Opinion
No. C3-02-2219.
Filed: July 29, 2003.
Appeal from the District Court, Sherburne County, File No. CX01654.
Kenneth R. Hertz, Hertz Law Offices, P.A., (for respondent Jayne Fraser)
Richard S. Eskola, (for respondent James Fraser)
Paul W. Chamberlain, Chamberlain Law Firm, (for appellant Gerald Fraser)
Considered and decided by Peterson, Presiding Judge, Lansing, Judge, and Wright, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
In this appeal from summary judgment in a real-estate dispute, appellant argues that the district court erred in ruling that he had an equitable mortgage on property that he helped respondents purchase. Because the record shows the existence of a material fact issue regarding the parties' intent to create an equitable mortgage, we reverse the grant of summary judgment and remand for trial.
FACTS
After writing several letters regarding his participation in the purchase of a house by his son and daughter-in-law, appellant Gerald Fraser (father) transferred money to his son, respondent James Fraser (husband). Husband and respondent Jayne Fraser (wife) used that money, together with a credit from the sellers to husband for CPA services husband provided to the sellers, to buy the house. At the closing, the sellers quitclaimed the property to husband and wife who quitclaimed it to father who then sold it back to husband and wife on a contract for deed. During these dealings, husband and wife had counsel, but father did not.
Husband later petitioned to dissolve his marriage to wife and moved off the property. While the dissolution was pending, husband failed to make the contract-for-deed payments to father, and father attempted to serve wife with a notice of cancellation of the contract for deed. The district court initially joined father in the dissolution proceeding and enjoined him from canceling the contract for deed. Later, the district court reversed itself, ruling that it had lacked jurisdiction over father and that the injunction against canceling the contract for deed had been incorrectly issued. Wife then sued father and husband in this separate action, asserting equitable defenses to the contract-for-deed cancellation, including that father's interest in the house was an equitable mortgage. In the dissolution action, the district court granted father's motion for reconsideration and ruled that, because it lacked jurisdiction to issue the injunction, the contract for deed had been cancelled while the injunction enjoining its cancellation was incorrectly in place.
Father then started an eviction action against wife and obtained a writ of recovery for the property. Execution of the writ was stayed to allow wife to appeal. Wife separately appealed the eviction and aspects of the dissolution. This court consolidated the appeals and remanded portions of the eviction for the district court to address wife's claims of defective service of the notice of cancellation and the propriety of addressing wife's equitable defenses in the eviction action. If necessary, the district court was also to address the equitable defenses. Fraser v. Fraser, 642 N.W.2d 34 (Minn.App. 2002). On remand in the eviction proceeding, the district court rejected wife's service arguments, did not address wife's equitable claims, and ruled that father was entitled to immediate possession of the property. Meanwhile, the parties had made cross-motions for summary judgment in wife's suit alleging equitable defenses to the contract-for-deed cancellation, and, by a revised order of October 23, 2002, the district court granted wife summary judgment on her claim that father had an equitable mortgage and hence that father's statutory cancellation of the contract for deed was not effective. Father appeals. Husband has not filed a brief on appeal.
DECISION
On appeal from a summary judgment, appellate courts
review whether there are any genuine issues of material fact and whether the district court erred in its application of the law. We view the evidence in the light most favorable to the party against whom summary judgment was granted. We review de novo whether a genuine issue of material fact exists. We also review de novo whether the district court erred in its application of the law.
STAR Centers, Inc. v. Faegre Benson, L.L.P., 644 N.W.2d 72, 76-77 (Minn. 2002) (citations omitted).
1. Generally,
when the real nature of the transaction between the parties is that of a loan, advanced upon the security of realty granted to the party making the loan, it may be treated as an equitable mortgage, without regard to the actual form of the instrument of conveyance. It is within the province of the trial court to determine, by looking beyond that form, the actual character of the transaction. An equitable mortgage is created when the parties to the transaction intended it to be essentially a security transaction.
First Nat'l Bank of St. Paul v. Ramier, 311 N.W.2d 502, 503 (Minn. 1981) (citations omitted). Here, the district court ruled that
because the underlying transaction created an equitable mortgage, the statutory cancellation of the contract for deed is not effective. The only way to terminate the mortgagor's interest is to foreclose by action.
Father challenges the determination that he had an equitable mortgage on the property.
A. Equity
Father argues that the structure of the transaction was proposed by wife's real-estate attorney and argues that "[t]o allow an opposing party's lawyer to create a technicality against an unrepresented party would turn the equitable doctrine [of equitable mortgage] on its head." We disagree. At the time of the closing, wife and father were not "opposing" parties. Also, after father sent a letter stating that he did not want to grant husband and wife a mortgage, (a) wife's counsel warned father that the alternative structure of the transaction proposed by father would result in an equitable mortgage, (b) father indicated that his proposed structure of the transaction was to be the way the transaction would be structured, (c) father waived his opportunity to consult with counsel regarding the transaction, and (d) father stated that he understood the consequences of his proposed structure of the transaction. On this record, it was not wife's counsel, but father, who caused the transaction to be structured the way it was structured. We see no inequity in holding a person to the consequences of a transaction when he is warned of its consequences, waives the opportunity to consult with counsel, and states that he understands the consequences.
