Anderson. Sarah Ressen testified that she and her husband signed the papers, consisting of the note and second mortgage, and that they took them to HOLC. Her testimony in that regard on cross-examination was as follows:

'Q. Well, you do not deny that there was discussion with Lyman and Champine, his attorney, before the HOLC loan was made, and the discussion about the second mortgage, and that the mortgage was prepared and signed by you and your husband. A. They called us to the office and we signed, and that is all what we know, never spoke about anything. We took the paper to the Home Loan; that is all that we know. Then we completed the loan at the HOLC.

'Q. I am referring to the time when you were up to Mr. Lyman's office and Mr. Champine's office. At that time you were up there and signed that mortgage and note, was your husband with you? A. Yes, he signed and I signed.'

Champine further testified that on October 11, 1934, HOLC bonds in the face amount of $2,850, cash in the sum of $11.81, and the second note and mortgage were delivered to him for defendants by L. F. Anderson, representing HOLC, and that at that time he delivered the certificate of redemption to Anderson.

The second mortgage was not filed for record until January 16, 1937. Champine testified that the delay was due to the inability of defendants to procure the owners' certificate of title. Nothing was ever paid on the second mortgage. On March 23, 1948, it was foreclosed, and the property bid in at the foreclosure sale for the amount then due thereon. Thereafter and during the period allowed for redemption, this action was brought to set aside and cancel of record the mortgage and the foreclosure thereof. The court found that the note and mortgage were given without consideration, were against public policy, and were void and ordered their cancellation.

1. The testimony of Champine is neither impeached nor contradicted. Therefore, the court is not at liberty to disregard it. O'Leary v. Wangensteen, 175 Minn. 368, 221 N.W. 430.

2. The great weight of authority is that a note and mortgage, inferior to an HOLC loan, given in addition to bonds of the HOLC, are not Ipso facto void if executed with the knowledge and consent of HOLC, Sirman v. Sloss Realty Co., Inc., 198 Ark. 534, 129 S.W.2d 602; Shiver v. Liberty Building-Loan Ass'n, 16 Cal.2d 296, 106 P.2d 4; 89 U. of Pa.L.Rev. 828; Ridge Inv. Corp. v. Nicolosi, 193 A. 710, 15 N.J.Misc. 569; Williston Sav. & Loan Ass'n, v. Kellar, 74 N.D. 338, 22 N.W.2d 30; Bay City Bank v. White, 283 Mich. 267, 277 N.W. 888; Murphy v. Omaha Loan & Bldg. Ass'n, 141 Neb. 230, 3 N.W.2d 403; Chicago Title & Trust Co. v. Szymanski, 289 Ill.App. 600, 7 N.E.2d 608; Ganchoff v. Bullock, 234 Wis. 613, 291 N.W. 837; McVicar v. Peters, 12 Wash.2d 92, 120 P.2d 485; Walker v. Oakley, 347 Pa. 405, 32 A.2d 563 (cases pro and con collected) but are void when executed secretly or are fraudulently exacted, McAllister v. Drapeau, 14 Cal.2d 102, 92 P.2d 911, 125 A.L.R. 800 (Notes on this decision in 13 So.Cal.L.Rev. 162 and 28 Cal.L.Rev. 233), reversing Cal.App., 85 P.2d 523 (Note on this decision in 52 Harv.L.Rev. 842); Kraetsch v. Stull, 238 Iowa 944, 29 N.W.2d 341 (many cases collected); Annotations, 100 A.L.R. 1413, 110 A.L.R. 250, 121 A.L.R. 117, 125 A.L.R. 809. For other articles and notes discussing various phases of the subject, see 28 Cal.L.Rev. 232; 25 Cornell L.Q. 304; 38 Mich.L.Rev. 508; 12 Okl.St.Bar J. 1470; 89 U. of Pa.L.Rev. 828; 45 W.Va.L.Q. 332; 5 John Marshall L.Q. 373.

The record in this case will not sustain the court's findings. There is nothing to dispute the fact that the note and mortgage, after being executed by plaintiffs, were taken by them to the office of HOLC and there held until they, together with the HOLC bonds and the cash to make up a slight difference in amount, were delivered to defendants in return for the certificate of redemption. Under these circumstances, we cannot hold that HOLC was not fully advised of the execution of the second note and mortgage and that it did not consent thereto.

Plaintiffs rely upon our cases of Pye v. Grunert, 201 Minn. 191, 275 N.W. 615, 276 N.W. 221; Kniefel v. Keller, 207 Minn. 109, 290 N.W. 218; and Pries v. Hurning, 218 Minn. 189, 15 N.W.2d 515. All of these cases are distinguishable on the facts from the case now before us. The Pye case involved a violation of 12 U.S.C.A. § 1467(e), which is a part of the Home Owners' Loan Act of 1933, prohibiting any contract with an applicant for an HOLC loan for payment of the difference between the market value and the par value of the bonds of HOLC. We held that any contract made in violation of this express provision of the act was void.

The Kniefel case involved a loan negotiated with the Federal Land Bank. Plaintiff in that action was the owner of a farm in Steele county. He entered into an executory contract for the sale of the land to defendants for an agreed price of $11,800, of which $3,000 was paid. Plaintiff and defendants then entered into an agreement, by the terms of which defendants were to apply for a federal farm loan to meet the balance of $8,800. Plaintiff agreed to, 207 Minn. 110, 290 N.W. 219, "accept the sum realized from said loan and will take the note of' defendants 'for the balance necessary' to make up the difference.' The loan was approved for an amount which would permit payment to plaintiff of slightly more than $7,000. Plaintiff thereupon executed a creditor's agreement, under which he agreed to accept as full and complete payment of the balance of the purchase price a sum less than that which was due, which sum was later paid to him and accepted. He thereupon executed a receipt, 207 Minn. 111, 290 N.W. 219, 'for full payment of deed.' Before the completion of the loan, both parties entered into a written agreement, 207 Minn. 112, 290 N.W. 220, 'for the purpose of inducing' the land bank to make the loan, which provided in part as follows:

'That I will accept in full and complete settlement and payment of my above claim the sum of $7048.00, and that I have not, directly or indirectly, made or entered into any agreement or understanding with anyone whomsoever whereby I shall receive from said debtor(s) any note, mortgage or other consideration save and except the sum last above mentioned; that when such sum has been received by me that said debtor(s) will not remain indebted to me upon any account whatsoever; that I will not, after having received such sum, attempt in any way,...