IN THE SUPREME COURT
FOR THE STATE OF NORTH DAKOTA
Case No. 990317
|Kathryn Olvera, et al, Plaintiffs-Appellants|
Robert C. Thom and Joan A. Thom, individually and as Trustees of The Thom Trust; et al,Defendants-Appellees
APPEAL FROM SUMMARY JUDGMENT
BOWMAN COUNTY, SOUTHWEST JUDICIAL DISTRICT
THE HONORABLE ALLAN SCHMALENBERGER, DISTRICT JUDGE, PRESIDING
BRIEF OF APPELLANTS
|MACKOFF KELLOGG LAW FIRM|
|Attorneys for the Plaintiffs-Appellants|
|Office and Post Office Address:|
|46 West Second Street, P.O. Box 1097|
|Dickinson, North Dakota 58602-1097|
|John L. Sherman, Attorney #02825|
|Kathryn Olvera, et al v. Robert C. Thom, et al||Supreme Court Case|
|Kathryn Olvera, et al v. Darrell Johnson, et al||Supreme Court Case|
|Kathryn Olvera, et al v. Scott P. Bradac, et al||Supreme Court Case|
Each of these quiet title actions present common questions of law and for all practical purposes the chains of title to the property involved in each action are the same.
The Appellants' Briefs filed in all three actions are virtually identical and for the most part are varied only to allow for description of the different first mortgages which are the subject of the foreclosure by advertisement proceedings. Only the case of Kathryn Olvera, et al v. Darrell Johnson, et al, Supreme Court Case No. 993016 differs. The appellee, Continental Resources, Inc., had not with respect to the lands which are the subject of that action obtained a title opinion opining that Brown Brothers Corporation was the mineral owner. Further, the procedure differs in that even though the trial court made the same matter of law determination as in the other two cases, no motion for summary judgment directly raised the issue.
Statement Of The Issues Presented For Review
The overall issue is whether the trial court erred in determining as a matter of law and without consideration of any other facts that certain foreclosure by advertisement proceedings did by operation of Section 8087 of the North Dakota Compiled Laws of 1913 terminate the interests of Brown Brothers Corporation even though it was given no notice [other than publication of the Notice of Sale] of the foreclosure by advertisement proceedings. In other words:
(1) Is Chapter 30 of the Compiled Laws of 1913 properly interpreted to provide that the severed mineral interests acquired subject to a mortgage dated prior to 1919 are foreclosed by a 1923 advertisement proceeding conducted without notice to that severed mineral interest owner?
(2) If so, do undisputed facts showing that the foreclosing mortgagee did not intend to acquire the interest of Brown Brothers Corporation as a matter of law prevent foreclosure or termination of its severed mineral interest?
(3) Alternatively, do the facts contained within the public record showing that the foreclosing mortgagee did not intend to acquire the severed mineral interests of Brown Brothers Corporation raise a genuine issue of material fact requiring a trial and preventing the granting of summary judgment?
Statement of the Case
Nature of the Case.
This is an action to quiet title brought by the heirs of the stockholders of Brown Brothers Corporation. Brown Brothers Corporation was a South Dakota corporation whose corporate existence terminated in 1938 as a result of expiration of the term specified in its charter. The property which is the subject of the action is severed mineral interests conveyed to Brown Brothers Corporation by a 1921 document which a prior partial summary judgment herein determined was a Mineral Deed. The severed mineral interests were never conveyed by Brown Brothers Corporation. Numerous of the defendants claim to own the mineral interests which are the subject of this action and Continental Resources, Inc., [hereinafter sometimes referred to as "Continental"] moving party in the court below, claims Oil and Gas Leases upon the claimed interests of some of those claimed owners.
Course of the Proceedings Below.
Continental Resources, Inc., notwithstanding the title opinions of its attorneys that Brown Brothers Corporation owned the severed mineral interests, made numerous motions and resistances to plaintiffs' motions seeking to acquire title in itself to the interests its title attorneys said it did not own. Continental did not buy these interests as recommended by its attorneys. It instead sought under numerous legal theories to establish in court their interest without any payment. While the trial court ruled against Continental on all of the claimed theories, ultimately the court reversed itself and held that certain foreclosure by advertisement proceedings conducted without notice to Brown Brothers Corporation foreclosed its interest -- and in effect that Continental Resources, Inc. was entitled to a windfall. That result flowed from Continental's Motion for Summary Judgment upon which the trial court determined that Chapter 30 of the Compiled Laws of 1913 as a matter of law and construction of those statutes, and without consideration of undisputed facts favoring the position of plaintiffs, compelled summary judgment in favor of Continental quieting title to its claimed leasehold interest and its mineral owner lessors.
Statement of Facts
The applicable facts on this appeal, all of which are uncontroverted and undisputed, are as follows:
1. Prior to the commencement of this action, Continental Resources, Inc. was furnished with the title opinion of its legal counsel opining that Brown Brothers Corporation was the owner of all oil, gas and other minerals in and under the property which is the subject of this action. [Second Affidavit of Sherman, App. 39]. Continental was by Order of the Court directed to produce the title opinion. A similar opinion had been rendered to Continental with regard to property involved in another case. [Exhibit A, Fourth Affidavit of Sherman, Olvera, et al v. Bradac, Supreme Court Case No. 990318, at its App. 90].
2. Brown Brothers Corporation acquired title to all of the oil, gas and other minerals in and under the property which is the subject of this action by instrument dated March 17, 1921, determined by Partial Summary Judgment herein dated March 27, 1998, to be a Mineral Deed. [Bowman County Docket item #59]
3. Mondiana Oil and Gas Company acquired title to surface interests in the property which is the subject of this action by Warranty Deed dated March 31, 1921, expressly subject to the conveyance in favor of Brown Brothers described in the immediately preceding paragraph 2 hereof and expressly subject to "several first mortgages covering various parcels of said land . . . ." [Exhibit D, Affidavit of Sherman dated August 22, 1997, Bowman County Docket item #27].
