Sletten v. First National Bank

Birdzell, J. (after stating the facts as above). The record in this case is a long one; and, while there is considerable conflicting testimony, there can be little doubt that the facts in the foregoing state [55] ment are amply substantiated by tbe evidence. Tbe real controversy is as to tbe proper inferences of fact and tbe legal conclusions warranted by tbe facts stated. Tbe trial court found tbat tbe acts of New-berry, as easbier of tbe First National Bank of Carrington, sufficiently manifested an intention on tbe part of tbe defendant to obtain tbe plaintiff’s land for tbe amount due upon tbe Johnson mortgage, rather than to collect tbe indebtedness secured by tbe mortgage, and it was also rfound tbat the foreclosure under tbe circumstances was an act of bad iaith on tbe part of tbe defendant. If these inferences of fact are warranted by tbe record, there can be no question but tbat tbe judgment ■of the trial court is correct. We confess it has been a matter of no little difficulty to satisfy our minds tbat tbe foregoing inferences were fully warranted by tbe facts adduced at tbe trial, but we have come somewhat reluctantly to tbe conclusion tbat tbe findings of tbe trial court are justified. We say we have come reluctantly to tbe conclusion, because of our appreciation of tbe importance of sustaining tbe validity and legal effect of statutory proceedings ■ brought to foreclose mortgages where, as here, there apparently has been a full compliance with tbe ■statute, and because of tbe natural disinclination to ascribe unworthy motives to our fellow men in tbe transaction of tbe ordinary affairs of life. There are no circumstances tending strongly to indicate such an .abuse of tbe statutory proceedings as was involved in tbe case of Hedlin v. Lee, 21 N. D. 495, 131 N. W. 390. But here tbe relief tbe plaintiff asks is based upon tbe attitude of tbe defendant in its relations to him at tbe time of tbe foreclosure and subsequently during tbe period •of redemption. Before tbe foreclosure, it would seem -that tbe defendant bank bad ample security for tbe $100 remaining due on tbe Johnson note, but it nevertheless bad tbe right to foreclose tbe mortgage securing tbe same. After this foreclosure, however, tbe security held for all that was owing to it by Sletten was enhanced by tbe sale of tbe threshing machine to tbe Andersons, resulting in tbe pledge of tbe Anderson motes and a chattel mortgage covering additional property; During tbe redemption period the bank realized upon collateral held by it, whereby tbe amount of Sletten’s obligation was decreased by more than ;$1,500. Assuming tbat Sletten’s $1,500 mortgage was still equitably -owing to tbe bank, tbe effect of this was to discharge it pro tanto, if not entirely, and it would likewise reduce tbe amount of money tbe [56] 'bank would have in the land if ultimately it should obtain the sheriff’s deed. It is true that the bank held other securities for this $1,500 obligation of Sletten; but it would seem that this fact, as well as the facts mentioned above, would only heighten the obligations of the bank to proceed with the utmost good faith and fairness in its dealings with him. When Sletten’s obligations to the bank are compared with the security given and realized upon, and when consideration is given to the rather indefinite and somewhat evasive answers of Newberry in response to requests for information, continuing almost to the very date of the expiration of the period of redemption, it can hardly be said that the bank acted with that degree of good faith that would be manifested by one whose sole interest was to collect a debt justly owing, with interest, and costs. But however this may be, we are of the opinion that the judgment of the trial court is right for reasons other than those assigned. When the First National Bank foreclosed the Johnson mortgage, it offered for sale the equity of Sletten. At the time of the sale anyone who desired to bid and who first consulted the records to ascertain the extent of Sletten’s equity in the land would have learned that it was subject to a first mortgage of $850 to the Wells-Dickey Company, a second mortgage to the First National Bank of Carrington for $1,500, and to a. third mortgage, or the one being foreclosed, upon which there was due, according to the notice of foreclosure; the sum of $300.04. Therefore, when