Court Opinion

ID: 6739601
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:20:55.647543+00
Date Added: 2024-06-11T16:01:55.082315
License: Public Domain

Grace, J.,
(dissenting). This is an appeal from an order sustaining a demurrer to the complaint. The only question involved is whether or not the court erred in making its order sustaining the demurrer.
The complaint is too lengthy to be set out here in full, and we think it unnecessary to do so. A statement of the material facts pleaded will as well present the issue.
The plaintiff is a banking corporation, organized and existing under and by virtue of the laws of the State of North Dakota. It became insolvent and Fred E. Harris was appointed its- receiver. The Farmers National Bank of Hendricks, Minn., is a corporation existing under and by virtue of the laws of the United States, with its principal place of business at Hendricks, Minn.
On or about the 5th or 6th day of Oct. 1916, one Thomas J. Clifford, one of the defendants herein, of St. John, was the owner of certain real estate described in the complaint, situate in the county of Rolette, State of North Dakota.
On or about the date last mentioned, Clifford, for value, did make and enter into a contract with one Josephine Howe, now Josephine Hanlyn, by the terms of which he sold to her the above mentioned land, she to receive a good and sufficient warranty deed thereto, upon fulfillment of the terms of the contract.
The consideration for the purchase of the land was $13,055, which was to be paid as follows: $300, on the delivery of the contract; $1200, on March 1st 1917; and the sum of $n,555, according to the terms of eleven promissory notes of even date, with the contract, for the sum of $1,000. each; the first of said notes became due Nov. 1st, 1917, and one of said notes becoming due each of the following years, up to and including 1927; and one note for $555, due Nov. 1st, 1928. All of the notes were payable to Thomas J. Clifford, and bore interest at the rate of eight per cent per annum, from March 1st, 1917.
Thirty-five and seventy-three hundredths acres of the tract of land lying East of the railway rightaway was conveyed by Thomas J. Clifford to one Amendee Desroches, and that tract was released from the contract. The contract was filed for record and recorded in the office of Register of Deeds in and for Rolette county, on the 8th day of August, 1918.
Josephine Howe, now Hanlyn, entered upon the performance of the *82contract, and paid the said sum of $300 at the inception of the contract, and $1300, which became due March 1st, 1917, and the $1,000 note due Nov. 1st, 1917.
Subsequent to the making of the contract and delivery of the promissory notes, the defendant Clifford, it is alleged, for value, received, transferred, endorsed and delivered, to the plaintiff the certain $1,000 promissory note which became due Nov. 1st, 1919.
On or about Dec. 26, 1918, Clifford sold and conveyed all of the premises (excepting the thirty-five and seventy three hundredths acres which was theretofore conveyed to Amendee D'esroches, by warranty deed) to the defendant, Farmers National Bank of Hendricks, Minn. It assumed and agreed to pay the mortgage indebtedness, remaining unpaid on said land, and agreed to carry out the contract made by Clifford with Josephine Howe.
Thereafter, the Farmers National Bank of Hendricks, Minn., through its cashier, G. B. Peterson, procured Josephine Hanlyn, formerly Josephine ITowe, to quit-claim all her interest in and to said land to said Peterson, its cashier, who then assumed and agreed to pay as part of the consideration therefor, the balance of the purchase price on the land then owing by Josephine Hanlyn, including the plaintiff’s note and the whole of the amount remaining due on the contract. The quit-claim deed was taken in the name of G. B. Peterson, but, in fact, for the Farmers National Bank of Hendricks, Minn.
On or about the 6th day of Nov. 1919, by warranty deed, the Farmers National Bank of Hendricks, sold and conveyed, for a consideration of $18,000, all of said land, with the exception of the thirty five and seventy ihree hundredths acres, to Wm. H. Allen.
Plaintiff prays judgment against the defendants, Josephine Howe, Thomas J. Clifford, and the Farmers National Bank of Hendricks, Minn., for the sum of $1,000 and interest from March 1st, 1917,. at eight per cent per annum, plus the sum of $2.79 costs incurred on the protest of the note; and that the conveyance of said property by Clifford to the Farmers National Bank of Hendricks, and by that bank to the defendant Allen, be adjudged null and void and of no force nor effect, so far as the plaintiff is concerned; that the plaintiff be adjudged to be the equitable owner of the land, by virtue of its ownership of the $1,000 note; that the plaintiff be adjudged to have a lien on the land for the payment of the $1,000, and protest fees and interest, costs and disbursements, and that *83such lien be declared prior and superior to the rights of the defendants ; that plaintiff be allowed to foreclose the said lien; that, under said foreclosure, that it be decreed that the land be sold in the manner now provided for sales of land under mortgage foreclosure; and the proceeds of the sale applied to the payment of the costs and expenses incident thereto, and then to the note with interest and protest fees; and, in the event that the land does not sell for sufficient to cover the above, that a deficiency judgment be entered against Josephine Howe, Thomas J. Clifford and Farmers National Bank of Hendricks, and that the purchaser, at the sale, receive the usual certificate of sale, and, in case of no redemption, the usual sheriff’s deed.