4. The titles acquired by Brown Brothers Corporation and Mondiana Oil and Gas Company were subject to a prior mortgage dated June 15, 1915, executed by Chicago Land Company upon the premises which is the subject of this action and other lands recorded in the office of the Bowman County Register of Deeds in Book 29 of Mortgages at page 360, which mortgage was subsequently assigned in favor of Elizabeth E. Grimes by Assignment recorded in that office in Book 53 of Assignments at page 161 [Affidavit of Feist, App. 30].
5. Mortgagee/assignee Grimes on January 2, 1923, granted a Power of Attorney to Attorney Ripley to foreclose the June 15, 1915 mortgage; and the attorney made his affidavit required by statute [Affidavit of Feist, App. 31 and 32].
6. Grimes' Attorney Ripley made a Notice Before Foreclosure of the June 15, 1915 mortgage and caused it to be mailed by registered mail to Mondiana Oil & Gas Company on January 11, 1923. The Notice Before Foreclosure was not served upon Brown Brothers Corporation. [App. 33 and 34].
7. Attorney Ripley caused Notice of Mortgage Foreclosure Sale respecting said June 15, 1915 mortgage to be published in the Bowman County Pioneer once a week for six (6) consecutive weeks scheduling sale of the mortgaged premises for April 25, 1923, at 10:00 a.m.; at which said time the Sheriff struck off and sold the premises to the mortgagee/assignee, Elizabeth E. Grimes [Affidavit of Feist, App. 34 and App. 35].
8. The Bowman County Register of Deeds on May 10, 1923, mailed the printer's Affidavit of Publication of the Notice of Mortgage Foreclosure Sale to the surface owner Mondiana Oil and Gas Company and at the same time mailed a copy of said Affidavit of Publication to a subsequent mortgagee. The Register of Deeds did not, however, mail the Affidavit of Publication to Brown Brothers Corporation, the severed mineral owner. [Affidavit of Feist, App. 36].
9. The March 17, 1921 conveyance to Brown Brothers Corporation referred to at paragraph 2 above sets forth the address and principal place of business of Brown Brothers Corporation as Aberdeen, South Dakota. [Exhibit B, Affidavit of Sherman dated August 22, 1997, Bowman County Docket #27]
10. The Sheriff's Deed of the above premises dated April 26, 1924, in favor of Elizabeth E. Grimes, shows the grantee and her address as:
"Elizabeth E. Grimes of Aberdeen, S.D., c/o Brown Bros. Corporation".
[Affidavit of Feist, App. 37].
11. The defendants, except defendants' Dobson, Peterson, Altair Corporation and The Dublin Company, claim title to the minerals under Elizabeth E. Grimes.
Summary of Argument
Brown Brothers Corporation, plaintiffs/appellants predecessors in interest, acquired title to the severed mineral interests which are the subject of this action by mineral deed conveyance dated March 17, 1921. At the time of this conveyance the severed mineral interests, together with surface interests in the property, were subject to a recorded June 15, 1915 mortgage. The mortgagee in 1923 commenced foreclosure by advertisement proceedings by service of a Notice Before Foreclosure [whether required or not] upon the surface owner, but not upon Brown Brothers Corporation, the severed mineral owner. The undisputed facts on the public record also disclose that the mortgagee/assignee had a close relationship with Brown Brothers Corporation inasmuch as the assignee showed her address upon the public records as being in care of Brown Brothers Corporation, Aberdeen, South Dakota. Further, the foreclosing mortgagee/assignee did nothing to cause the Register of Deeds to serve the Affidavit of Publication of the Notice of Sale upon Brown Brothers Corporation.
Continental Resources, Inc. acquired Oil and Gas Leases upon various interests in the property, but not upon the interest vested of record in Brown Brothers Corporation. Continental knew and had been advised by its attorneys that Brown Brothers Corporation owned the interests which are the subject of this action and that leases from it or its successors were necessary. Continental, however, did not buy those leases.
The trial court prior to the summary judgment proceedings resulting in this appeal relying upon Yttredahl v. Federal Farm Mortgage Corporation, 104 N.W.2d 705 (N.D. 1960) had ruled that the Brown Brothers Corporation interests could not be foreclosed without notice to it. Upon the subsequent motion for summary judgment, however, the court, relying on Patterson Land Co. v. Merchants Bank of Napoleon, 212 N.W. 512 (N.D. 1927) and Section 8087 of the Compiled Laws of North Dakota 1913 determined as a matter of law that the Brown Brothers Corporation severed mineral interests were foreclosed.
The Patterson Land Company case, supra, is distinguishable from the situation presented on this appeal. There, a second mortgagee sought to set aside a foreclosure by advertisement proceeding on the grounds that S.L.N.D. 1919, ch 131 providing for a Notice Before Foreclosure was retroactive and applicable to foreclosure of mortgages predating the 1919 law. The Court held that the application of the statute [which would not have required a notice to the second mortgagee anyway] was prospective in nature and that to hold otherwise would be an impairment of the obligation of contracts because at the time the pre-existing mortgage was executed the mortgagee could accelerate the indebtedness without prior demand. What the Court determined was that the first mortgage debt could be accelerated. The second mortgagee was not entitled to a notice before foreclosure regardless of whether or not the statute was retroactive. The result of the Patterson Land Company case is not unjust. The rule of that case, however, is not readily adaptable to severed mineral interests, interests which were hardly known at the time our foreclosure by advertisement statutes were enacted in 1877. An injustice results when attempting to apply those statutes to non-possessory interests which are consistent with the ownership and possession of the surface owner who in the great majority of cases is the one obligated upon the note and mortgage.
