Red River State Bank v. ReiersonRed River State Bank v. Reierson
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Rеd River State Bank appeals from a judgment invalidating its mortgage against homestead property of Don A. and Adele M. Reierson, and from an amended judgment granting the bank a conditional equitable hen on that property. The Reiersons cross-appeal from the amended judgment. We conclude the trial court correctly ruled the mortgage was unenforceable against the Reier-sons’ homestead propеrty because the homestead exemption waiver clause in the mortgage was not printed in a conspicuous manner, and the trial court did not abuse its discretion in granting the bank
I
On June 1, 1990, the Reiersons borrowed $54,000 from the bаnk to pay for farm operating expenses. To secure the debt, the Reiersons granted the bank a mortgage on their Cass County homestead property which they had purchased in 1977. In February *686 1993, after the Reiersons failed to make the first two of 20 annual installment payments under the promissory note, the bank began this foreclosure action.
In their answer, the Reiersons asserted, as an affirmative defense, the bank’s complаint failed to state a claim upon which relief could be granted because the bank did not comply with
The trial court granted the Reiersons’ motion for summary judgment and dismissed the foreclosure action. The trial court held the mortgage “is invalid in total and not a lien against the property ... because ... [it] did not contain a conspicuous notice as to the waiver of the homestead exemption.” The court reasoned the clause was not conspicuous because it “was not different in size of type or print nor bold or contrasting such that the eye would catch the waiver language [which] ... was of the same type of print as the rest of the mortgage document.”
After substituting counsel, the bank moved under
After a hearing, the trial court granted the bank’s motion for relief from the judgment. The court ruled the Reiersons “would be unduly enriched by the court’s previous order.” The court noted “the purpose of the waiver of the homestead exemption statute was to inform borrowers that they were signing away their homestead exemption rights,” and held “[t]o prevent unjust enrichment, an equitable lien must be applied against” the property “subject to [the Reiersons’] homestead exemption so long as the property is occupied by [the Reiersons] as a homestead.” An amended judgment was entered incorporating and altering the initial summary judgment in this fashion. The court denied the bank’s later motion for reconsideration. Both the bank and the Reiersons have appealed.
The trial court had jurisdiction under Art. VI, §§ 1 and 8, N.D. Const., and
II
The version of
“All mortgages on homesteads executed after June 30, 1987, which are not purchase money agreements must contain the fоllowing statement printed in a conspicuous manner and must be signed and dated by the person waiving the exemption at the time the contract is executed:
“I understand that homestead property is in many cases protected from the claims of creditors and exempt from judicial sale and that, by signing this contract, I voluntarily give up my right to this protection for this property with respect to claims based upon this contract.”
Thе mortgage here is a typed, legal-sized, three-page document. In addition to the acknowledgment, the mortgage contains eight paragraphs. Six of the eight paragraphs have capitalized introductions: “THIS INDENTURE;” “WITNESSETH;” “TO HAVE AND TO HOLD THE SAME;” “PROVIDED, NEVERTHELESS;” ‘WAIVER OF HOMESTEAD EXEMPTION;” and “HIGHLY ERODIBLE LAND AND WETLAND CONSERVATION AGREEMENT.” The remainder of each paragraph is typed in the same sized lowercase print. The homestead exemption waiver clause appears below the middle of the second page and contains, in lower-case type, the exact language required by the statute.
Because N.D.C.C. Chapter 47-18 does not define the term “conspicuous,” the bank as *687 serts we should adopt the Uniform Commercial Code definition of the term:
“A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NONNEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is ‘conspicuous’ if it is in larger or other contrasting type or color. But in a telegram any stated term is ‘conspicuous’. Whether a term or clause is ‘conspicuous’ or not is for decision by the court.”
Decisions construing the U.C.C. definition of “conspicuous” in the context of exclusions or modifications of the implied warranty of merchantability are collected and described in
Stevenson v. TRW Inc.,
“A contract’s warranty disclaimer satisfies the conspicuous requirement when it is printed in all сapital letters, when it appears in a larger type than the terms around it, or when it is in a larger and boldface type.... Likewise, a disclaimer in boldface type, printed in all capitals on the face of the warranty above the buyer’s signature meets the definition of conspicu-ousness_ A disclaimer is not conspicuous, however, when it is printed in small print on the back of the document, when it is the same size and typefaсe as the terms around it, or when it is not in boldface or capital lettering.”
(Citations omitted).
