Swenson v. Ramage

No. 88-238
I N THE SUPREME COURT OF THE STATE OF MONTANA
1988
STUART W. SWENSON, JACQUELINE J.
SWENSON, JACK COX, JOYCE COX, JOHN
REELY, WILLIAM E . S . REELY, and DELBERT
ASHMORE,
P l a i n t i f f s and A p p e l l a n t s ,
-vs-
JOHN RAMAGE, ROBERT J . P O L I S H , and L I B B Y
DEVELOPMENT, INC.,
D e f e n d a n t s and R e s p o n d e n t s .
APPEAL FROM: D i s t r i c t C o u r t of t h e N i n e t e e n t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e C o u n t y of L i n c o l n ,
T h e H o n o r a b l e E . G a r d n e r B r o w n l e e , Judge p r e s i d i n g .
COUNSEL OF RECORD:
For A p p e l l a n t :
L a w r e n c e S v e r d r u p , L i b b y , Montana
For Respondent:
K e n n e t h E. O'Brien, K a l i s p e l l , Montana
S u b m i t t e d on B r i e f s : Aug. 18, 1988
Decided: September 2 7 , 1 9 8 8
Filed: SEP 2 7 1988'
Clerk
Mr. Justice William E. Hunt, Sr., delivered the Opinion of
the Court.
Plaintiffs, Stuart W. Swenson, Jacqueline J. Swenson,
Jack Cox, Joyce Cox, John Reely, William E. S. Reely, and
Delbert Ashmore, appeal the decision of the District Court of
the Nineteenth Judicial District, Lincoln County, finding
that the mortgage executed in favor of plaintiffs was a
purchase money mortgage and therefore, by reasons of S
71-1-232, MCA, denied plaintiffs the right to a deficiency
judgment. We affirm.
The sole issue raised on appeal is whether the mortgage,
which is the subject of this action, is a purchase money
mortgage under 5 71-1-232, MCA, so as to deny plaintiffs a
right to a deficiency judgment.
The essential transactions that lead to this dispute are
that on April 30, 1985, plaintiffs sold to defendant, John
Ramage, 2.812 acres located in Libby, Lincoln County for
$150,000. Ramage paid $25,000 cash and executed a promissory
note, due and payable on August 15, 1985, for the remaining
$125,000. Ramage executed an accompanying trust indenture to
secure the note. This trust indenture was not recorded, the
reason being to assist Ramage in obtaining financing for the
purpose of building a motel. Ramage was able to obtain
financing and, as planned, built a motel. The note executed
by Ramage was not paid on August 15, 1985 as agreed.
The 2.812 acres was surveyed and divided into two
parcels during the fall of 1985. The purpose of the survey
was to create Parcel "D," containing 1.248 acres, so as to
provide security for a construction mortgage, lien or trust
indenture. The newly constructed motel is located on Parcel
"D" and encumbering this parcel are two deeds of trusts, one
in favor of Seattle First National Bank and the other in
favor of United Bank.
On December 31, 1985, Ramage conveyed the entire 2.812
acres of land to Libby Development, a Montana general
partnership, consisting of John Ramage, Lois Ramage, Robert
J. Polish, David A. Ramage, Kevin C. Ramage and Mark H.
Jennings. This partnership then conveyed the 2.812 acres to
Libby Development, Inc., a Montana corporation. On the same
day, December 31, 1985, Ramage and Robert J. Polish,
president and secretaryltreasurer respectively for the Libby
Development, Inc., executed a promissory note for $35,000 in
favor of plaintiffs and secured by a mortgage on the
unimproved 1.564 acres. Defendants failed to pay the
principal and interest due on this note. Plaintiffs filed a
complaint on April 17, 1987 and on June 1, 1987 the District
Court ordered the mortgage foreclosed and the property sold,
according to law, with the proceeds going to plaintiffs for
the amount due them by defendants. The District Court also
ordered a hearing, if necessary, for the purpose of
establishing the amount of a deficiency judgment, if any,
against defendants.
On July 7, 1987, the property was sold by the Sheriff of
Lincoln County to the plaintiffs, as the highest bidders, for
$18,286.73. A deficiency of $18,950.28 remained. Plaintiffs
therefore filed the deficiency amount with the Clerk of Court
of Lincoln County and had the Clerk issue a writ of
execution. Plaintiffs then executed upon personal property
belonging to John Ramage. Defendants moved to set aside the
default judgment and entry of default and also moved to quash
the writ of execution. The District Court granted
defendants' motions and ordered that any and all execution
sales occurring in this action were null and void and that
any sums received from such void sales be returned to the
purchaser or purchasers.