The reasoning of the North Dakota Supreme Court in Yttredahl v. Federal Farm Mortgage Corporation, 104 N.W.2d 705 (N.D. 1960) should control the determinations to be made in this case and the severed mineral interests of Brown Brothers Corporation should not be foreclosed and terminated without notice to it. Had the foreclosing mortgagee/assignee intended to foreclose upon the severed interests of Brown Brothers Corporation she would have served the Notice Before Foreclosure upon that mineral owner, not merely upon the surface interest owner. As the Yttredahl court noted, a party not given notice might well have concluded that the mortgagee had considered the remaining interest in the property sufficient to satisfy the mortgage and therefore proceeded against only the surface interest. Foreclosure by advertisement is a simplified procedure to be used in foreclosure when there were no controverted issues. Thus, it does not seem reasonable that Brown Brothers Corporation could without notice lose its interests through a foreclosure by advertisement, the simplified procedure, when through a full-blown lawsuit closely supervised by a judge that interest could not be terminated without personal service upon Brown Brothers Corporation.
Regardless of any of the foregoing it is clear that the foreclosing mortgagee waived her rights under the statute to acquire without notice the severed mineral interests of Brown Brothers Corporation. That waiver is shown by mortgagee/assignee serving a Notice Before Foreclosure on the surface owner, but not upon Brown Brothers Corporation; not causing the Register of Deeds to serve notice of the foreclosure sale upon Brown Brothers Corporation; and the foreclosing mortgagee showing her address in her Sheriff's Deed as in care of Brown Brothers Corporation, Aberdeen, South Dakota. These facts as a matter of law prove the waiver and Summary Judgment for Brown Brothers successors should have been entered
Alternatively, in the event the undisputed facts are not sufficient as a matter of law to find a waiver of Elizabeth Grimes right to foreclose the severed mineral interest of Brown Brothers Corporation, then a determination should have been made that a genuine issue of material fact was raised respecting the waiver and that Continental Resources, Inc., et al, was not entitled to a judgment as a matter of law.
The Plaintiffs/Appellants are the heirs of the stockholders of Brown Brothers Corporation. Defendants Joseph R. Dobson, James M. Dobson, Jr. and Mary Frances Peterson, are also heirs of those stockholders. Some of these successors to Brown Brothers Corporation transferred interests in their property to defendants The Dublin Company and Altair Corporation.
Brown Brothers Corporation on March 17, 1921, received a conveyance of Bowman County severed mineral interests. Those interests were never conveyed by Brown Brothers Corporation. The Corporation ceased to exist on February 17, 1938, as a result of the expiration of the 25 year term provided by its charter. As will hereafter be discussed, the issue in this case is whether the successors of Brown Brothers Corporation are the owners of the severed minerals or whether the interests were lost through a foreclosure of a real estate mortgage by advertisement and subsequently conveyed to other parties who are defendants herein.
Prior to the commencement of this action Appellee Continental Resources, Inc., hereinafter sometimes referred to as "Continental", acquired oil and gas leases from various of the defendants upon property which is the subject of this action and other lands. Thereafter Continental retained attorneys to examine the title to the property. The attorneys retained by Continental issued written title opinions which opined that Brown Brothers Corporation was the owner of the property which is the subject of this action.
After commencement of this action the plaintiff/appellants, hereinafter sometimes referred to as "successors to Brown Brothers Corporation" pursuant to Rule 34 N.D.R.Civ.P. requested production of title opinions of Continental. Continental refused, plaintiffs' moved for an order compelling their production, and the court directed Continental to produce the title opinions. The title opinions produced, or at least some of them, disclosed that the attorneys for Continental had examined the titles and opined that the property which is the subject of this action, as well as other properties included within the 1921 mineral deed, were owned by Brown Brothers Corporation and recommended that leases be obtained from Brown Brothers Corporation or its successors. Continental did not obtain oil and gas leases from the Brown Brothers successors. Instead, Continental raised numerous objections to the title claims of the plaintiffs, contrary to the opinion of their attorneys furnishing title opinions, and attempted to acquire the leasehold for no cost whatever by attempting to establish that other defendants who had leased to Continental owned the interests.
The Trial Court Decision.
The trial court in summary judgment proceedings ruled against the defendants Continental, et al, with regard to their numerous claims attempting to establish title, including claims that the interests were foreclosed by the foreclosure by advertisement proceedings which are the subject of this appeal. Initially, as is disclosed by the court's Memorandum dated June 28, 1999, the trial court based upon Yttredahl v. Federal Farm Mortgage Corporation, 104 N.W.2d 705, (N.D. 1960) ruled that the interests were not foreclosed because Brown Brothers Corporation had not received notice of the foreclosure proceeding. Upon reconsideration, the trial court accepted Continental's view that Chapter 30 of the Compiled Laws of 1913 provided that no Notice of Intention to Foreclose was required for a foreclosure by advertisement, citing Patterson Land Co. v. Merchant's Bank of Napoleon, 212 N.W. 512 (N.D. 1927). The court also determined that Section 8087 of the Compiled Laws of North Dakota 1913 compelled that result. It is clear from the court's Memorandum and the court's Amended Order for Judgment that the trial court made this ruling as a matter of statutory interpretation -- a matter of law -- and that it gave no consideration to undisputed facts reflecting upon the intention of the party conducting the foreclosure by advertisement proceeding.
Notice or No Notice of Foreclosure.
The trial court first relied upon Yttredahl v. Federal Farm Mortgage Corporation, 104 N.W.2d 705 (N.D. 1960) and held that the interests of Brown Brothers Corporation could not be foreclosed without notice to it. Later, when Continental called to the trial court's attention Patterson Land Co. v. Merchant's National Bank of Napoleon, 212 N.W. 512 (N.D. 1927) the court changed its view and held as a matter of law that no Notice of Intention to Foreclose was required. Thus, we look to the reasoning of those two cases.
