Court Opinion

ID: 9657937
Source: CourtListenerOpinion
Date Created: 2023-08-23 20:41:47.962801+00
Date Added: 2024-06-11T18:13:49.727928
License: Public Domain

TEIGEN, Chief Justice
(dissenting).
I dissent.
If I understand the import of the majority opinion correctly, Miles, as Burke’s assignee, is given the right to correct the default and, upon payment of the balance of the contract, will be entitled to receive title to the land from Knauss. It appears that Miles may do this without foreclosing its mortgage and that Knauss is precluded from raising any legal defenses to the validity of the mortgage or the debt it purports to secure. The majority appear to have abandoned the lien theory of mortgages as they specifically state, at the conclusion of their opinion, that Miles “as as-signee of the purchaser [Burke], will be allowed to make good the default on the purchase contract, * * * ” If Miles became the assignee of Burke’s contract for deed, there is no need for Miles, or this court, to pay any attention to the judgment cancelling the contract against Burke because that proceeding would be a nullity as to Miles, the owner of the contract. If Miles is the assignee of Burke, it is the *902owner of the contract and entitled to exercise whatever rights it provides as Knauss has not cancelled the contract against Miles.
I do not agree that the plaintiff, Knauss, has admitted that the effect of the mortgage was to assign Burke’s interest in the land. The majority base their conclusion of admission on the following statement made by Knauss’s attorney to the trial court:
“We have no quarrel with the fact that they obtained a mortgage upon the interest that the Burkes had.”
This statement does not constitute an admission that the effect of the mortgage was to assign Burke’s interest to Miles. The majority, in my opinion, have misinterpreted the attorney’s statement.
It is elementary that a mortgage on land is a mere lien, or security, for the payment of a debt and that it does not convey any title or estate in the property to the mortgagee.
“A mortgage is a contract by which specific property is hypothecated for the performance of an act without the necessity of a change of possession.” Section 35-02-01, N.D.C.C.
“A mortgage conveys no title or estate in real property covered by the mortgage but is merely a contract by which that property is hypothecated as security for the performance of an act.” Aure v. Mackoff (N.D.), 93 N.W.2d 807.
See also: Mechtle v. Topp, 78 N.D. 789, 52 N.W.2d 842; Federal Farm Mortg. Corporation v. Berzel, 69 N.D. 760, 291 N.W. 550; First Nat. Bank of Waseca v. Paulson, 69 N.D. 512, 288 N.W. 465; State v. Divide County, 68 N.D. 708, 283 N.W. 184.
The title of mortgaged property remains in the mortgagor even notwithstanding an agreement to the contrary. Section 35—01—08, N.D.C.C.; 37 N.D.L.Rev. 182; Federal Farm Mortg. Corporation v. Berzel, supra. The lien theory of mortgages in North Dakota is well explained in Farm Mortgage Loan Co. v. Pettet, 51 N.D. 491, 200 N.W. 497, 36 A.L.R. 598.
It is well established in North Dakota that a mortgage does not constitute an assignment of the property mortgaged to the mortgagee.
Next, the majority conclude that if there is not a legal assignment there is an equitable assignment. They have correctly stated that an equitable assignment is one which, even though invalid at law as an assignment, is one which will be recognized and enforced in equity. However, they have failed to recognize that, in order to work an equitable assignment, it must be established that there was an absolute appropriation by the assignor of the property sought to be assigned to the assignee. Blount v. Metropolitan Life Ins. Co., 192 Ga. 325, 15 S.E.2d 413; Farmers’ State Bank, McNabb, Ill. v. Kidd, 313 Ill.App. 132, 39 N.E.2d 394; Snipes v. Dexter Gin Co., 45 N.M. 475, 116 P.2d 1019-1020; Whiting v. Rubinstein, 7 Wash.2d 204, 109 P.2d 312; Gogebic Auto Co. v. Gogebic County Board of Road Com’rs, 292 Mich. 536, 290 N.W. 898; In re Goodwin’s Estate, 163 Misc. 273, 296 N.Y.S. 733-736; Milford State Bank v. Parrish, 88 Utah 235, 53 P.2d 72-73; Nickerson v. Hollet, 149 Wash. 646, 272 P. 53; Southern Surety Co. v. Bering Mfg. Co. (Tex.Civ.App.), 295 S.W. 337-340; Melnick v. Pennsylvania Co. for Banking & Trusts, 180 Pa. Super. 441, 119 A.2d 825-827.
“An equitable assignment is such an assignment as gives the assignee a title which, although not cognizable at law, equity will recognize and protect, as in the case of an assignment of property, interest, or debt to be acquired or to accrue in the future.” 6 C.J.S. Assignments § 1 b. [Emphasis added.]
“An equitable assignment is any order, writing, or act by the assignor which makes an absolute appropriation of a chose in action or fund to the use of the *903assignee with the intent of transferring a present interest, but not amounting to a legal assignment. An equitable assignment may also be defined as an execu-tory agreement or declaration of trust, not enforceable as an assignment by a court of law, which a court of equity, exercising a sound discretion, will execute or not, according to the circumstances of the case.
“The word assignment is sufficiently comprehensive to include the transfers of all kinds of property and property rights and is sometimes used synonymously with ‘grant’ so as to operate as a conveyance of the title to real property, but ordinarily it is limited in its application to -the transfer of intangible rights, including contractual rights, choses in action, and rights in or connected with property as distinguished from the property itself. It may be observed that while every assignment is a transfer, not every transfer is an assignment.” 6 Am. Jur.2d, Assignments, Section 1.
