Case Title: Federal Land Bank of St. Paul v. Bergquist

Citation: 425 N.W.2d 360

Docket Number: 870245

State: north-dakota

Court: North Dakota Supreme Court

Date: 1988-06-28T00:00:00Z

Document:
425 N.W.2d 360 (1988) The FEDERAL LAND BANK OF ST. PAUL, a corporation, Plaintiff and Appellee, v. Harold J. BERGQUIST, a/k/a Harold John Bergquist, Defendant and Appellant. Civ. No. 870245. Supreme Court of North Dakota. June 28, 1988. *361 Degnan, McElroy, Lamb, Camrud, Maddock & Olson, Ltd., Grand Forks, for plaintiff and appellee; argued by Theodore M. Camrud. Hodny, Burke, Rice & Stevenson, Grafton, for defendant and appellant; argued by Jake C. Hodny. MESCHKE, Justice. Harold J. Bergquist appealed from a deficiency judgment following foreclosure of a mortgage on his farmland. We reverse and remand for a new jury trial. Bergquist defaulted on a note to the Federal Land Bank of St. Paul [the Bank] which was secured by a mortgage on his farmland in Walsh County. The Bank foreclosed its mortgage and the land was sold for $139,000 at a sheriff's sale. The Bank then sued separately for a deficiency judgment, asserting that a balance of $138,160.55 remained due after the sheriff's sale. Pursuant to Section 32-19-06, N.D.C.C., a jury trial was held to determine the "fair value" of the land. The Bank's expert witness testified that the fair market value of the land was $139,000. Bergquist testified that in his opinion the land was worth $277,180.55. The jury's verdict set the fair value of the land at $210,000, and the trial court accordingly entered a deficiency judgment in the amount of $67,160.55 plus costs, disbursements, and interest. Bergquist appealed. Bergquist asserted that the trial court erred in (1) failing to adequately instruct the jury on the concept of fair value; (2) allowing the Bank's expert witness to testify that fair value is synonymous with market value or fair market value; (3) limiting evidence on value; and (4) refusing to allow the parties to advise the jury of the effect of its determination of value. This appeal raises novel questions about application of Section 32-19-06, N.D.C.C., whenever a deficiency judgment is sought following foreclosure: The colorful and sometimes tumultuous history of the anti-deficiency laws, including Section 32-19-06, N.D.C.C., was recounted by Justice Vogel in First State Bank of Cooperstown v. Ihringer, 217 N.W.2d 857, 858-862 (N.D.1974). In response to the economic upheaval of the Great Depression, the Legislature in 1933 and 1937 enacted laws which wholly prohibited any form of deficiency judgment. In 1951 the Legislature amended the statutes to allow deficiency judgments under very limited circumstances: First State Bank of Cooperstown v. Ihringer, supra, 217 N.W.2d at 859-860. The 1951 amendment introduced the idea of "fair value" in deficiency judgment proceedings. The legislative history of the 1951 amendment demonstrates a paramount intent to protect the debtor: 1951 Report of the North Dakota Legislative Research Committee, at 37-38, 39 [hereinafter 1951 Report]. Within this context, the Legislature ordained that a deficiency judgment could be obtained only for that part of the debt due over the fair value of the land. See Section 32-19-06, N.D.C.C. The Legislative Research Committee specifically noted that fair value was not limited to market value, but embraced a broader concept: 1951 Report, supra at 39; see also First State Bank of Cooperstown v. Ihringer, supra, 217 N.W.2d at 859-860.[1] This trial court did not define the term "fair value" for the jury. Rather, the court, in oblique language, instructed the jury that the "determination of value in any legal proceeding is seldom a matter of precise, mechanical rule," but "is rather a matter of opinion, sound judgment, expertise, and discretion based upon a consideration of the evidence and with due regard for the person that is testifying." Although this instruction was not erroneous so far as it went, it was incomplete. The trial court gave the jury no guidance on what to consider in determining fair value. This omission was compounded by the trial court allowing the Bank's expert witness, a real estate appraiser, to testify over objection that there is no difference between "fair value," "fair market value," and "market value." Although qualified to give his opinion on the market value of the land, the witness was not a legal expert and should not have been allowed to give his opinion about the appropriate legal standard. In effect, the trial court allowed the Bank's expert witness to instruct the jury on the meaning of fair value under the statute. In addition, when viewed in light of the legislative history of Section 32-19-06, N.D.C.C., the expert's "instruction" to the jury was plainly wrong. We are also troubled by the restrictions the trial court placed upon admission of evidence and by the failure to let the jury know about the effect of its determination. The trial court did not allow Bergquist to submit evidence to the jury about the amount of the mortgage to the Bank or about the amount of a second mortgage on the property. Nor did the court allow evidence about the amount due and owing on the note to the Bank. The court also refused to advise the jury, or allow the parties to advise the jury, that the Bank could only receive a deficiency judgment if the fair value of the property was less than the amount remaining due on the debt, plus costs. It appears that all of these restrictions grew out of the trial court's cramped conception of fair value. We understand the trial court's difficulty. Fair value is not easily defined. We are convinced, however, that the restrictive approach taken by the trial court was not in keeping with the Legislature's intent. Legislative history of Section 32-19-06 shows that the Legislature meant something more comprehensive than current market value. See 1951 Report, supra at 39. The reason for rejecting market value can be gathered from a case construing a similar California statute, from which our statute is derived.