Court Opinion

ID: 6739849
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:21:05.351981+00
Date Added: 2024-06-11T16:01:55.487278
License: Public Domain

Statement.

Bronson, J.
This is an action upon a promissory note. The plaintiff is a resident of Minneapolis; the defendants reside in the state of Washington. Jurisdiction was secured by attaching certain real estate *1049owned by the defendant A. L. Nelson. The complaint alleges the making of a promissory note for $1,000, secured by a mortgage upon realty in Minneapolis; that at the time of making the note there was a prior mortgage upon such realty; that such mortgage has been foreclosed and absolute title has ripened in the holder thereof, through failure of the defendants to redeem, by reason whereof the plaintiff has no security for the payment of the note. The answer admits the making and the nonpayment of the note. It alleges that the mortgaged real estate was deeded to the defendant A. L. Nelson; that he gave a mortgage to the plaintiff ; that thereafter the defendants obtained the plaintiff’s permission to sell the mortgaged property, and his release and discharge of any further liability upon the note; that upon obtaining such release and discharge they transferred suqh property; that, if plaintiff has suffered any loss through the foreclosure of the mortgage, it has occured through his carelessness and neglect in failing to make redemption.
At the commencement of the trial, the defendants moved to amend the answer by alleging that at the time of making the note it was agreed that the defendants should not be held personally liable thereon, and that the plaintiff would rely solely upon the real estate security. Upon objection of the plaintiff the court overruled the motion. Later, at the trial, the defendants again moved to amend, as above stated, and, further, that the note was delivered conditionally upon the agreement that plaintiff would not hold the defendants personally liable, that he Would rely solely upon the real estate security, and that defendants would not have delivered such note excepting upon such representations and agreements. Again, the trial court, upon objection made, overruled the motion. The court stated that the defendants could show a conditional delivery but they could not vary the terms of a written instrument; that if the defense was a good defense the court would allow it. The court suggested that, the defendants should make an offer of proof. The defendants requested that the court permit them to introduce their testimony over objection so that they might not be compelled to again retry the case. The trial court, expressing doubt upon the questions, stated that he would allow the introduction of the testimony. Later, when testimony was offered concerning a conditional delivery, the court stated that he had allowed the first amendment offered; that the amendment concerning the conditional delivery was still another offer which the court would reject. Defendants then offered to prove that at the time of delivering the note the plaintiff knew and agreed that the defendants were signing such *1050note upon the understanding that they would not be held personally liable, that the plaintiff would look solely to the real estate security for the payment thereof, and that the note should not be delivered unless he so consented. This offer was rejected. At the conclusion of the evidence the defendants again renewed their motion to amend the answer as requested, upon the ground that the evidence introduced justified such proposed amendments, and that same would not operate to the prejudicial disadvantage of the plaintiff. The court overruled the motion so far as conditional delivery was concerned and reserved ruling upon the other. Accordingly upon such issues and proposed issues there appears in the record evidence to the following effect: The promissory note was made payable at Minneapolis; it was delivered to the plaintiff at Minneapolis.