There is no evidence that the essential element of appropriation to work an equitable assignment is existent in this case. Burke remained in possession of the premises at all times after the mortgage was executed until Knauss cancelled his contract. A mortgagee is not entitled to possession of the property mortgaged, before foreclosure, in the absence of a clause clearly permitting it. Section 35-02-13, N.D.C.C.; McClory v. Ricks, 11 N.D. 38, 88 N.W. 1042; Farm Mortgage Loan Co. v. Pettet, supra; Hellstrom v. First Guaranty Bank, 49 N.D. 531, 191 N.W. 963. The execution of a mortgage does not entitle the mortgagee to possession of the property mortgaged. Hellstrom v. First Guaranty Bank, supra. The mortgage in this case is written on a standard, general form, regular in context, and does not grant possession to the mortgagee nor does it constitute an assignment by the mortgagor of his interests in the contract or in the land. Burke’s equitable interest was merely impressed with a lien in favor of Miles to secure a debt.
For the reasons aforesaid, I cannot agree with the majority opinion.
This action is in equity. The plaintiff, Knauss, seeks to quiet the title to the land against Miles, and Miles, by its counterclaim, seeks to foreclose its mortgage and prays, in the alternative, for other equitable relief. The pleadings and the prayer contained in the moving papers are sufficiently broad to require the court to take the jurisdiction necessary to do complete justice between the parties. The court, having acquired jurisdiction, should retain it and do complete justice. Schmidt v. Johnstone, 31 N.D. 53, 153 N.W. 293; Coykendall v. Kellogg, 50 N.D. 857, 198 N.W. 472; Arhart v. Thompson, 75 N.D. 569, 31 N.W.2d 56; United Accounts, Incorporated v. Larson (N.D.), 121 N.W.2d 628.
It appears that Knauss is now in possession of the land. Burke removed from the land after the cancellation action in 1964, which action is final, and Burke has no further interest in the matter. The instant action was commenced in 1965.
Burke was decreed to have a contract for deed in February, 1960. He was in possession of the land. Fie made no payments on the contract after the decree of February, 1960. He became indebted to Miles for materials purchased for a dwelling which he constructed on the land. He gave Miles a promissory note for his indebtedness and secured it with a mortgage describing the land. The mortgage impressed Burke’s equitable interest with a lien. The mortgage was subsequent to Knauss’s vendor’s lien under the contract for deed. Knauss then cancelled the contract for deed naming Burke as a party but did not name or serve Miles in that action. The judgment cancelling Burke’s contract for deed was entered and has become final. Knauss went into possession of the land and, in July, 1965, commenced the instant action against Miles to quiet the title. Knauss succeeded to Burke’s equit*904able interest in the land when he cancelled the contract. Burke’s equitable interest was impressed with the mortgage lien in favor of Miles. Miles’s interest was not cut off by the cancellation action because Knauss had actual knowledge of Miles’s mortgage but failed to name or serve it. Miles was a proper party in the cancellation action.
“Parties whose interests are acquired with notice of a vendor’s lien, and against whom no personal judgment is sought, and whose right of redemption is not concluded by a judgment of foreclosure, while proper parties, are not necessary parties to a suit to foreclose the lien.” 92 C.J.S. Vendor and Purchaser § 433 a, page 386.
“As a general rule, subsequent or junior lienholders and encumbrancers are proper, but not necessary, parties, unless there are special circumstances making them necessary or proper parties, as where they hold the legal title, or hold a prior lien. If they are not made parties, they are not bound by the decree and their rights will not be affected thereby, and they may redeem from the prior lien, as considered infra § 457, although they are not entitled to have another foreclosure of the vendor’s lien.” 92 C.J.S. Vendor and Purchaser § 433 b (2), page 387.
“Subpurchasers and junior lienholders who are not made parties to an action to foreclose a vendor’s lien may redeem, but they cannot redeem on paying the amount bid at the foreclosure sale, or the amount of the judgment in such suit, but must pay the full price. A holder of a junior lien, however, who is not made a party defendant to foreclosure of a prior lien has no right to pay off the senior lien and take over the property until such junior lienholder first forecloses his lien and buys the equity of redemption under the foreclosure. The offer to redeem must be made within a reasonable time after foreclosure. Where a person has a plain, adequate, and complete remedy at law, there is no occasion for resort to the remedy by redemption.” 92 C.J.S. Vend- or and Purchaser § 457, page 421.
The effect of the failure to join Miles in the cancellation action made that action ineffective as to Miles. Rule 19(b), N.D.R. Civ.P.
On the basis of these facts, it appears to me that Knauss succeeded to Burke’s equitable interest by the cancellation of Burke’s contract but took it subject to the mortgage which is junior to Knauss’s vendor’s lien under the contract. Under the circumstances, the legal title held by Knauss was not affected by the mortgage lien but the equitable interest which Knauss obtained by the cancellation action is subject to both Knauss’s vendor’s lien and Miles’s mortgage lien. Upon acquiring the legal and equitable titles to the land, Knauss became the absolute owner, subject to the lien of Miles. The two titles did not merge so as to allow Miles’s lien to become a first lien upon the land. North Dakota Lumber Co. v. Haney, 23 N.D. 504, 137 N.W. 411; May v. Cummings, 21 N.D. 281, 130 N.W. 826. Therefore, I would hold that Miles may foreclose its mortgage against Knauss on the equitable interest which it covers, subject, however, to Knauss’s prior vendor’s lien. The equitable interest is the difference between the value of the land and Knauss’s vendor’s lien. Therefore, from the proceeds of the sale on foreclosure, Knauss’s vendor’s lien, which is the prior lien, must be paid first and, from the moneys remaining, payment should be made to Miles to the extent of its indebtedness secured by the mortgage, and any surplus moneys must be paid to Knauss as the successor owner of the equitable interest foreclosed upon.