The homestead exemption waiver clause is imbedded within the body of the mortgage and is set forth in the same sized print as the remaining contract language. The clause is in no way highlighted or emphasized any differently than the other paragraphs.
See Keblish v. Thomas Equipment, Ltd.,
The bank asserts, even if the clause is not conspicuous, the purpose of the statutory requirement was met because Don Reierson, in deposition testimony, indicated he and his wife knew they were mortgaging their homestead to the bank. We reject this argument for several reasons.
First, the homestead exemption waiver clause is obviously intended to inform borrowers that homestead property is often protected from claims of creditors and exempt from judicial sale under the law and, by signing the mortgage, borrowers are waiving that exemption right. That borrowers know they are mortgaging their homestead is not the same as knowing they are waiving homestead exemption rights by doing so. The Reiersons claimed by affidavit they knew nothing about their homestead rights at the time the mortgage was executed.
Second, the bank’s reliance on
Thompson v. Danner,
Moreover, as the trial court noted, the obvious purpose of the homestead exemption waiver clause is to make borrowers aware they are waiving homestead exemption rights if they mortgage their homesteads. The legislative history of the statute reflects concern many borrowers did not know they were waiving exemption rights by mortgaging their homesteads, and borrowers should be fully informed about what they are signing. Minutes of the Senate Judiciary Committee on Senate Bill 2450, February 10, 1987, at 1 and 2, Fiftieth Legislative Assembly of North Dakota (Minutes). Analogized to a borrower’s “Miranda rights,” the homestead exemption waiver clause was viеwed as the proper means of obtaining knowledgeable waivers.
Minutes
at 3. If we were to overlook the statutory requirements as the bank suggests, “it would amount to saying that the Legislature performed an idle act.”
Dietz v. City of Medora,
In
Federal Land Bank of St. Paul v. Waltz,
In this case, we likewise conclude there must be strict compliance with
Ill
The Reiersons assert the trial court erred in granting the bank’s motion for relief from the initial summary judgment under
A movant for
The bank’s request was not a belated attempt to reopen the summary judgment. The bank’s counsel promptly filed an affidavit claiming excusable neglect because the bank’s prior counsel was a Minnesota attorney and the bank did not contact new counsel, whose firm represented the lender in
Gust v. Peoples and Enderlin State Bank,
We cannot say the trial court abused its discretion by granting the motion and reopening the judgment in order to benefit from additional law and argument in deciding the substantive issues.
IV
The Reiersons assert the trial court erred in granting the bank the conditional equitable Ken on their homestead property.
In
Roen Land Trust v. Frederick,
“An equitable Ken is a restitution concept appKed by courts of equity to avoid injustice. See Martian v. Martian,399 N.W.2d 849 , 852 (N.D.1987). It arises ‘[wjhere property of one person can by a proceeding in equity be reached by another as security for a claim on the ground that otherwise the former would be unjustly enriched.’ Restatement of Restitution § 161, at p. 650 (1937). An equitable Ken only gives a claimant a security interest in property, which can then be used to satisfy a money claim. Dobbs, Law of Remedies § 4.3(3), at p. 402 (2d ed. 1993). We have often approved an equitable Ken to prevent unjust enrichment of a debtor and for rеstitution to a creditor. See Moen v. Moen,519 N.W.2d 10 , 12 (N.D.1994); Gust v. Peoples and Enderlin State Bank,447 N.W.2d 914 , 920 (N.D.1989); Martian. As reflected in 51 Am.Jur.2d Liens § 24, at p. 163 (1970) (footnotes omitted), no one has an absolute right to an equitable Ken; ‘[tjhere must be some ground for equitable intervention, including the absence of an adequate remedy at law....’ ”
In
Gust,
the bank loaned money to the borrower in 1984 and took a coKateral real estate mortgage on two quarter sections of the borrower’s land to secure the debt. The bank, however, failed to file an addendum to the mortgage continuing the effectiveness of the Ken under
After discovering the prior mortgage had already lapsed at the time of the settlement negotiations, the borrower sued to rescind the 1987 settlement agreement, the new note and warranty deed to the property conveyed to the bank. The bank counterclaimed for a money judgment on the original 1984 promissory notе. The trial court rescinded the 1987 transactions. The trial court also aHowed the bank a money judgment on the 1984 note, concluding the lapsed mortgage did not render the note unenforceable and the anti-deficiency judgment statutes did not, under the circumstances, prohibit the bank’s suit on the note.