Father argues that the real-estate attorney told him that a deed could not pass directly from sellers to father and that this statement was a misrepresentation. This argument appears to be based on either or both of two assumptions: (a) the entire purchase price was being paid with funds from father; or (b) husband and wife could unilaterally assign their rights under the purchase agreement to father. Neither assumption is consistent with the purchase agreement.
Father's letter states: "I have no intention of granting [husband and wife] a mortgage." The exact meaning of this language is unclear. For purposes of this appeal, we assume that the letter meant to convey the idea that father did not want husband and wife to mortgage the property to him.
B. Existence of Equitable Mortgage
Because there was not an improper invocation of the concept of an equitable mortgage, we must address the propriety of the district court's grant of summary judgment ruling that this case involved an equitable mortgage. Generally, "a deed absolute in form is presumed to be, and will be treated as a conveyance unless both parties in fact intended a loan transaction with the deed as security only." Ministers Life Cas. Union v. Franklin Park Towers Corp., 307 Minn. 134, 137-38, 239 N.W.2d 207, 210 (1976) (emphasis added).
[B]efore a court will hold a deed absolute on its face to be an equitable mortgage, it must appear that both parties so intended * * * even if one party actually intended to enter into a mortgage agreement, unless the other party had the same intention, the transaction should not be construed to be an equitable mortgage.
Ministers Life, 307 Minn. at 140, 239 N.W.2d at 211 (emphasis added). Here, the district court ruled:
[Father] argues that his intention was unequivocally a conditional sale as evidenced by his correspondence with [the] real estate attorney, and the language inserted into the contract for deed. What is apparent in viewing all circumstances surrounding the transaction, however, is that [father's] intention was not to have the transaction construed or interpreted as an equitable mortgage. All of [father's] objective acts indicate that this was a security arrangement and not a sale.
(Emphasis in original; underline added). "Summary judgment is notoriously inappropriate for determination of claims in which issues of intent, good faith and other subjective feelings play dominant roles." Pfizer, Inc. v. Int'l Rectifier Corp., 538 F.2d 180, 185 (8th Cir. 1976) (citing White Motor Co. v. United States, 372 U.S. 253, 259, 83 S.Ct. 696, 700 (1963)).
"Intention is to be ascertained by the written memorials of the transaction and the attendant facts and circumstances." Ministers Life, 307 Minn. at 138, 239 N.W.2d at 210. Here, father's May 5, 1997, letter to counsel, is captioned "re: the loan for [husband]." (Emphasis added). By definition, a loan is to be repaid. Firstar Eagan Bank v. Marquette Bank, 466 N.W.2d 8, 11 (Minn.App. 1991), review denied (Minn. Apr. 29, 1991). To conclude that husband and wife's transfer of the house to father was not security for the funds that father transferred to husband is also to reach the conclusions that (a) father's transfer of funds to husband was a gift (contrary to the statement in the letter that it was a loan) or that it was an unsecured loan; and (b) husband and wife's conveyance of the house to father was a transfer or gift to father so that they could then buy back from father the property that they had just gifted to him. Thus, the May 5 letter, with its attendant facts and circumstances, suggests that the money father transferred to husband was a loan secured by the house. The contract for deed, however, states that it "shall be construed and interpreted as a title transaction and shall not be construed or interpreted as an `equitable mortgage'" under Minnesota law. Because this record conflicts regarding intent, this case falls into the rule articulated in Pfizer, and summary judgment was improper.
Father also states that there is no note proving that the money transferred to husband was a loan. But it is not necessary that a promissory note be issued to prove that money advanced is a loan where there is other evidence sufficient to show that the transfer is a loan. In re Franview Drug Corp., 91 B.R. 61 (Bankr.E.D.Mo. 1988) (applying principle in corporate context).
Because of the conflicting evidence regarding father's intent, we need not address father's argument that the record lacks information regarding husband's intent.
C. Construction of Documents
Citing caselaw stating that several documents executed at (or at about) the same time should be construed together and to effect the intent of the parties, father argues that all of the conveyances at the closing should be construed together as a single transaction resulting in him acquiring the property from the sellers and then selling it to husband and wife on a contract for deed. On the current record, we must reject this argument because it assumes that, in acquiring the property from the sellers, husband and wife were, essentially, agents of father through whom the property passed on its way to father. The purchase agreement, however, (a) was between the sellers and husband and wife; (b) does not state that husband and wife were agents of father or otherwise acting on father's behalf; and (c) states that neither the sellers nor the buyers could convey their interests under the purchase agreement without the other side's consent. Thus, if husband and wife were only agents for father, they either entered the agreement knowing that they were not the actual buyers and that father was or, after entering the purchase agreement as legitimate purchasers, they improperly transferred their rights under the agreement to father without the sellers' consent. Also, part of the purchase price was "paid" when the sellers gave husband credit for CPA work he had done for the sellers. Because this credit made the sale possible in the form that it occurred, we cannot say on this record that husband was acting in a mere representative capacity.
2. Father also makes other arguments regarding the construction of the relevant documents. Because the record is unclear regarding the intent of the parties to the conveyance, we remand for the district court to resolve the intent-related questions. On remand, the district court shall, to the extent necessary, construe any documents necessary for resolution of the case.
We express no opinion on how any aspect of the case should be resolved on remand.