Wagner v. Bankers Life Co.

¹ Reported in 288 N.W. 1. This appeal by the Bankers Life Company (its codefendant Campbell defaulted below) presents only the question whether the trial court correctly construed a written contract.

1. In February, 1934, defendant was and for long had been holder of a mortgage on a Brown county farm, of which plaintiff Dora Wagner was the owner as successor in interest of the mortgagors. The Wagners, husband and wife, and defendant then entered into a written contract, styled a "grant of possession." Its recitals have to do mainly with the existence of the mortgage and the amounts and items of the indebtedness. Plaintiffs, as owners, gave to defendant the right of possession, which was promptly exercised. After taking possession, defendant foreclosed the mortgage, but not until March, 1938. At the sale, defendant bid in the property for an amount some $1,600 less than the debt. That deficiency has not been paid, and defendant has procured no judgment for it. No redemption was made.

Returning to the contract, the promissory consideration moving from defendant to plaintiffs is thus stated:

"In consideration of such grant of possession, the Company agrees that in the event its said mortgage is foreclosed, it will either bid at special execution sale held pursuant to foreclosure proceedings the entire amount of the mortgage claimed, satisfying in full any judgment that may be obtained in such action, or upon acquisition of title to said real estate by Sheriff's Deed or otherwise, it will release any deficiency judgment obtained against the Owners, under or pursuant to foreclosure of its said mortgage."

While defendant was in possession it leased the farm and collected as rent during 1938, the year allowed for redemption, a sum in excess of $500. That is the amount in controversy. Defendant claims under the so-called "grant of possession." If that contract, in application to the facts, does not confer on defendant the right to the money, plaintiffs must prevail. (They claim as judgment creditors, under writ of execution and levy, of the owner of the equity of redemption during the year after the foreclosure sale, allowed by our law for redemption.) Defendant makes no claim of waste. Its only position is that it may keep the rent for 1938 and apply it on the supposed remainder of its debt.

Counsel inform us that the "grant of possession" was prepared on an Iowa form. That explains the phrase "special execution sale." Use of such a term, incapable of technical or precise application locally, does not relieve us of our obligation to apply the contract to Minnesota procedure so as to effect the intention of the parties. That, we feel, is well accomplished by the decision and judgment under review.

Defendant's obligation in event of foreclosure was either to bid the entire amount of the mortgage debt or to discharge any deficiency. That covenant was breached in that it did not bid the full amount of the mortgage debt and has not satisfied its claim for the deficiency.

Defendant, during the determinative period, was a mortgagee in possession, but with rights and obligations fixed by special contract. One of the duties so imposed was, in event of foreclosure by it, to discharge the whole debt. It has refused to do so — in fact, now insists that as to the deficiency in excess of its bid the debt remains enforceable. It is in the face of the obligation set out above that defendant seeks to apply as a credit the involved rents. Such a credit, if made, would, on that theory, leave an unpaid residue. If defendant is entitled to hold this rent money it has an equal right to judgment for the whole deficiency. But it simply cannot legally enforce a claim which it was under obligation to discharge on a condition subsequent (foreclosure) which has come to pass. Simply because the debt upon which defendant insists on applying these rents is nonexistent, and the money otherwise being that of plaintiffs, plaintiffs are entitled to prevail.

2. Defendant's purchase under foreclosure was subject to accrued taxes. "To permit it to apply the rents on the taxes would be the equivalent of giving it the property for less than it bid." Holt State Bank, by Veigel, v. Hamernes, 171 Minn. 350,351, 214 N.W. 52. See also Windom Nat. Bank v. Reno, 172 Minn. 193,214 N.W. 886; Business Women's Holding Co. v. Farmers M. Sav. Bank, 194 Minn. 171, 259 N.W. 812, 99 A.L.R. 576. So plaintiffs owe defendant nothing more on the tax item. To the amount of the bid, the debt was satisfied. As to the deficiency (it is immaterial that it is not in judgment) defendant was under contractual obligation to acquit plaintiffs. So the whole debt has vanished.

In the stipulations of the "grant of possession," other than those so far specially considered, we find nothing to support defendant's position. There was provision that, all delinquencies under the mortgage removed, defendant's right of possession should terminate. There was also language continuing defendant's right of possession during the period of redemption, with the privilege of having a receiver appointed to take over possession and management. All such provisions are simply so much irrelevant history because, while they were additional security for the debt, that debt has been extinguished. If defendant had elected to have a receiver appointed and, the facts of the foreclosure being as they are, the receiver were before us asking the right to apply the rents accruing during the year of redemption, as defendant now seeks to apply them, our judgment would necessarily go against the receiver under the rule of Holt State Bank, by Veigel, v. Hamernes, 171 Minn. 350, 214 N.W. 52. Neither the mortgagee nor any receiver acting for it could apply rents, otherwise belonging to the mortgagor, upon the mortgage debt, as the whole demand has been discharged. The debt which is the groundwork of defendant's position was eliminated by the foreclosure and the operation thereon of defendant's contractual undertaking that thereafter no enforceable deficiency would remain.

Judgment affirmed.