The defendant Allen interposed a demurrer to the complaint, on four different grounds, among which was one, to-wit: that the complaint does not state facts sufficient to constitute a cause of action in favor of plaintiff and against defendant. It was on this ground that the court sustained the demurrer, and whether the court erred in making its order sustaining the demurrer, we are to determine.
It is elementary that the demurrer admits all of the allegations of the complaint, or of the pleading to which it is interposed, that are well pleaded. The question is — assuming all the facts pleaded by plaintiff to be true — are they of such nature, character or effect as to state a cause of action; and, if substantiated by proper evidence, do they warrant recovery of any relief ?
In order to determine the questions presented on this appeal, we must determine whether or not the contract of purchase is in the nature of security for the payment of plaintiff’s note; and whether or not plaintiff is entitled to resort to that security, by bringing an action, which, in form and substance and by the relief demanded, is the same as that to foreclose a mortgage by action. We are required to determine several other controverted questions of law presented in the case. That determination cannot be accomplished until the relative interests of the parties to the contract, in the land, are defined.
This, we find our initiatory task. It lies at the threshold of our examination of this case. What, then, is the relative interest of each of the parties to the contract, in the land? Their relationship to it, and to each other? We are of the opinion, that it may with certainty be stated, as a general principle of law, applicable to this character of contracts, and one heretofore enunciated by this court, that, where the owner of land sells *84it to another on contract of purchase, in which is specified the time and manner of future payments to be made by the vendee or the grantee; and which he does undertake to make; and where the grantor agrees, that, on such payments having been made, he will convey to the grantee by deed, that the grantee, at the time of the execution and delivery of the contract, becomes the equitable and beneficial owner, and the grantor merely holds the legal title of the land in trust for the grantee, and has thereby, in addition to the contract, security for the performance of the covenants in the contract, on the part of the grantee.
The position occupied by the vendor and vendee is to some extent that of mortgagee and mortgagor. The vendor, by his contract, has a lien for his purchase money, which the vendee may not affect or impair by conveyance, and which he can extinguish only by payment of the purchase price of the land, as specified in the contract.
This contract lien is a separate and aditional lien to the vendor’s lien created by § 6861, Comp. Taws. It is a lien created by the contract between the parties. It may be assigned, and the assignee having received deed from the vendor, may enforce the contract of purchase against the original vendee.
The personal obligation referred to in § 6861, as we view the matter, is one where there is no additional or collateral security taken to secure the payment of it. If such' additional or collateral security is taken, the right to a vendor’s lien is waived, but so long as the vendor has only the personal obligation of the vendee, he may, instead of proceeding to enforce the personal obligation, disregard it and bring an action to recover the purchase price, and establish a lien therefor on the property sold; and this, by authority of § 6861.
If the vendor takes a written contract for the payment of all or part of the purchase price, and subsequently assigns it, he thereby waives his right to a statutory lien, except he may assign it in trust to pay debts and for the return of the surplus, as is provided in § 6862.
The assignee in such case would hold only the vendor’s contract lien, which he could enforce the same as the vendor, but, after the assignment, neither the vendor nor his assignee would have any statutory vendor’s lien,, as that is personal to the vendor,
It is clear, from what has been said, that the vendor who sells land on contract, whereby the purchase price is to be paid according to the *85terms of the contract, has a lien created by a statute, and, as well, a lien created by the contract of the parties.
In Roby v. Bank, 4 N. D. 160, Justice Barthlomew, speaking for the court said:
“The vendor has a lien for his purchase money by virtue of his contract, and a lien which the vendee cannot, by conveyance or otherwise, affect or impair, and which can be extinguished only by payment of the purchase money. * * * Such a vendor is not required to rely upon the technical vendor’s lien, which is a creature of equity, and exists where the vendor has parted with the legal title, and may'be destroyed at any time by a conveyance by the vendee. He has a more substantial and indestructible lien, created by contract, and of which all the world must take notice.” ,
We think this language applies as well to the statutory lien as to a lien in equity. We think the principles above stated are further recognized and adopted in the cases of Nearing v. Coop, 6 N. D. 349, and Woodward v. McCollum and State Bank, 16 N. D. 49, and the authorities cited in those and the foregoing cases.