Patterson Land Co. v. Merchant's National Bank of Napoleon was a case in which a 1917 mortgage was foreclosed by advertisement in 1923. The foreclosing mortgagee did not serve a Notice of Intention to Foreclose. The requirement to serve a Notice of Intention to Foreclose was first enacted in North Dakota by Chapter 131 of the Session Laws of 1919 and as amended by Chapter 66 of the Session Laws of 1921 provided:
"Before any action or proceeding shall be commenced to foreclose a mortgage on real property, a written notice describing the land, the date and amount of the mortgage, the sum due for principal, interest and taxes respectively, and stating that if the same be not paid within thirty days from the date of the notice, proceedings will be commenced to foreclose the mortgage, shall be served more than thirty days prior to the commencement of such action or proceedings by registered mail addressed to the title owner according to the records in the register of deeds office at his or their post office address as shown by the records in the register of deeds office and if not shown, then addressed to said owner at the post office nearest the land. An affidavit of proof of such service of notice shall be filed with the clerk of the court at the time of filing complaint in any action for foreclosure and shall be filed and recorded with the notice and certificate of sale in all other cases. Provided, however, that if said owner shall before the expiration of thirty days from the service of such notice, perform the conditions or comply with the provisions upon which the default shall have occurred, such mortgage shall be reinstated and shall remain in full force and effect the same as if no default had occurred therein."
Patterson Land Co., a second mortgage lender, sought to declare invalid the foreclosure and thereby re-established its second mortgage as a lien. The parties agreed that the only issue was whether or not the 1919 law as amended was retroactive so as to apply to mortgages executed before its passage. The Supreme Court held that the statute was to be applied prospectively only. The basis for the court's ruling did not involve notice. The court held that the 1919 statute imposed an obligation upon the lender to afford the borrower the opportunity to bring the indebtedness current and that the debt could not be accelerated until after the expiration of the thirty (30) day notice period. The Court said that the right to accelerate without notice was a valuable right and that to hold that 1919 statute applicable to a mortgage executed prior to its enactment could not be presumed to have been contemplated by the legislature because such an application would be unconstitutional as impairing the obligation of contracts.
The trial court also relied upon Section 8087 of the Compiled Laws of 1913 which provides for a Sheriff's Deed and that:
". . . Such deed shall have the same force and effect as if it had been executed pursuant to a sale under the foreclosure of the mortgage by an action in which all persons having an interest in or lien upon the property subsequent to the mortgage were made parties and duly served with process."
Brown Brothers Corporation successors will hereafter argue that the facts clearly illustrate that the defendants' predecessor Grimes did not intend to foreclose the interests of Brown Brothers Corporation and that those facts clearly show a waiver of the right to rely upon the statutes cited above. Aside from those arguments of that applicable law, we do recognize that a literal reading of the statutes would provide that any interest or lien is extinguished by the foreclosure of a pre-1919 mortgage by advertisement without prior notice of intention to foreclose. We do not concede, however, that this literal application was the intention of the legislature or that it should be applied in all cases.
The Patterson Land Company case presented the sole legal issue of whether or not the statute was retroactive. The Patterson Land Company was seeking to obtain relief based upon a notice not having been given to the record title holder. In other words, even if there had been a requirement that the Notice Before Foreclosure be served it would not have to have been given to the second mortgagee, Patterson Land Company. Such notices since 1919 have always been required to be served upon interest owners and not lienholders. Patterson Land Company sought to sneak in the back door and obtain reinstatement of its mortgage because a notice had not been given to someone else. Thus, it would appear that the legal issue was correctly decided and it is difficult to raise an equitable argument that the Patterson Land Company was harmed by lack of notice to a different party.
Section 8087 of the Compiled Laws of 1913 has been a part of our law since 1877, as Section 609 of the 1877 Code of Civil Procedure. The language respecting the effect of a Sheriff's Deed has been in existence at least since N.D.R.C. 1895 § 5856. Those early days and into the first couple of decades of this century were times of hard and fast rules insofar as collection of debt is concerned. They were also times lenders, borrowers, attorneys, legislators and the public generally knew little of the concept of severed mineral interests and the fact that there could be separate fee interests in both the surface and the minerals, neither ownership nor possession of one being inconsistent with the other.
It appears that perhaps the first consideration given by the North Dakota Supreme Court to severed mineral interests was in Beulah Coal Mine Co. v. Heihn, 46 N.D. 646, 180 N.W. 787, 789 (N.D. 1920). There the Court talked in terms of long-established usage of reservations of minerals and the fact that the practice of excepting minerals had been adopted not only by individuals, but by the government. But, the court then went on to cite the Act of June 22, 1910, 36 Stat. 583 the United States Patent reservation of coal to illustrate this "long established" practice. Coal was first reserved by the United States by the Act of March 3, 1909, 35 Stat. 844, 30 U.S.C.A. § 81. No reservations of minerals were made by the State of North Dakota until 1939. N.D.R.C. § 38-0901. Robinson, J. dissented. He argued that the 1918 deed of Carl Heihn, Jr., was not a conveyance of minerals, but, at page 791 of the Northwest Reporter, "merely a right to go on certain lands to explore it and to take and carry away any coal that may perchance be found." Thus, in 1877, as well as 1895, and even in 1913 when Section 8087 was recodified, the concept of ownership of severed mineral interests was not well known or understood. Other than future interests, i.e. remainders following life estates, people were not accustomed to real property interests which were not possessed by the owners.