[2] In Rainer Mortgage v. Silverwood Limited, 163 Cal. App. 3d 359, 209 Cal. Rptr. 294, 297-298 (1985), the court, construing depression-era amendments to Cal.Civ.Proc.Code § 726, stated: See also First Wisconsin National Bank of Oshkosh v. KSW Investments, Inc., 71 Wis.2d 359, 238 N.W.2d 123, 126-127 (1976). The Rainer court also noted that the legislative purpose of "fair value" statutes is to protect the borrower, and that the lender must therefore share the risk of loss if market values fall: Rainer Mortgage, supra, 209 Cal. Rptr. at 300. The court concluded that market value is but one factor to be considered. Fair value is to be determined "by all of the circumstances affecting the intrinsic value of the property at the time of the sale." Rainer Mortgage, supra, 209 Cal. Rptr. at 298. We agree with the California court that the legislative protection afforded a foreclosed mortgagor does not depend upon the vagaries of the marketplace. We believe that the Legislature intended "fair value" to have a broadly defined meaning, embracing many factors. We conclude that "fair value" means the value of the property which will produce a fair and equitable result between the parties. The language of the statute and its legislative history show that the Legislature authorized the jury to balance the competing interests of the debtor and the mortgagee in reaching its determination of fair value. We also believe the Legislature intended that, rather than tightly restricting evidence on the issue of value, all evidence bearing on the value of the property and the circumstances of the underlying transaction can be presented to the jury. This would include, among other things, the amount of the mortgage, the amount of any subsequent mortgage, fluctuations in land values, and the remaining amount claimed to be due on the debt. Market value is, of course, admissible as one factor for consideration by the jury, but it is not controlling. It is also appropriate to advise the jury of the effect of its determination. In other words, the jury should be allowed to hear about the amount owed on the mortgage, and should be instructed that the mortgagee will be entitled to a deficiency judgment only for the difference between that amount and the fair value of the property as determined by the jury.[3] The Bank argued that this will allow juries to overly sympathize with debtors, resulting in deliberately erroneous determinations of fair value which would prevent a deficiency judgment. We point out, however, that the legislative history makes it clear that the intent of the statute is to afford every protection to the mortgagor and "in actual practice ... make a deficiency judgment almost impossible except in a very deserving case." 1951 Report, supra at 37-38. We believe the Legislature intended to let the jury decide, on the basis of the facts in each individual case, whether a deficiency judgment is appropriate. The judgment is reversed. We remand for a new jury trial consistent with this opinion. ERICKSTAD, C.J., and LEVINE and GIERKE, JJ., concur. *365 VANDE WALLE, Justice, concurring specially. I agree with the thoughtful opinion written for the court by Justice Meschke. I write separately to emphasize one factor which may be encompassed within the term "fair value," and which is separate from "market value," and other economic values, i.e., the innate or intrinsic value of our irreplaceable natural resources, and, in North Dakota, most particularly the land. This State's dependence upon its agricultural industry, i.e., its land, is an accepted fact. I believe it may have been the innate or intrinsic value of land which the Legislature specifically had in mind when, as Justice Meschke has noted, it purposely prescribed "fair value" rather than "market value" as the standard to obtain a deficiency judgment. It is not by accident that the North Dakota Coat of Arms, prescribed by Section 54-41-01, N.D.C.C., contains the motto "Strength From the Soil"! [1] In summarizing the foreclosure process in Hagan v. Havnvik, 421 N.W.2d 56, 61 (N.D.1988), we did not mean to imply that "fair value" means the same thing as "fair market value." [2] Decisions from other jurisdictions construing statutes from which our law is derived are considered "highly persuasive." See, e.g., Estate of Zins v. Zins, 420 N.W.2d 729, 731 (N.D.1988). [3] We do not mean to suggest that juries in other types of cases must always be advised of the effect of their determination of specific fact issues. The use of a special verdict or a general verdict with interrogatories under Rule 49, N.D. R.Civ.P., which effectively isolates the specific factual determinations from their legal effect, is entirely appropriate in many cases. See, e.g., Buehner v. Hoeven, 228 N.W.2d 893, 900 (N.D. 1975); Ferderer v. Northern Pacific Railway Co., 77 N.D. 169, 185-186, 42 N.W.2d 216, 225-226 (1950) (applying prior North Dakota statute derived, as our present rule, from Rule 49, F.R. Civ.P.). The determination of which verdict form to use is ordinarily within the discretion of the trial court. Rule 49, N.D.R.Civ.P.; North American Pump Corp. v. Clay Equipment Corp., 199 N.W.2d 888, 898 (N.D.1972); Haugen v. Mid-State Aviation, Inc., 144 N.W.2d 692, 698 (N.D.1966). Because we conclude, however, that the jury in a deficiency action is to balance the competing interests of the debtor and the mortgagee, we also conclude that it is important to inform the jury of the effect its determination will have upon the mortgagee's ability to obtain a deficiency judgment.