Mrs. Nelson gave testimony as follows: The defendants (makers of the note) are husband and wife. She is the mother of defendant A. L. Nelson. She has had all the transactions with the plaintiff concerning this note and the property. The plaintiff never saw' the defendants. There was a farm in Polk county that stood in the name of the son. She made the arrangements to trade this land for the Minneapoils property, which was transferred by the plaintiff and the title placed in her son’s name. The note in suit-was given as a part of the purchase price. At the time of the original transaction, it was agreed between her and plaintiff that her son and daughter-in-law should not be held personally liable upon the note; that the plaintiff would rely solely upon the real estate security. In making this transaction she expressly told the plaintiff that she did not want her son and his wife to be held personally liable on the note, and the plaintiff made her understand that he would depend upon the lien. Later she made a deal with Rev. Scharf to trade her equity in the Minneapolis property for some land in St. Louis county. The Reverend wanted the money owing Leach to be paid. She went to the plaintiff and explained about her deal with the Reverend. She told him that she did not want her son and his wife to be held liable for any part of this debt. He stated that they wtmld not be held liable; that he was perfectly satisfied with the mortgage; that the property was worth $8,000 or $9,000, and he was perfectly satisfied to take the lien upon the property. She then gave the Reverend a note for $400 and one for $600. She has paid the $400 note, but not the other. She told him that the Reverend was taking over the property subject to the mortgages. She gave these notes to the Reverend instead of paying off this $1,000 mortgage, and the Reverend agreed to pay such $1,000 mortgage. That, *1051furthermore, she owed one Rogers $2,000. He wanted a second mortgage on this Minneapolis property. He and Mrs. Nelson saw plaintiff. In their presence, plaintiff 'again stated that he would not hold her son and daughter-in-law personally liable. She further testified that she. was not aware of the foreclosure upon the property until she was advised by Rogers after sheriff’s deed was issued. Mr. Rogers testified: That in his presence the plaintiff stated, to, and promised, Mrs. Nelson that he would not hold her son or his wife personally liable upon the note. That he took a mortgage upon the Minneapolis property for $2,000. That this was subject to a mortgage for $2,500 and the plaintiff’s mortgage. The mortgage for $2,500 was foreclosed. He had redeemed from the foreclosure within the period of time allowed after the plaintiff’s period of redemption expired. That he was ready to pay plaintiff’s mortgage if the plaintiff had redeemed from the foreclosure. The plaintiff testified that the note signed by the defendants was delivered to him by Mrs. Nelson. He denied all conversations and agreements to the effect that he would not hold the defendants personally liable or that he would look solely to the real estate security. He filed a notice 'of intention to redeem from the foreclosure. He expected to redeem. He had a client in Wisconsin whom he expected to furnish the money, but this client arrived a day too late.
The jury returned a special verdict as follows:
I. “Did the parties to this action make and enter into an oral agreement to the effect that the plaintiff would release and discharge the defendants from any liability under the note in issue and look to the real estate mortgaged for payment of the note?” Answer: “Yes.”
II. “If such agreement was made, was it made at the time the note was executed or was it made some time thereafter ?” Answer: “At seme time after the execution of the note.”
III. “Was the failure of the plaintiff to redeem from the foreclosure of the first mortgage due to his own carelessness and neglect?” Answer: “Yes.”
Later, upon motion of the plaintiff, trial court ordered judgment for the plaintiff for the full amount of the note, with interest. Accordingly, judgment was entered. The defendants have, appealed therefrom.
In a memorandum opinion, the trial court based its order largely upon the ground that the defendants made an oral agreement after the execution of the note to release their personal liability thereon, and that, *1052under the provisions of § 7007, C L. 1913, providing for renunciation, such agreement must be in writing.
The defendants contend that the trial court erred in not permitting the amendments offered, and in determining, pursuant to the evidence and the findings of the jury, that defendant’s liability upon the note was not discharged.

Decision

During the trial, for purposes of receiving evidence, the trial court, in effect, allowed the amendment to the complaint concerning the agreement not to hold personally liable the defendants, and rejected the proposed amendment concerning a conditional delivery. This court has heretofore held' that the power to amend pleadings is inherent in the courts where there is no jurisdictional defect; that the statute (§ 7482, C. D. 1913) is merely declarative of this view (Morgridge v. Stoeffer, 14 N. D. 430, 434, 104 N. W. 1112; Rae v. Railway Co., 14 N. D. 507, 510, 105 N. W. 721); that the authority vested in courts to allow amendments to pleadings is conferred to promote the ends of justice, and should be liberally exercised by the courts to that end; that the controlling principle in determining an application to amend is, or should be, whether the proposed amendment, if ahowed, would further the ends of justice, and, further, that an amendment should be allowed if it be in the interests of justice and if it does not change substantially the claim or defense. Northwestern Mut. Savings & L. Ass’n v. White, 31 N. D. 348, 359, 153 N. W. 972; Patterson Land Co. v. Lynn, 27 N. D. 391, 416, 147 N. W. 256. It is evident upon the record in this case that the interests of justice require the submission of the issue tendered concern* ing plaintiff’s agreement if such constitutes a defense. Further, it is ap* parent that the trial court would have so permitted if it had considered such issue sufficient to constitute a defense.