A fact situation similar to that existing in this case prevailed in Yttredahl v. Federal Farm Mortgage Corporation, 104 N.W.2d 705 (N.D. 1960), except that the foreclosure was by action. There the property owner granted a mortgage upon real estate. Subsequently he severed and conveyed royalty interests subject to the mortgage. Significantly [as hereinafter further discussed], the owners of the severed royalty interest had no obligation upon the note or to pay the mortgage. The mortgagee commenced and completed an action to foreclose the mortgage, but did not name the royalty owners as parties to the action. The purchaser from the foreclosing mortgagee [who purchased at sheriff's sale] brought an action to quiet title against the royalty owners. The royalty owners did not lose their interest as a result of the foreclosure because they were not given notice of the action. The mortgagee through the foreclosure acquired no interest in the royalty and thus it could convey none of it to its purchaser. Further, the purchaser from the mortgagee did not and could not acquire title to the royalty interests by adverse possession because the surface owner was not in possession of the severed mineral interests. In fact, the possession of the surface by the purchaser was in all things consistent with, and not adverse to, the title of the royalty owners. The recording of the Sheriff's Deed did not constitute a cloud upon or an impairment of the royalty owners interest which commenced the running of any period of limitation. The Court then said at page 708:
"It has been argued that if there is no limitation upon the time within which the owner of a nonpossessory interest in real property must bring an action to remove a cloud upon his title, there could be no security of title even as against second and third generation claimants and that such a result would create a chaotic condition which the law should not countenance. However, to say that there is such a limitation would be to say that a claimant to such a title under a void instrument could perfect his title by the lapse of time alone. Such a result would be contrary to the express provisions of Section 47-0121, N.D.R.C. 1943 which reads:
'Property may be acquired by:
4. Will; or
5. Succession.' "
Two Petitions for Rehearing were filed. Per Curium the Court said at page 709:
"In the instant case, the grantees of perpetual nonparticipating royalties were not made parties to the action to foreclose. Their titles to the royalties were therefore unaffected by the foreclosure and that fact appeared upon the face of the record. The possession of the surface estate by the purchaser of their grantor's interest at foreclosure sale was no more adverse to them than continued possession by their grantor. In fact, if the owners of the royalty interests had known of the foreclosure, they might well have concluded that the mortgagee considered that the mortgagor's remaining interest in the property was sufficient to satisfy the mortgage and that therefore he was proceeding against that interest alone. The petitions for rehearing are denied." [emphasis supplied]
The law established by Yttredahl remains effective. In Farm Credit Bank of St. Paul v. Martinson, 478 N.W.2d 810, 813 (N.D. 1991) the Court said:
"The rights of an owner of an interest in mortgaged property, that is recorded or known to the mortgagee, are not affected by a judgment of foreclosure when that person is not made a party to the foreclosure."
Thus, it is very clear under North Dakota law that if the foreclosures had been by action, it would have been impossible for the mortgagee/assignee or her successors in interest to acquire the mineral interests of Brown Brothers Corporation without service upon it.
Foreclosure by advertisement has been banned for many years, except for proceedings conducted by the State of North Dakota. Undoubtedly the Legislature determined to vest that authority only in the State to avoid abuses which may have resulted from its use generally. The North Dakota Supreme Court said in Folmer v. State, 346 N.W.2d 731, 735 (N.D. 1984):
"Foreclosure by advertisement is merely a legal 'short cut' which is authorized when there is no purpose to be served by judicial intervention. The procedures for foreclosure by advertisement, including the injunction provisions, allow mortgagees to avoid the delay and expense of a judicial action only when there is nothing to litigate. If the mortgagor alleges any set of facts which, if proved, could prevent the mortgagee from obtaining all of the relief sought, he is entitled to have his cause determined in a formal judicial proceeding."
One might question why, if an interest cannot be terminated without notice through a full blown trial, appeal and petitions for rehearing; it could be terminated many years after the fact through a "short cut" proceeding without notice? Holding it was not terminated is more consistent with the views set forth in Yttredahl, supra, that even if the royalty owners had known of the foreclosure by advertisement proceeding they may have concluded that the foreclosing mortgagee was not seeking to take their interest because the debt could be satisfied out of the remaining collateral. Perhaps that decision not to attempt to acquire the Brown Brothers interest was as a result of a friendship or business relationship between the mortgagee/assignee and Brown Brothers Corporation.
The Supreme Court noted in Yttredahl that the severed royalty interest could not be acquired by adverse possession of the surface because possession of the surface did not constitute possession of the minerals. Marketable Record Title Acts, such as the North Dakota Marketable Record Title Act, N.D.C.C. ch. 47-19.1, are perhaps the broadest form of real property title curative acts ever constitutionally enacted in any state. Yet an enactment of that type could not terminate or bar the mineral interest of Brown Brothers Corporation acquired through its 1921 deed. Those acts provide that in order to bar old titles and claims one must have an unbroken chain of title of record for a period of twenty years or more and must be in possession of the interest purportedly vested in him through that chain of title. Thus, because of a lack of possession, [possession of severed minerals requires exercise of dominion and control] no claims of title to severed mineral interests can be made through the Marketable Record Title Act. Northern Pacific Railway Co. v. Advance Realty Co., 78 N.W.2d 705 (N.D. 1956); Sickler v. Pope, 326 N.W. 2d 86 (N.D. 1982).
Yttredahl illustrates the protections the law provides to secure the ownership of real property and the fact that the Courts will not look lightly upon attempts to take real property interests from their owner. This is true whether the attempt be made is a result of a legal action or a curative statute. The law abhors forfeitures and there must be strict compliance with laws aimed at divestiture of real property interests. i.e. Ridl v. E P Operating Limited Partnership, 553 N.W.2d 784 (N.D. 1996).
Can the two cases be reconciled? The overall issue is whether severed mineral interests can be taken through a foreclosure without any kind of notice to the severed mineral owner. That one foreclosure is by action and the other is by advertisement is not a plausible distinction. In the overall scheme of things the real issue is whether severed mineral interests are going to be terminated without notice, regardless of when if at all a Notice Before Foreclosure statute was enacted. Thus, we do not deem a reasonable distinction to be that in an earlier case no Notice Before Foreclosure was required but that in a later case you have to receive a real notice, service of a Summons. If this could be justified as a distinction it is really nothing different than saying times have changed and that the legislators, lawyers and judges who came along at a later time were smarter or more enlightened or that the earlier part of the last 100 years of law can be referred to as the dark ages.
