Westgard v. Farstad Oil, Inc.

• Court: North Dakota Supreme Court
• Writing for the Court: GIERKE; ERICKSTAD; VERNON R. PEDERSON, Surrogate Justice, sitting in place of MESCHKE
• Citation: Westgard v. Farstad Oil, Inc., 437 N.W.2d 522 (N.D. 1989)
• Decision Date: 21 March 1989
• Docket Number: No. 880217,880217
• Parties: Brent WESTGARD; Denese Westgard; and Peoples Bank & Trust of Parshall, North Dakota, a corporation, Plaintiffs and Appellants, v. FARSTAD OIL, INC., Defendant, Third-Party Plaintiff and Appellee, v. Arlo JACOBSON and Barbara Jacobson, Third-Party Defendants. Civ.

Page 522

437 N.W.2d 522

Brent WESTGARD; Denese Westgard; and Peoples Bank & Trust

of Parshall, North Dakota, a corporation, Plaintiffs and Appellants, v. FARSTAD OIL, INC., Defendant, Third-Party Plaintiff and Appellee, v. Arlo JACOBSON and Barbara Jacobson, Third-Party Defendants.

Civ. No. 880217.

Supreme Court of North Dakota.

March 21, 1989.

Bair, Brown & Kautzmann, Mandan, for plaintiffs and appellants; argued by Thomas B. Bair.

Pringle & Herigstad, Minot, for defendant, third-party plaintiff and appellee; argued by Jan M. Sebby.

GIERKE, Justice.

Brent Westgard, Denese Westgard, and Peoples Bank & Trust of Parshall [Bank] appeal from a summary judgment in their quiet title action which declared that Farstad Oil, Inc. [Farstad], had a valid mortgage lien of first priority against certain real estate. The trial court also granted summary judgment in favor of Farstad on its counterclaim against the plaintiffs and on its third-party action against Arlo and Barbara Jacobson seeking foreclosure of its mortgage on the property. We reverse and remand.

In November 1980, Arlo and Barbara Jacobson granted a mortgage to the Bank to secure a $35,000 loan for the purchase and construction of a home on a residential lot they owned in Parshall. This mortgage, duly filed for record in November 1980, was a first lien on the property. The loan was not paid when due, and in June 1981, the loan was renewed and a new promissory note for $36,475 due in July 1982 was executed. The Bank executed a satisfaction of the November 1980 mortgage but retained possession of the document. The new mortgage was filed for record on July 14, 1981.

In September 1981, the Jacobsons borrowed an additional $2,500 from the Bank, payable in 30 monthly installments. They granted a second mortgage on the property to the Bank to secure the loan. This mortgage was filed for record in October 1981. In August 1982, after the June 1981 loan was not paid, the loan was renewed and the parties executed a new note for $36,032.78 due in September 1983. The Bank executed a satisfaction of the June 1981 mortgage and retained possession of the document. The Jacobsons granted the Bank another mortgage on the property which was filed for record in September 1982.

The Jacobsons failed to pay the loans and in October 1983, the August 1982 and September 1981 loans were consolidated and the parties executed a new note for $35,756.76 due in April 1985. The Bank executed a satisfaction of the August 1982 and September 1981 mortgages and retained possession of the documents. The new mortgage was filed for record in November 1983.

In the meantime, Arlo Jacobson, who was in the business of selling petroleum products, had become indebted to Farstad, one of his suppliers. In May 1984, the Jacobsons executed a $30,000 promissory note to Farstad, payable in April 1986, and granted to Farstad a mortgage on the property to secure the note. This mortgage was filed for record in June 1984. It is undisputed that Farstad had knowledge of the Bank's prior mortgage on the property.

The Jacobsons failed to pay the October 1983 loan from the Bank, and in August 1985, the loan was renewed and a new note for $36,692.70 due in 1988 was executed. The Bank executed a satisfaction of the October 1983 mortgage, retained possession of the document, and filed the new mortgage for record in September 1985.

The Jacobsons ultimately defaulted and in April 1987, the Bank commenced an action to foreclose its August 1985 mortgage. The attorney hired by the Bank to foreclose the mortgage did not check the Register of Deeds office for liens and encumbrances on the property other than the mortgages granted by the Jacobsons to the Bank. The lawsuit was dismissed by stipulation after the Jacobsons gave the Bank a deed in lieu of foreclosure.

In September 1987, the Bank conveyed the property to the Westgards by quit claim deed, and the Westgards granted a mortgage on the property to the Bank to secure a loan of $33,000. The quit claim deed and mortgage, as well as the satisfactions of the mortgages granted by the Jacobsons in 1980, 1981, 1982, and 1983, were filed for record in October 1987. Only after these transactions were completed did the Bank become aware of Farstad's 1984 mortgage, which had become elevated to first priority status as of record.

