Opinion ID: 1800431
Heading Depth: 1
Heading Rank: 2

Heading: E. E. E., INC. v. HANSON

Text: In late 1978, Hanson entered into an agreement with E. E. E., Inc., for the construction of a laundromat in Aneta, North Dakota. Ole Erickson, the president and principal owner of E. E. E., Inc., negotiated with Hanson. As a downpayment, Hanson tendered Erickson a check for $5,000. The check was dishonored. On Hanson's assurances that the check was going to be good and that she was going to obtain a loan, the structural work on the laundromat was completed. From February through December 1979, work ceased while the parties waited to see what happened with the loan. In December of 1979, Hanson signed a promissory note for the total amount of $66,233. [5] By March 1980, the laundromat was completed. On February 4, 1980, Hanson executed two mortgages designating E. E. E., Inc., as the mortgagee. One mortgage covered the laundromat; the other mortgagethe one at issue in this appeal pledged the Griggs County farmland discussed above. The mortgages were assigned to the Page State Bank. After a title opinion revealed that the farmland had been mortgaged previously to the Hanson heirs for $83,200, [6] the bank declined to make the loan. The mortgages were reassigned to E. E. E., Inc. Erickson testified that the mortgages were executed in order to obtain a loan for Hanson, not to secure the promissory note. Hanson testified that she originally intended to mortgage only the laundromat but that the banker required the additional mortgage on the farmland. The trial judge declared the mortgage on the farmland a nullity for several reasons. He deemed the mortgage invalid because the note did not contain an unconditional promise, as defined in Sections 41-03-04 and 41-03-05, N.D.C.C. The import of this ruling, that a note secured by a mortgage must be a negotiable instrument, is legally incorrect. Generally, any obligation capable of being reduced to a money value may be secured by a mortgage. Osborne, Law of Mortgages, § 105. Although the obligation secured by the mortgage must be valid and supported by consideration, there is no requirement that it meet the exacting standards of negotiability imposed under Article III of the Uniform Commercial Code. The mortgage identifies the debt it secures as a note of February 4, 1980. No note executed on that date was introduced into evidence and the trial court relied on the lack of [a] subsisting note dated the 4th day of February, 1980, as an additional reason for invalidating the mortgage. E.E.E., in opposing this conclusion, relies on the general rule that errors or inaccuracies in the description of the note secured by the mortgage will not invalidate the mortgage if the intention of the parties is apparent, or the note can be otherwise identified. 59 C.J.S. Mortgages § 112d. There is no question that the note covered by the mortgage is the $66,233 note signed by Hanson on December 23, 1979; no one has disputed this fact. Under the circumstances of this case, where no innocent third parties are involved, the misdescription of the underlying note is not fatal to the mortgage. Cf. Security Building & Loan Assn. v. Costello, 66 N.D. 179, 263 N.W. 712 (1935) [mortgage, even though it contained no sufficient description of the mortgaged premises, was effective against plaintiff, a subsequent mortgagee who took with knowledge of all the facts in connection with the matter]. Failure of consideration for the mortgage is another ground advanced by the trial court to invalidate the mortgage. The court found that the mortgage was executed in conjunction with attempts by the parties to obtain bank financing for the laundromat . . . and was not intended as a direct execution of further security, enforceable by foreclosure, to [E. E. E., Inc.] for payment of the [$66,233] debt. [7] Because the bank refused Hanson's request for a loan, the court concluded that the intended consideration for the mortgage failed. Assuming, arguendo, that the trial court properly admitted parol evidence to establish the failure of consideration [see Verry v. Murphy, 163 N.W.2d 721 (N.D. 1968); Grebe v. Swords, 28 N.D. 330, 149 N.W. 126 (1914)], we have determined that the decision nullifying the mortgage was erroneous. Generally, if there are several considerations and some fail, if the others are good and sufficient the good will sustain the promise. See Butterfield v. Reynolds, 196 Mich. 157, 163 N.W. 86 (1917). It has long been established that a pre-existing debt may be consideration for a mortgage. Sargent v. Cooley, 12 N.D. 1, 94 N.W. 576 (1902). While the primary consideration for the mortgage may have been the procurement of a loan, it is undisputed that Hanson owed E. E. E., Inc., $66,233 and executed the mortgage for the ultimate purpose of repaying her debt to E. E. E., Inc. Under these circumstances, we have no hesitation in applying the general rule that a pre-existing debt may be consideration for a mortgage [ Sargent, supra ] and sustaining the mortgage on this ground. [8] Turtle Mountain Supply Co. v. Krieg, 72 N.D. 338, 7 N.W.2d 432 (1943), relied on by Meester, does not require a different result. Krieg held that the trial court's findings, that the promissory note and real estate mortgage were delivered conditionally, and never became effective or binding obligations of the makers, were in accord with the weight of the evidence. The question of evidentiary support for the trial court's findings was the only legal issue addressed by the court. [9] For this reason we do not find Turtle Mountain persuasive. The judgment decreeing the mortgage invalid and dismissing the foreclosure action is reversed. ERICKSTAD, C. J., and PEDERSON, PAULSON and SAND, JJ., concur.