We affirmed the trial court’s rescission ruKng, but reversed the court’s ruKng the anti-deficiency judgment statutes did not prohibit the suit on the 1984 note. We said although the Legislature, by enacting the coKateral real estate mortgage law, “did not intend to leave the appKcabiKty of the anti-deficiency judgment statutes to the total discretion of lenders,” it also did not intend “to punish lenders when a mortgage has lapsed pursuant to the statute by depriving them of any remedy whatsoever.” Gust at 920. Noting the statute authorizing coKateral real estate mortgages was intended to benefit both lеnder and borrower, we appKed an equitable remedy to prevent unjust enrichment of the borrower and to provide restitution to the lender:
“In this case where the property is stiK available for appKcation to the debt, the lender may proceed to enforce the particular remedy of an equitable Ken against the property which was mortgaged as security. We beKeve that this approaсh is a logical accommodation which serves the underlying purposes of both the anti-deficiency *690 judgment statutes and the collateral real estate mortgage statute.”
Gust.
The Reiersons contend Gust is distinguishable because it involved a valid mortgage that had lapsed and terminated under the collateral real estate mortgage law. According to the Reiersons, unlike Gust, “no equitable mortgage can be created here since there was no valid mortgage to begin with.” We do not believe this distinction prohibits application of the equitable lien concept to these facts.
The terms “equitable mortgage” and “equitable hen” are closely related concepts and are often used interchangeably by courts.
See, e.g., Garnett State Sav. Bank v. Tush,
The legal invalidity or unenforce-ability of a mortgage is the exact situation calling for apphcation of the equitable mortgage doctrine.
See
G. Osborne,
Handbook on the Law of Mortgages
§ 22, at p. 32 (2d ed. 1970) (“Equitable mortgages are ... security transactions which fail to satisfy the requirements of legal mortgages but nevertheless are treated as mortgages in equity.”) For example, in
Standorf v. Shockley,
Here, the trial court reasoned the bank is both precluded from foreclosing because the mortgage on the homestead property is unenforсeable, and forbidden from pursuing a money judgment against the Reiersons because of the anti-deficiency judgment statutes. As a result, the court concluded, the bank “is left without a remedy” and the Reiersons are “unjustifiably enriched,” thereby making imposition of the conditional equitable hen appropriate. Contrary to the Rei-ersons’ argument the bank should not be allowed any equitable remedy because it failed to comply with § 47-18-05.1(1), wе do not view the bank as having “unclean hands” in this case. Although the homestead exemption waiver clause was not printed in a conspicuous manner, the mortgage did contain the exact waiver language required by the statute. The record does not suggest the bank made a dehberate effort to mislead the Reiersons into mortgaging their homestead property.
But we also disagree with the bank’s argument the trial court erred in failing to grant the entire remedy apphed in Gust: a presently enforceable equitable hen. In Gust at 917, 920, this Court recognized the statute authorizing collateral real estate mortgages was intended by the Legislature to benefit both lenders and borrowers by allowing more flexibility in their lending relationships. Given the dual purpose of the statute, an inadvertent lapse of the mortgage, we reasoned, should not result in a windfall to the borrower and an unjustified loss to the lender. But in this case, § 47-18-05.1(1) has no dual purpose of benefiting both lenders and borrowers. Instead, like the farm debtor protection legislation in Waltz, § 47-18-05.1(1) was intended to benefit only borrowers by requiring individuals giving up homestead exemption rights to be aware they are doing so through a knowing waiver of those rights. Unlike the situation in Gust, granting a presently enforceable hen here would benefit only the bank at the expense of the borrower, the intended beneficiary of § 47-18-05.1(1).
The bank presented evidence the equitable remedy provided by the trial court, an equi *691 table lien subject to the Reiersons’ homestead exemption so long as they reside on the property as a homestead, has a present value as a “remainder interest” of only $6,578.38. According to the bank, there is a prior mortgage on the property that has been assigned “to a friendly party.” The bank recognizes the present value оf its interest may rise if the prior mortgage is paid in full, but argues it could be entirely eliminated if the prior mortgage is foreclosed. The bank asserts its equitable remedy is valueless because it depends on “actions taken by parties friendly to the Reiersons.” Notwithstanding the trial court’s assurance if an agreement were made between the Reiersons and the first mortgagee to destroy the equitable lien, the court could prevent the scenario with its equitable рowers, the bank argues its equitable remedy is, in fact, inequitable.
When a trial court exercises its discretion after weighing the equities of a case, we will not interfere on appeal absent a showing of an abuse of discretion.
Matter of Estate of Rohrich,
V
The amended judgment is affirmed.