The Bank and the Westgards brought this quiet title action against Farstad seeking reinstatement of the October 1983 mortgage and a declaration that its mortgage was superior to Farstad's 1984 mortgage. Farstad counterclaimed and brought a third-party complaint against the Jacobsons seeking foreclosure of its mortgage. The trial court granted summary judgment dismissing the Bank's complaint and foreclosing Farstad's mortgage on the property. The Bank and the Westgards [hereinafter collectively referred to as the Bank] appealed.

Summary judgment is appropriate when there is no dispute as to material facts, or when, although factual disputes exist between the parties, the law is such that resolution of the factual disputes will not change the result. Russell v. Bank of Kirkwood Plaza, 386 N.W.2d 892, 897 (N.D.1986). On appeal we determine whether the information provided to the trial court, when viewed in the light most favorable to the losing party, precludes the existence of a genuine issue of material fact and entitles the moving party to judgment as a matter of law. Binstock v. Tschider, 374 N.W.2d 81, 83 (N.D.1985).

The Bank asserts that the trial court erred in not granting summary judgment in its favor because under the undisputed facts in this case the Bank is entitled to have its mistakenly satisfied mortgage reinstated to prevent Farstad from unjustly enriching itself at the Bank's expense. We agree.

In Strehlow v. Fee, 36 N.D. 59, 161 N.W. 719, 720 (1917), a case similar to the present case, this court stated:

"The rule of law, indeed, is well established that, where an instrument has been surrendered or discharged, or an incumbrance (sic) or charge has been satisfied through mistake, the party making the same is entitled to be replaced in his original position, provided only that other creditors have not been induced by the action of the plaintiff or petitioner to change their position and have not lost any substantial and material rights by such action."

Strehlow v. Fee involved an action to reinstate and foreclose two prior mortgages which were released in ignorance of the existence of three judgment liens. The plaintiff had instructed an abstract company and his attorney to place the satisfactions upon record only if they were convinced that the record title would be clear. The abstract did not show the existence of the judgment liens, nor were they discovered by the attorney. The court stated:

"The question, indeed, is one of mistake, and not of negligence. It is not a case of an interference with any vested rights. It is not a case for the application of the rule that, where one of two innocent persons must suffer, he whose act first made the loss possible must bear the burden. The judgment creditors lost nothing by the mistaken action of the plaintiff. Their judgment liens are still intact.... Such being the case, there can be no ground for denying the plaintiff relief on account of negligence or for any other cause.... Even though the abstract company and [the attorney] may have, to a certain extent, been the agents of the plaintiff, Strehlow, it is clear that they too acted as the result of a mistake, and, as we before stated, this is not a case where negligence is involved or is material." Strehlow v. Fee, supra, 161 N.W. at 720-721.

Farstad asserts, in effect, that Strehlow v. Fee was wrongly decided because the court "neglected to acknowledge and enforce statutory provisions regarding the real property recording statutes and regarding judicial relief for 'mistake.' " While these statutory provisions were not referred to in Strehlow v. Fee, we do not believe that they require a different result.

Farstad claims that the equitable rule applied in Strehlow v. Fee cannot be reconciled with the statutory definition of "mistake" found in Sec. 9-03-13, N.D.C.C. ¹ This court rejected a similar argument in Hodge v. Dunlop, 49 N.D. 125, 190 N.W. 551 (1922). In that case the court reinstated a mortgage which had been satisfied of record without the plaintiff having examined the records or obtained an abstract of title before he caused the mortgage to be released. The defendant argued that the equitable rule recognized in Strehlow v. Fee had been changed by the definition of "mistake" found in the predecessor statute to Sec. 9-03-13. The court disagreed, concluding that Sec. 9-03-13 "announces no new rule, but is merely a statutory enactment of the well-established equitable rule on the subject." Hodge v. Dunlop, supra, 190 N.W. at 553. Thus, the equitable rule for reinstating a mortgage satisfied by mistake has not been altered by Sec. 9-03-13.

Farstad asserts that judicial relief is nevertheless unavailable to the Bank under Sec. 9-03-13 because the Bank neglected its legal duty allegedly imposed by Sec. 6-03-05, N.D.C.C., ² to ascertain the value and priority of the 1985 Jacobson mortgage. See also Security State Bank of Wishek v. State, 181 N.W.2d 225, 233 (N.D.1970). Even assuming that Sec. 6-03-05 imposed upon the Bank a duty to check the real estate records, we believe the Bank satisfied this obligation when it hired the attorney to handle the Jacobson mortgage foreclosure which ultimately led to the recording of the prior mortgage satisfactions. See generally Connecticut National Bank v. Chapman, 153 Conn. 393, 216 A.2d 814 (1966); Provident Co-operative Bank v. James Talcott, Inc., 358 Mass. 180, 260 N.E.2d 903 (1970); cf. Strehlow v. Fee, supra. ³

Farstad also asserts that Strehlow v. Fee ignores the dictates of Sec. 1-01-06, N.D.C.C., which provides that "there is no common law in any case where the law is...