We think the vendee, in this character of contract, acquires an estate and interest in the land. In other words, becomes the equitable and beneficial owner, and is entitled to receive a conveyance of the title, as soon as he has performed his covenants contained in the contracts. Under such a contract, the vendor is the trustee of the title and has no authority to deliver the same to any other person than the vendee, except subject to vendee’s rights under the contract. In other words, if, after making such contract, the vendor gives a deed to a third person, it must be subject to the vendee’s rights, and that third person must be obligated, and is obligated, to do all that the vendor was obliged to do by the contract.
The vendor is bound by the contract for deed, just as much as the vendee. For he contracted to deliver the deed on performance of the covenants agreed to be performed by the vendee. He also contracts to deliver the title by a good and sufficient deed. He is, therfore, from the. time of making such a contract, a trustee of the title for the vendee. He is not at liberty to make a similar contract, selling the same property to a third person, except in subordination to the prior contract. In other' words, he cannot lawfully deed the land to such third person, except subject to the prior contract, for that would be a violation of his trust relation to the vendee in the first contract.
*86We are not here considering the question of such third person as an innocent purchaser. We deem it not necessary to discuss that subject in this opinion. We are considering only the right and authority of the vendor to convey the title to a third party, after having prior thereto, contracted in writing to deliver the same title to a prior purchaser.
In Miller v. Shelburn, 15 N. D. 182, the court said:
“The vendor remains to all intents, the owner of the land; he can convey it to a third person free from any legal claim or incumbrance; in shoit, the vendee obtains at law no real property nor interest in real property. The relations between the two contracting parties are wholly personal.”
This language is part of the quotation from Pomeroy on Equity Jurisprudence. We do not agree with the language of the opinion in this regard. We do not see how it is possible that the vendor can at once be the trustee of the title for the vendee under a written contract for deed, and at the same time be lawfully authorized and have a right to sell and dispose of the same property to any third person, and this in total disregard oí liis obligations and duties under the former contract.
As bearing on the question of the vendee’s interest in the land under a contract of this character, we may consider whether it is subject to levy undei an execution.
Section 7720 C. L. describes what property is liable to execution. It is as follows:
“All goods, chattels, moneys and other property, both real and personal, or any interest therein of the judgment debtor not exempt by law and all property and rights of property seized and held under attachment in the action are liable to execution. Shares and interests in any corporation or company, and debts and credits, and all other property, both real and personal, and any interest in real or personal property and all other property not capable of manual delivery, shall be liable to be taken on execution and sold as hereinafter provided. The levy of an execution shall be made in the same manner as a levy under a warrant of attachment.”
Under the terms of this statute, we are of the opinion, that the interest of the vendee in land purchased on contract is subject to execution and sale. It was so held by the Supreme Court of South Dakota, in the case of Brooke v. Eastman, 96 N. W. 699, in construing a statute similar to ours. We quote from the syllabus:
*87“Constitution, Article 8, §§ 5 and 6, relating to the disposal of school lands, provide that the purchaser shall pay one-fourth of the price in cash and the remaining three-fourths in installments, but all such subdivided lands may be sold for cash, provided that upon the payment of the interest for one full year in advance the balance of the purchase price may be paid at any time, and that no “sale” shall operate to convey any title to any lands for 60 days after the date thereof, and that no grant shall issue until final payment. Law.s 1890, p. 296, chap. 136, provides for sales in pursuance of the constitutional provisions, and for the issuance of “contracts of sale,” and declares that whenever the purchaser of any tract shall default in the principal or interest, or shall violate any of the provisions of the contract of sale, such sale may be set aside. Held, that a purchaser who had made the first payment, and received a contract of sale from the commissioners, had an interest in the lands, which .was subject to execution under Rev. Code Civ. Proc. 1903, § 336, subjecting to execution “all goods, chattels, moneys and other property, both real or personal, or any interest therein, of the judgment debtor.”
We think, under our statute, which is practically the same as that of South Dakota, that an execution could be levied on the interest of the vendee in land purchased under a contract for deed. This could not be done unless the vendee has an interest or estate in the land, and we think it clear that he has such interest; and we think the rule in this regard, announced in the Miller v. Shelburn Case, is not correct. If it be true, that the relations between the vendee and vendor in a contract of purchase are wholly personal, then, though the vendee wholly performs, according to the terms of the contract, the vendor may refuse to convey to him by deed; or, if the vendor may deed it to a third party, or, if he is under no obligations to carry out his contract with the vendee, if the relations are personal only, the vendee’s only remedy in all such cases would be an action for damages. But we know this is not true, for, when the vendee has performed according to the terms of the contract, he can compel the vendor to deliver title by an action of specific performance against him; and this, he may do, and may .have relief by specific performance, even though the vendor has transferred the land by deed to some third person, unless the third person is an innocent purchaser.