We submit that the real distinction between the cases is that we're dealing with different types of interests than were contemplated at the time the statutes were enacted. To that extent the mineral interest created by the March 17, 1921 Mineral Deed was ahead of its time and application of that old law to the new ownership concepts doesn't really fit. Thus, as we said above nothing about the holding in Patterson Land Company, supra, seems particularly unjust. Acceleration of debt, not notice, was at issue. It doesn't even seem unjust after considering the reasoning of the Yttredahl case, supra. It is still a matter of foreclosure of a second mortgage under the law as it had existed for centuries, even if only since 1877 under our code. To apply that ancient law, however, to a new form of interest, non-possessory, and one in which the surface owners possession is not inconsistent with the underlying mineral owner's interest, does work an injustice. See Bailey v. Hendrickson, 143 N.W. 134, 142 (N.D. 1913), where the dissenter said, even though that case involved the surface owner and no severed mineral interests were involved, regarding the foreclosure by advertisement law:
"A construction of our statute to the effect that a literal compliance with its provisions is all that is requisite to divest the mortgagor of his title and vest the same in the purchaser at a foreclosure sale is, I believe, unwarranted. I cannot subscribe to the doctrine that because the letter of the statute is complied with, if the notice of foreclosure sale is published for the requisite period . . . . I deny that the court is judicially legislating when it places a construction upon the statute which will tend to effectuate the evident legislative purpose . . . .
* * *
I take it to be well settled that the powers of sales in mortgages must be exercised in the utmost good faith, and that under facts such as are here disclosed the court should and will diligently "scrutinize the conduct of the party placed by the law in a position where he possesses the power to sacrifice the interests of another in a manner which may defy detection," and "should stand ready to afford relief on very slight evidences of unfair dealing, . . ."
The 1895 foreclosure laws here in question should not be blindly followed and applied contrary to what would have been the obvious intention of the legislature simply because it comports to the "letter" of the statute. Here there is no evidence that the foreclosing mortgagee failed to exercise the power of sale in the "utmost of good faith". It is their remote grantees, Continental, et al, that seek through interpretation of the "letter" of the statute to obtain an undue advantage not contemplated by either the foreclosing mortgagee or the legislature.
Continental and perhaps the other defendants will argue that we attempt to draw a distinction where none exists and that the cases are really reconcilable based upon a simple matter of before and after the 1919 notice or non-acceleration statute. This, however, is really nothing more than putting the issue in terms of whose ox is being gored. It may be fine that one's minerals can be lost without notice if you are the one that is going to receive those minerals, but it is not so fine if you are the one who someday discovers that you no longer own your minerals and you had no idea that anyone was attempting to acquire them.
We believe that the reasoning applied by the court in Yttredahl v. Federal Farm Mortgage Corporation, 104 N.W.2d 705 (N.D. 1960) should control the determination to be made in this case. Those views are sound and reasonable. We do not believe that it was within the contemplation of the legislatures of 1877 to 1919 to provide a system through which fee simple interests of a severed mineral owner would be foreclosed with no notice whatever. Assuming the problem was even considered by those early legislators, we suspect that they would have reasoned and intended that a mortgagor who signed the mortgage, or a surface owner who acquired title subject to a mortgage, is the person responsible for making the payments and he is going to know whether or not he has paid those payments. If he doesn't pay he should expect that a foreclosure will take place. As this Court noted in Bailey v. Hendrickson, 143 N.W. 134, 137 (N.D. 1913):
"The plaintiff knew he had given the mortgage; he knew that the last payment on it was due several years prior to the commencement of the foreclosure proceedings; he also knew that it was unpaid."
The severed mineral owner's interest in those days may have been considered to be of relatively nominal value as compared to the surface interest. Thus, as the court said in Yttredahl, supra, even if the severed mineral interest owner knew of the foreclosure proceeding it may well have concluded that the foreclosing mortgagee/assignee had determined that it could satisfy its indebtedness out of the surface interests in the property and that it was not seeking to foreclose the mineral interest.
We do not believe that the law applied in Patterson Land Co. v. Merchant's Bank of Napoleon, 212 N.W. 512 (N.D. 1927) should be extended to encompass fee interests in severed minerals. It is presumed that the legislature in enacting the statute intended a just and reasonable result. N.D.C.C. 1-02-38. Foreclosing a fee interest in severed minerals against one who is not entitled to possession of the surface and who has not agreed to assume the mortgage payment obligation with no notice is not just or reasonable. We believe this is amply illustrated by the fact that when in 1919 the legislature enacted Chapter 131 of the Session Laws of that year it required that the notice of intention or notice before foreclosure be served upon all persons who had an interest in the property, which of course would include severed mineral interest owners. This deprives the mortgagee of nothing. He still has the entirety of his collateral and the justice and reasonableness is no more than apprising the severed mineral owner of the fact that the mortgagor or person who assumed the debt has not paid and that the severed mineral owner must do so in order to retain his interest.
Intention of the Foreclosing Mortgagee.
The ruling sought by the defendant Continental and the ruling made by the court is that strict application of the no notice rule leads to foreclosure of all liens and interests in the property, without notice to the owner. Such a rule, as was the result in this case, leaves no room for consideration of the intention of the foreclosing mortgagee and the fact that the foreclosing party did not intend to acquire the severed mineral interests. While it might be argued, as it was in the court below, that a foreclosing party who desired to leave a severed mineral interest owner unaffected by his foreclosure against the surface interest owner could accomplish that result by bringing an action, as opposed to proceeding to foreclose by advertisement, we do not believe that the law is or should be that unbending. One who desires to foreclose their mortgage encompassing all interests against only the surface interest owner, should not have been compelled to go to the expense of bringing a foreclosure by action, when there was no issue with the surface owner who was obligated to pay the mortgage. The foreclosing mortgagee should simply be allowed to illustrate his or her intention not to foreclose upon the severed mineral interests and upon such being accomplished, it should be respected by the law. In other words, while the law gave the mortgagee the right to foreclose upon all interests covered by the mortgage, the foreclosing party ought to be allowed to waive that right in part, just as he could waive it in whole and forego the collection of all of his money. Conversely, once that intention not to foreclose upon the interest is illustrated, the severed mineral owner ought to be able to rely upon that intention so exhibited. As this court said in Yttredahl v. Federal Farm Mortgage Corporation, 104 N.W. 2d 705, 709 (N.D. 1960) the severed mineral owner, even if he was aware of the foreclosure:
"might well have concluded that the mortgagee considered the mortgagor's remaining interest in the property was sufficient to satisfy the mortgage and that therefore he was proceeding against that interest alone."