The plaintiff, however, was entitled to proper notification of the issues with which he would be confronted, and, if necessary, to an opportunity of preparing to meet such issues. The practice of tendering new issues from time to time throughout the course of the trial, of course, may not be commended. Nevertheless, amendments should be favorably considered where they serve to present the real determinative issues without prejudice to the rights of the parties and to aid in the administration of justice and the expedition of litigation.
*1053The note involved was made in, and was payable in, Minnesota. The Uniform Negotiable Instruments Law was adopted in Minnesota in 1913. (chap. 272, Laws 1913 Gen. St. 1913, §§ 5813—6009); in North Dakota in 1899 (chap. 113, Laws 1899) § 7007. C. L. 1913 (§ 122, N. I. L.), provides that a holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity, but a renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon. The same statutory .provision in Minnesota is § 5934, Gen. St. 1913.
The Negotiable Instruments Law provides that in the hands of any holder, excepting a holder in due course, the note is subject to the same defenses as if nonnegotiable. Section 6943, C. L. 1913.
Upon the record, facts might be found by a jury which would warrant the existence of legal relations between the parties other than that evidence by the contract contained in the note alone.
Concerning the mortgaged real estate, the parties occupied the relation of mortgagors and mortgagee. When the defendants, as mortgagors, sold and transferred the mortgaged property, and the purchaser assumed and agreed to pay the mortgage debt to the plaintiff, the purchaser, then, as to such debt, became the principal, and the mortgagors, the sureties. 27 Cyc. 1356; Jones on Mortgages, § 741. The mortgagors then possessed a right or claim in the mortgaged property to the extent of the plaintiff’s mortgage. If they had been compelled to pay the mortgage debt, they would have been subrogated to the mortgagee’s rights. 27 Cyc. 1359. “The grantee, as soon as the mortgagee knows of the arrangement, becomes directly and primarily liable to the mortgagee for the debt for which the mortgagor was already liable to the latter, and the relation of the grantee and the grantor, towards the mortgagee, as well as between themselves, is thenceforth that of principal and surety for the payment of the mortgage debt.” Union Mut. L. Ins. Co. v. Hanford, 143 U. S. 187, 190, 12 Sup. Ct. 437, 438 (36 L. ed. 118, 120); Johns v. Wilson, 180 U. S. 440, 21 Sup. Ct. 445, 45 L. ed. 613, 617. See 27 Cyc. 1356; Iowa Loan & Trust Co. v. Schnose, 19 S. D. 248, 103 N. W. 24, 9 Ann. Cas. 255; Herd v. Tuohy, 133 Cal. 62, 65 Pac. 139; Fanning v. Murphy, 126 Wis. 545, 105 N. W. 1056, 4 L. R. A. (N. S.) 666, 110 Am. St. Rep. 946, 5 Ann. Cas. 435; Pratt v. Conway, 148 Mo. 291, 49 S. W. 1028, 71 Am. St. Rep. 602; Jones on Mortgages, § 740.
Upon being advised that the purchaser had assumed the mortgage debt, the plaintiff knew, as a matter of law, that he might maintain an *1054action directly against such purchaser to recover the amount of such mortgage debt. McDonald v. Finseth, 32 N. D. 400, 155 N. W. 863, L. R. A. 1916D, 149; 27 Cyc. 1349. Further, he knew that upon such transfer and assumption of the mortgage debt the relation of principal and surety would exist between the purchaser and the mortgagor, and that the lien of his mortgage and the enforcement thereof was necessary to preserve and protect the mortgagors’ rights, as sureties, in such transferred property.