The Libby Development, Inc. deposited funds in a trust
account to satisfy the deficiency judgment, but reserved the
right to raise the issue of whether the mortgage was a
purchase money mortgage within the meaning of 571-1-232, MCA,
so as to preclude plaintiffs from a deficiency judgment. The
District Court, after holding a hearing, found that "[tlhe
$35,000 due the plaintiffs is, without question, a balance
due on the original purchase price. The mortgage was to
secure that payment and was not given for any new
indebtedness and therefore is a 'Purchase Money Mortgage."'
Plaintiffs argue that they were entitled to a deficiency
judgment because the mortgage executed on December 31, 1985
in favor of plaintiffs was not a purchase money mortgage.
Plaintiffs first rely upon Pulse v. North American Land Title
Co. (Mont. 1985), 707 P.2d 1105, 42 St. Rep. 1578, for a
definition of a purchase money mortgage. In Pulse we defined
purchase money mortgage as "a mortgage on land executed to
secure the purchase money by a purchaser of the land
contemporaneously with the acquisition of the legal title
thereto or afterward, but as a part of the same transaction."
Pulse, 707 P.2d at 1107-08, 42 St. Rep. at 1580.
Plaintiffs then argue that the December 31, 1985
mortgage is not a purchase money mortgage primarily because
(1) the trust indenture, due August 15, 1985, which
originally secured the purchase price of the land covered
2.812 acres and the mortgage executed December 31, 1985
covered only 1.564 acres of the original 2.812 acres; (2)
John Ramage executed the original trust indenture and the
December 31, 1985 mortgage was executed by Libby Development,
Inc., a Montana corporation with John Ramage as president and
Robert Polish as secretary/treasurer; and (3) the December
31, 1985 mortgage was executed eight months after the
conveyance of the land. In summary, plaintiffs argue that
the December 31, 1985 mortgage did not cover the exact tract
of land as that which was originally purchased, it was not
given with or near the time of the conveyance, and it was not
given by the original vendee, and therefore it was not a
purchase money mortgage.
Plaintiffs properly cite Pulse for a definition of a
purchase money mortgage, but then apparently urges this Court
to adopt a narrow construction of the definition, in which
the only time a purchase money mortgage would exist is when
all transactions regarding the purchase of the land occur
simultaneously. We decline to accept such a narrow
definition of a purchase money mortgage.
In Pulse we stated that a purchase money mortgage is a
mortgage on land which secures the money yet owed on the land
by the purchaser of the land. Part of the same transaction
must include the purchaser acquiring legal title to the land,
either simultaneously or afterwards. Pulse, 707 P.2d at
1107-08, 42 St. Rep. at 1580. The definition in Pulse does
not limit the existence of a purchase money mortgage to those
instances when all transactions comprising the execution of a
purchase money mortgage occur simultaneously, and we do not
so limit it now. The essence of a purchase money mortgage is
to provide security for the payment of a tract of land. In
the present case, the District Court found that "[tlhe
$35,000 due the plaintiffs is, without question, a balance
due on the original purchase price. The mortgage was to
secure that payment and was not given for any new
indebtedness . . . ." No evidence is offered by plaintiffs
to refute this finding by the District Court. Plaintiffs'
offering of evidence that the mortgage was executed eight
months after the land was conveyed and that the mortgagors
and the number of acres being mortgaged differs in the
December 31, 1985 mortgage than at the time the land was
conveyed does not establish that the December 31, 1985
mortgage was executed to secure any new indebtedness incurred
by defendants. Instead, the evidence supports the court's
finding that the mortgage was executed to secure payment for
2.812 acres originally purchased by John Ramage and therefore
it was a purchase money mortgage.
Plaintiffs also attempt to argue that in light of the
nature of the transactions (construction of the motel), and
the mortgages and liens filed, the partiest intent was that
this mortgage would not be given the type of priority granted
under 871-3-114, MCA. Section 71-3-114, MCA, establishes a
priority for purchase money mortgages "over all other liens
created against the purchaser . . . . " We fail to see the
applicability of 871-3-114, MCA, in this case and plaintiffs'
argument that the above transactions, in light of this
statute, would indicate the partiest intent.
We affirm the District Court's finding that the
mortgage, which is the subject of this action, is a purchase
money mortgage. Section 71-1-232, MCA, provides:
Upon the foreclosure of any mortgage, executed to
any vendor of real estate or to his heirs,
executors, administrators, or assigns, for the
balance of the purchase price of such real
property, the mortgagee shall not be entitled to a
deficiency judgment on account of such mortgage or
note or obligation secured by the same.
Therefore, in light of S71-1-232, MCA, and our holding in
this case, we affirm the District Court's decision denying
plaintiffs the right to a deficiency judgment.
/-
Affirmed.
We Concur:
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Justices