The undisputed facts proving that the mortgagee/assignee Elizabeth E. Grimes did not intend to foreclose upon the severed mineral interest of Brown Brothers Corporation are as follows:
1. Elizabeth E. Grimes did serve a Notice Before Foreclosure. Even though she may not have been required to serve the notice she did. Grimes, however, did not serve the Notice Before Foreclosure on Brown Brothers Corporation. She served that notice only upon Mondiana Oil & Gas Company, the surface owner, even though the address of Brown Brothers Corporation was contained within the deed conveying its interest.
2. Elizabeth E. Grimes and her attorney did not cause the Register of Deeds to serve the Affidavit of Publication of the Notice of Sale upon severed mineral interest owner Brown Brothers Corporation. That affidavit was served only upon the surface owner, Mondiana Oil & Gas Company, and a subsequent mortgagee, Paul M. Brown.
3. Elizabeth E. Grimes upon obtaining her Sheriff's Deed after the expiration of the period of redemption caused her name and address to be shown in the deed as "Elizabeth E. Grimes of Aberdeen, S. D., c/o Brown Bros. Corporation, party of the second part", thereby displaying to the world that she could be found by contacting the severed mineral owner, Brown Brothers Corporation.
Continental Resources, Inc. and numerous of the other defendants herein claim under Elizabeth E. Grimes. In effect they say that the intention of Elizabeth E. Grimes should be ignored and that they should be entitled to a strict interpretation of the statute cited above so that as remote grantees of Elizabeth E. Grimes they should be entitled to receive for no cost property their grantor did not intend to acquire or convey.
The undisputed facts conclusively show that Elizabeth E. Grimes did not intend to foreclose upon the severed mineral interest of Brown Brothers Corporation. She served a Notice Before Foreclosure, but she did not serve it upon Brown Brothers Corporation whose address was shown upon the public record. When at the conclusions of the proceedings the Register of Deeds was to mail the Affidavit of Publication of the Notice of Sale to owners of interests in and liens upon the property Elizabeth E. Grimes did not cause the Register of Deeds to mail that Affidavit of Publication to Brown Brothers Corporation. Finally, Elizabeth E. Grimes when she acquired title to the property caused her address to be shown upon the public record in her Sheriff's Deed as c/o of Brown Bros. Corporation. We cannot imagine any circumstances under which a relationship would exist through which one party would foreclose upon another and then show their permanent address as the place of business of that adverse party. This clearly illustrates that Grimes did not consider her interests adverse to Brown Brothers Corporation -- that she was not foreclosing Brown Brothers Corporation' s severed mineral interest.
Waiver of Foreclosure Rights Granted by Statute.
Based upon the evidence discussed above, it is clear that the mortgagee/assignee foreclosing the mortgage in question waived her rights under N.D. Comp. Laws, 1913, ch. 30 and §8087 and elected to satisfy the indebtedness due her from lands owned only by the surface owner.
Waiver is traditionally defined as "the voluntary and intentional relinquishment and abandonment of a known existing right, advantage, benefit, claim or privilege which, except for such waiver, the party would have enjoyed." Stenehjem v. Sette, 240 N.W.2d 596, 600 (N.D. 1976).
Under North Dakota law a person may waive the advantage of a law intended for that persons benefit. Runck v. Kutmus, 997 F.2d 399 (8th Cir, 1993); Brunsoman v. Scarlett, 465 N.W.2d 162 (N.D. 1991); N.D.C.C. § 31-11-05 (4). See also N.D.C.C. § 1-02-28.
Waiver may be shown by inference from acts or conduct revealing an intention to waive. Runck v. Kutmus, 997 F.2d 399 (8th Cir, 1993); Diversified Financial Systems, Inc. v. Binstock, 1998 N.D. 61, 575 N.W.2d 677, 681; Tormaschy v. Tormaschy, 1997 ND 2, 559 N.W.2d 813, 817; Wellens v. Beck, 103 N.W.2d 281 (N.D. 1960).
Once the right is waived, the right or privilege is "gone forever and cannot be recalled." Tormaschy v. Tormaschy, 1997 ND 2, 559 N.W.2d 813, 817, citing Meyer v. National Fire Ins. Co. of Hartford, Conn., 269 N.W. 845, 852 (N.D. 1936).
And finally, from Tormaschy, supra, at page 817:
"Furthermore, when parties engage in an activity which clearly constitutes a waiver, they cannot later claim they did not know their actions amounted to a voluntary and intentional waiver of their rights, because 'he who consents to an act is not wronged by it.' "
North Dakota statutes governing foreclosure proceedings are generally viewed as "debtor-protection legislation" and the North Dakota courts have required substantial evidence in proof of waiver of a debtor's rights, including rights under the Short-Term Mortgage Redemption Act to avoid a deficiency judgment and rights granted to protect debtors from deficiency judgments. First State Bank of New Rockford v. Anderson, 452 N.W.2d 90, 92 (N.D. 1990); and Brunsoman v. Scarlett, 465 N.W. 2d 162 (N.D. 1991). There is no equivalent public policy protecting a lender's rights. First State Bank of New Rockford v. Anderson, supra. Thus, our courts carefully scrutinize any claim of waiver on behalf of the debtor but a lesser degree of scrutiny, substantially lesser, is required in determining that a creditor or mortgagee waived rights under statutes which were designed to benefit the mortgagee with a forfeiture.