the First National Bank bid at the sale, it must be deemed to have offered the amount bid in competition with all the world, the competitors regarding the land as subject to about $2,400 of prior claims. The bid of the First National Bank must, then, be considered to have been for an amount above those prior liens to the extent of the bid. By operation of law, the land became ipso facto the primary fund for the payment of such prior liens, and, so far as the relations between Sletten and the bank were concerned, the second mortgage was just as effectually discharged in equity as was the third mortgage. Had the equity been sold to a stranger, instead of to the mortgagee, and had Sletten been compelled later to pay the second mortgage debt, there can be no doubt that he would have had recourse against the property. A mortgagee' purchaser stands in no different relation to the debtor in this respect. Murphy v. Elliott, 6 Blackf. 482; Biggins v. Brockman, 63 Ill. 316; [57] Robins v. Swain, 68 Ill. 197; American Bldg. & L. Asso. v. Waleen, 52 Minn. 23, 53 N. W. 867; American Bldg. & L. Asso. v. Stoneman, 53 Minn. 212, 54 N. W. 1115; Donohue v. Chase, 130 Mass. 137; Pioneer Sav. & L. Co. v. Freeburg, 59 Minn. 230, 61 N. W. 25; Speer v. Whitfield, 10 N. J. Eq. 107; Lydecker v. Bogert, 38 N. J. Eq. 136. The purchaser at the mortgage foreclosure sale is in the same position as one who takes by voluntary conveyance subject to the prior encumbrances. A grantee in these circumstances is not entitled to' the benefits of collateral security which the vendor had placed with the mortgagee subsequent to the execution of the mortgage. Brewer v. Staples, 3 Sandf. Ch. 579; American Bldg. & L. Asso. v. Waleen, 52 Minn. 23, 53 N. W. 867. Nor in such a case is the purchaser at the foreclosure sale, who is also the owner of prior mortgages, entitled to enforce against the debtor the collection of the notes secured thereby. Weiner v. Heintz, 17 Ill. 259; Mines v. Moore, 41 Ill. 273; Belleville Sav. Bank v. Reis, 136 Ill. 242, 26 N. E. 646; Lilly v. Palmer, 51 Ill. 331. Whenever the lienholder’s interest becomes merged with the estate of the mortgagor, the primary consequence is to extinguish the mortgagor’s equity of redemption, not only from the mortgage foreclosed, but from the senior mortgages as well, and as a reciprocal consequence the prior mortgage debts owing by the mortgagor to the mortgagee, who purchased at the sale, is extinguished. 27 Cyc. 1383. But if the land is sold to a stranger, it becomes, according to the foregoing authorities, the primary fund for paying the senior mortgage obligations, subject to which it was sold. While the merger would not be completed until the expiration of the period for redemption, and technically, perhaps, not until the execution of the sheriff’s deed (but see Belleville Sav. Bank v. Reis, 136 Ill. 242, 26 N. E. 646), the relations of the parties while the mortgagee holds the sheriff’s certificate of sale should be regarded in the light of the equitable consequences of the sale. The mortgagee, having by its bid manifested a willingness to pay $300.04 for the mortgagor’s equity in the land, must be held to have been willing to assume the legitimate consequences of its purchase, one of the most important of which is that it would take the title and wipe out Sletten’s prior obligations to it. Having, upon the sale and as the holder of the sheriff’s certificate, assumed such an attitude, and having later counseled, advised, and even solicited Sletten to assign the [58] Anderson notes so that they might be paid and the proceeds applied on his prior obligations to it, thus treating such obligations as still owing, it cannot now complain if the mortgagor makes a claim wholly consistent with such attitude. Insistence upon its right to collect the •$1,500 debt secured by the prior mortgage, and its later collection, retention, and credit is only consistent in equity with the surrender of the rights under the sheriff’s certificate upon the equitable terms proposed by the debtor. The plaintiff has at no time manifested a willingness to pay over to Sletten the amount collected on the Anderson notes, .and it cannot now complain if Sletten adopts the equitable alternative and treats the land as having been held by the plaintiff only as security for the debt upon which the foreclosure was had. The judgment of the trial court is affirmed.