If it be conceded that the plaintiff was not bound to recognize this relation so as to discharge the mortgagor as to the principal debtor (Jones on Mtgs. § 741), yet, upon the record, the facts are sufficient to warrant a finding that the plaintiff, by his consent and voluntary action, did so discharge the mortgagors as principal debtors, and did recognize the relation of suretyship; that voluntarily the plaintiff agreed to not hold the mortgagors personally liable for the mortgage debt; that voluntarily he agreed to look solely to the mortgage lien for the payment of such mortgage debt; that the mortgagors, through their mother, made settlement with the purchaser through notes for such mortgage debt; that one of these notes, in fact, since has been paid; that through such voluntary agreement and consent of the plaintiff the defendant mortgagors parted with title, notes, and money. Thus might the mortgagors be lulled into a sense of security that both their rights and their obligations would be protected by the action of the plaintiff, satisfied to rely wholly upon the mortgage lien. Thus might they, with full reliance upon plaintiff’s agreement, refrain from keeping guard to see that the mortgage security was enforced. Such an agreement was valid at least to the extent of recognizing the relation of the mortgagors, as sureties, upon the transí el- and the assumption of the mortgage debt. First Nat. Bank v. Watkins, 154 Mass. 385, 28 N. E. 275. It recognized and gave emphasis to this secondary liability of the sureties in equity by consenting to look solely for payment to the mortgage lien. Tripp v. Vincent, 3 Barb. Ch. (N. Y.) 613.
The plaintiff contends that his consent and agreement, if so made, amounted to a renunciation of the mortgagors’ personal liability upon the note, and as such it must be in writing, pursuant to § 7007, C. D. 1913; that principles of novation apply, to the transaction, and that a novation of the debt could not occur except by a contract in writing, since the note did not become due until two years after its execution. These contentions overlook the legal relations established between the parties *1055by their voluntary acts. Relations that were beyond the mere contract relation evidenced by the note. The resultant-duties, rights, and obligations of the mortgagors, the mortgagee, and the purchaser arose by operation of law through their voluntary action. In such case, the duty of the mortgagee arises upon equitable considerations. Merriam v. Miles, 54 Neb. 566, 74 N. W. 861, 69 Am. St. Rep. 731. If the mortgagee had extended for the purchaser the time of paying the mortgage debt, or if he had released the mortgage lien knowing the relations between the parties, it is’evident that it would not have required a written renunciation of defendants’ liability upon the note, or that the note should have been surrendered to the defendants. Under such circumstances the mortgagee was bound to recognize the equitable rights of the mortgagors, and he could not deal with the equity of redemption prejudicial to the mortgagors’ right of subrogation. Calvo v. Davies, 73 N. Y. 211, 29 Am. Rep. 130. See Union Stove & Machine Works v. Caswell, 48 Kan. 689, 29 Pac. 1072, 16 L. R. A. 85. See Iowa Loan & Trust Co. v. Schnose, 19 S. D. 248, 103 N. W. 22, 9 Ann. Cas. 259. Thus, should similar principles apply when the mortgage lien is lost, not through direct action of satisfaction or extension, but through neglect of duty. If the transaction be regarded as a novation, it is not within the statute of frauds because the duty consequent upon plaintiff’s agreement is implied by law. Urquhart v. Brayton, 12 R. I. 169, 171, 20 Cyc. 282. Pursuant to these legal relations established by the parties, the plaintiff possessed a mortgage lien which was collateral security for the mortgagor’s relation as sureties, so recognized by the plaintiff. It was plaintiff’s duty to preserve and protect this security so that the sureties might not suffer loss. If, through his neglect, there was loss, it was proper that he be held accountable therefor to the sureties. See State Bank v. Edwards (N. D.) 177 N. W. 677; Scandinavian Amer. Bank v. Westby, 41 N. D. 276, 172 N. W. 666. Likewise, if the facts be so found by a jury, the failure of the plaintiff to perform his duty was a legal defense to the defendants for their liability upon the note. See Hampe v. Manke, 28 S. D. 501, 134 N. W. 60; First Nat. Bank v. Watkins, 154 Mass. 385, 28 N. E. 275. The amendment offered, tendering this issue, should have been allowed when tendered. The plaintiff was entitled to know and to be fully apprized, then, that it was necessary for him to meet such issue. See Patterson v. Lynn, 27 N. D. 391, 416, 147 N. W. 256. Accordingly, it is ordered that a new trial be granted, and that all costs shall abide the event.
*1056Robinson and Grace, JJ., concur.