Acquisition of property by foreclosure amounts to a forfeiture of mortgagor's interest in the property. Although not a foreclosure action, the North Dakota Supreme Court said in Sjoberg v. State Auto. Ins. Ass'n of Des Moines, Iowa, 48 N.W.2d 452, 458 (N.D. 1951), after acknowledging authority stating that forfeitures are not favored by law and that the courts manifest a readiness to accept an election or intent to waive a forfeiture said, quoting from an earlier Texas case:
"In the humane progress of the law the doctrine of waiver, as applied to forfeitures, soon grew up and has become established as a fundamental principle. While it is a maxim that forfeitures are odious, the law is not eager to relieve against them; it takes no initiative; and in itself presents no remedy against the contract the parties have themselves made. But it is not, and should not be, slow to give effect to conduct reasonably indicative of an intention to forego the advantage of a forfeiture and relinquish its result."
Thus the courts should be quick to accept the fact that Elizabeth E. Grimes waived her right to foreclosure the Brown Brothers Corporation interests.
Here we have the situation where Continental, et al's predecessors in interest is the lender or foreclosing mortgagee. Plaintiffs' predecessor Brown Brothers Corporation is the person whose land is subjected to the lien of the 1915 mortgages. The trial court said that the law at the time of the foreclosure did not require giving notice before foreclosure and that the foreclosure by advertisement proceeding terminated or foreclosed the Brown Brothers interest. Notwithstanding the fact that no notice before foreclosure may have been required, the mortgagee/assignee did give a notice before foreclosure to the surface owner and not to Brown Brothers Corporation. The foreclosing mortgagee did not cause the Register of Deeds to serve the Sheriff's Certificate upon the severed mineral owner. In the process of the foreclosure the foreclosing mortgagee Grimes listed her address on the Sheriff's Deed as in care of Brown Brothers Corporation in Aberdeen, South Dakota. We submit on these facts that the foreclosing mortgagee/assignee knowingly and intentionally waived her right to enforce the statute enacted for her benefit which would have provided for foreclosing the interest of Brown Brothers Corporation without notice to it. Thus, in addition to the other law cited above, it is clear that the foreclosing mortgagee did not intend to acquire the interests of Brown Brothers Corporation and waived the benefit of the law allowing her to acquire that interest. Hanson v. Cincinnati Life Insurance Co., 1997 N.D. 230, 571 N.W.2d 363, 367.
Alternatively -- Do Issues of Fact Require a Trial?
The trial court gave no consideration to the above facts comprising waiver, nor did it even consider the possibility that there could have been a waiver. Instead, the trial court considered only the facts that there was a foreclosure by advertisement conducted pursuant to the statute existing at the time of the 1915 mortgage, from which it concluded as a matter of law that the Brown Brothers Corporation interest was foreclosed because no notice of intention or notice before foreclosure was required to be served pursuant to that law. As shown by the foregoing, most of which law was cited to the trial court, the provisions of a statute can be waived.
We maintain in foregoing portions of this brief, just as we did in the trial court, that the undisputed facts prove as a matter of law that Elizabeth E. Grimes waived her right to foreclose upon the severed mineral interests of Brown Brothers Corporation. In the event that reasonable minds can differ as to whether the only conclusion that a waiver did occur can be reached, then, and in that event, we submit that there exists a genuine issue of material fact which under the provisions of Rule 56 of the North Dakota Rules of Civil Procedure must be tried. Spring Creek Ranch, LLC v. Svenberg, et al, 1999 ND 113, 595 N.W. 2d 323; Diversified Financial Systems, Inc. v. Binstock, 1998 N.D. 61, 575 N.W.2d 677, 681.
The court erred in concluding as a matter of law that the foreclosure statutes in existence in 1915 required termination of the interest of Brown Brothers Corporation. We respectfully submit that such a result is not a just and reasonable interpretation or application of those statutes and that it is one which would not have been contemplated by the legislature.
Alternatively, we submit that as a matter of law the mortgagee/assignee foreclosing the mortgage did not intend to foreclose the severed mineral interests of Brown Brothers Corporation and that the manifestation of that intention as disclosed by the undisputed facts proves waiver and requires judgment as a matter of law in favor of the successors to Brown Brothers Corporation. Alternatively, in the event reasonable minds can differ upon the question of whether the undisputed facts comprise a waiver, then, and in that event, we request that the case be remanded for trial.
Dated this 19th day November, 1999.
|MACKOFF KELLOGG LAW FIRM|
|Attorneys for the Plaintiffs-Appellants|
|Office and Post Office Address:|
|46 West Second Street, P.O. Box 1097|
|Dickinson, North Dakota 58602-1097|
|Telephone Number: (701) 227-1841|
|John L. Sherman, Attorney #02825|
Certificate of Service
I hereby certify that I caused a true and correct copy of the Brief of Appellants and Appendix to be mailed, by first class mail with postage duly prepaid, on the 19th day of November, 1999, to the following persons:
|ATTN: Mr. Lawrence Bender|
Pearce & Durick, PLLP
314 E. Thayer Avenue
P. O. Box 400
Bismarck, ND 58502-0400
|ATTN: Mr. John W. Morrison, Jr. and|
Mr. Craig C. Smith
FLECK, MATHER & STRUTZ, LTD.
400 East Broadway, Suite 600,
P. O. Box 2798
Bismarck, ND 58502
|Sadowsky and Wild|
P. O. Box 260
Bowman, ND 58623
|Mr. John A. Amundson|
Attorney at Law
6 West 2nd, P. O. Box 319
Bowman, ND 58623
|ATTN: Ms. Kathleen J. Hall|
Carpenter Law Offices
P. O. Box 2761
Bismarck, ND 58502
|Mr. John H. MacMaster|
123 East Broadway
P. O. Box 547
Williston, North Dakota 58802-0547
_________________________________ Timothy A. Priebe, Attorney #04384