Hohag v. Northland Pine Co.

Hallam, J.

In April, 1915, the Twin City Motor Speedway Company contracted to buy from plaintiff 80 acres of land for $40,000. In January, 1916, there remained due on the contract about $25,000. In the meantime the speedway company had expended large sums in construction of a speedway upon said land and was indebted to numerous other creditors in an amount, including 'plaintiff’s claim, aggregating about $350,000. On January 16, 1916, pursuant to mutual agreement, the speedway company, to adjust the indebtedness, issued its bonds in the amount of $350,000, and executed and delivered to the Minneapolis Trust Company a deed of trust to secure the bonds. The creditors, including plaintiff, accepted these bonds in payment of their claims, and, to induce plaintiff to convey the land and to discharge his purchase money lien thereon, the parties entered into an agreement that the claim of plaintiff for the purchase money, and the bonds which should be issued to him, should “be and remain a first lien upon said premises and be preferred in payment from whatsoever source or manner paid, to their and each of their respective bonds,” and, to further assure such priority, it was agreed that if any bonds issued to the general creditors should be se7 lected for retirement under a certain provision of the trust deed, bonds issued to plaintiff in like sum should be substituted and paid in place thereof.

Default occurred in the terms of the trust deed and the trust company foreclosed by action. Prior to the sale, plaintiff and certain of the other bondholders joined in a request in writing that the trust company *40 bid in the property at the sale for the bondholders for $250,000, unless a cash bid for that sum or more should be received. No such bid being received, the trust company bid in the property for the bondholders for $250,000. Thereafter the trust company negotiated a sale of the property for $56,300, and the sale was confirmed by the court. Plaintiff then commenced this action to require payment of his claim in full out of said fund, and the trial court gave him judgment according to the demand of his complaint. Defendants, other bondholders, appeal.

In our opinion the trial court was right. It is perfectly competent for bondholders, whose bonds are secured by a single mortgage or trust deed, to agree among themselves that one shall have priority over the rest, Wilson v. Eigenbrodt, 30 Minn. 4 , 3 N. W. 907 ; Hall v. McCormick, 31 Minn. 280 , 17 N. W. 620 ; Plymouth Cordage Co. v. Seymour, 67 Minn. 311 , 69 N. W. 1079 ; 27 Cyc. 1763; 3 Jones, Mortgages, § 1702, and this necessarily means that in the event of foreclosure sale for an amount insufficient to pay the whole, the priority claim shall first be paid.

Had the trust property in this case been sold at foreclosure sale to a cash purchaser, there would be little or no room for doubt that plaintiff would have been entitled to full payment of his claim. If we for a moment eliminate the element of consent by plaintiff to the bid at the sale, there would seem to be no trouble in holding that plaintiff was likewise entitled to priority out of the proceeds of the foreclosed property. Where a trustee in a trust deed represents two parties with unequal interest, and, in the absence of action on their part disparaging their interest, he forecloses the trust deed and bids in the property as trustee, surely the same relative interests of the beneficiaries are impressed on the property so bid in, whether the disproportion of interest is in matter of amount or of priority.

The question then arises: Did plaintiff, by consenting that the trustee bid in the property for less than the amount of all the claims, waive the undoubted right of priority which he then had?

Bearing in mind that "waiver is either the result of an intentional relinquishment of a known right or an estoppel from enforcing it,” Parsons, Rich & Co. v. Lane, 97 Minn. 98 -105, 106 N. W. 485, 488 , 17 Ann, Cas. 1114, we are unable to find evidence of waiver here. With due *41 respect for the earnest and sincere argument of defendant’s counsel, we are of the opinion that the result arrived at by the trial court is in accordance with the real intention of the parties and with the equities of the ease.

Judgment affirmed.