It would seem, that such action could be maintained only on the theory that the vendee is the equitable and beneficial owner, and that the *88grantor merely holds the legal title of the land in trust for the grantee, and as security for the performance of the vendee’s covenants in the contract.
The relation between the vendor and vendee, under a written contract of purchase, is contractual, each being bound by the terms and covenants of the contract entered into between them.
We do not think a judgment becomes effectual as a lien against the equity of the vendee in land until an execution is issued thereon, and a levy made. Then, there is a lien perfected against such equitable interest, and when a lien is so effected, 'it is largely analogous to a lien on an equitable interest effected by contract. In other words, the vendor has security on the equitable interest of the vendee, which lien is secured by the terms of the contract, and that is all that is effected by levy under an execution.
Having arrived at the determination that the vendee of such a contract has an interest in the land, we proceed to the determination of plaintiff’s rights by having purchased the note upon which suit is brought.
The contract having been given as security, and to that extent of the nature of a mortgage, was one which, under §§ 5546, 5594 and 5595) C. Iy. was entitled to record. It was duly recorded, as alleged in the complaint. It was thereafter constructive notice to all the world of its contents. It recited the consideration for the purchase, and describes the notes given to represent the purchase price. The contract was security for the payment of those notes. It was in effect a mortgage, securing their payment.
If the defendant Allen had procured an abstract, it must have shown this contract. It is true, it would also have shown, that Josephine Hanlyn had quitclaimed her interest in the premises to the Farmers National Bank of Hendricks, Minnesota, but that would not operate to satisfy the vendor’s lien on the land under the contract.
The vendor, Clifford, deeded the land to the Farmers National Bank, who assumed and agreed to pay the mortgage indebtedness remaining unpaid on the land, and assumed and agreed to carry out the contract made io Josephine Hanlyn by Clifford.
Subsequently, the Farmers National Bank procured from Josephine Hanlyn her quitclaim deed of- all her interest in the land, and then and there agreed, as part of the consideration, to pay the balance of the purchase *89price of the land, then owing by Josephine Hanlyn, including the note sued upon.
To say that the quitclaim deed from Josephine Hanlyn was sufficient to set aside a lien under the contract, would be in effect to say, that the mortgagor is a proper party to satisfy the mortgage instead of the mortgagee, considering that the contract, in the circumstances of this case, is in effect a mortgage.
The Banners National Bank, after it received the deed to the laud, was in the same position as Clifford as to Josephine Hanlyn. It had notice, knew of, and assumed to pay the balance owing by Josephine Hanlyn on the contract, and this, as a part of the consideration of receiving the deed from Clifford. She agreed to pay this thousand dollar note in question, and the security for the payment of the same was the contract which in effect was a mortgage.
But, even if it had not assumed or agreed to pay this note, and had not taken quitclaim deed from Josephine Hanlyn, the contract being of record, it had constructive notice of the existence of the note. It knew it was secured by this contract. It was its duty to see that the money applied to the payment of the purchase price was applied to the discharge of this note. For it was secured by the contract.
We do not see how Allen can be in any better position than the bank. Fie had the same constructive notice, by the recording of the contract, that the bank had.
If the notes had been secured by a mortgage, instead of by the contract, and, as in this case, Clifford had sold, in the ordinary course of business, a note similar to the one in question, we think in equity this would operate as an assignment of the mortgage to the extent of at least an amount thereof, equal to the note.
So, we are of the opinion, that the lien acquired by the purchase contract is in principle similar to a mortgage, and, in equity f ollows the debt on its assignment as an incident thereof, and the assignment of a part of the purchase money notes will operate at least as an assignment of the lien pro tanto. See, 27 R.C.L., §§ 349, 350 and 351, and Notes 19 and 20, and cases there cited.
All of the parties interested in the contract should be parties to this
' n, in order that their respective rights and interests therein may be determined. In addition to the demurrer interposed by defendant Allen, several of the defendants interposed demurrers, but no appeal was taken *90from the order of the court, with reference to any demurrer except that of Allen; and, hence, that is the only one presented here for consideration.
From what has been above said, we are of the opinion, that the trial court was in error in sustaining the demurrer interposed by Allen, and in making its order to that effect. That demurrer should have been overruled, and defendant Allen permitted to answer, and the case thereafter tried on its merits.
We have written quite at length, with reference to the questions involved in this opinion. The case came to the writer in the regular order of assignment, and the foregoing opinion was prepared with the expectation that it would be adopted as the law of the case. Thorough investigation was made into several crucial questions, which heretofore.have not been decided by this court, and definite conclusions, with reference thereto, arrived at, which, we believe, constitute the law of the case.