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Minnesota Court of Appeals
May 7, 1996
No. CX-95-1919 (Minn. Ct. App. May. 7, 1996)


No. CX-95-1919.

Filed May 7, 1996

Appeal from the District Court, Sherburne County, Dist. Ct. File No. C394278

William B. Butler, (for respondent).

Kevin W. Rouse, (for appellants).

Considered and decided by Peterson, Presiding Judge, Huspeni, Judge, and Mansur, Judge.

Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1994).


Respondent, a bank, brought this action for a declaratory judgment that it owned two mortgages of which appellants claimed to be assignees. Appellants counterclaimed for the value of the mortgages. The district court issued a judgment for respondent. Because we conclude that respondent's action was not barred by the statute of frauds, the statute of limitations, or lack of standing, that the evidentiary rulings were not an abuse of discretion, and that the assignments were not made valid by alternative consideration, we affirm.


Respondent First National Bank of Elk River (FNB) agreed to sell its residential mortgages to appellant Independent Mortgage Services (IMS). In the spring of 1987, two mortgages were originated by FNB and assigned to IMS using standard Miller-Davis forms stating that receipt of payment "was hereby acknowledged." Despite this language, there is no evidence that any payment was ever made. Both mortgages and assignments were recorded.

After a few weeks, IMS asked FNB to "reprice" the mortgages. FNB refused to do so. IMS then returned the loan documents, including promissory notes on which the IMS endorsement had been crossed out. IMS allegedly promised orally to reassign the mortgages; however, no documents reflect a reassignment. It is undisputed that FNB serviced both loans throughout their term. IMS ceased operations in 1988 and went into receivership in 1990.

In 1993, when the mortgagors attempted to refinance, FNB learned that the assignments to IMS were still on the record. FNB asked IMS to execute reassignments. IMS refused to do so; instead, it demanded the money FNB had received through servicing the mortgages. IMS claimed the mortgages because their assignment to IMS was recorded and there was no record of an assignment to anyone else or a reassignment to FNB. FNB brought this action for a declaratory judgment that it owned the mortgages; IMS counterclaimed for their value.


This appeal is confined to the denial of appellants' motion for a new trial. The decision to grant a new trial is within the discretion of the trial court "and will not be disturbed absent a clear abuse of that discretion." Halla Nursery, Inc. v. Baumann-Furrie Co. , 454 N.W.2d 905, 910 (Minn. 1990). However, where the court's decision is based on an alleged error of law, a de novo standard will apply. Id. IMS argues that FNB's action was precluded by the statute of frauds, the statute of limitations, and FNB's lack of standing, and challenges evidentiary rulings and the conclusion that the assignments of the mortgages were never consummated. We find no merit in any of IMS's arguments.

The appeal from the judgment was dismissed as untimely by order of this court.

1. The Statute of Frauds

Minn. Stat. § 513.04 (1992) provides:

No estate or interest in lands * * * nor any trust or power over or concerning lands, or in any manner relating thereto, shall hereafter be created, granted, assigned, surrendered or declared, unless by act or operation of law, or by deed or conveyance in writing * * *.

IMS argues that this statute precludes FNB from attempting to enforce IMS's alleged oral promise to reassign the mortgages through a declaratory judgment action. FNB asserts that its action was based not on IMS's failure to perform an alleged oral promise, but on IMS's written demands for the proceeds from the mortgages. We find the argument of FNB to be persuasive.

In its complaint, FNB states:

By rejecting and returning the [mortgages] with the endorsements crossed off, IMS has represented that it has no right, title or interest in the [mortgages]. [FNB] has reasonably relied on this representation.

The complaint did not mention an oral agreement to reassign. The relief FNB sought in this declaratory judgment action was recognition that IMS has no right, title, or interest in the mortgages, not that IMS had failed to perform an oral promise to reassign the mortgages. The statute of frauds is irrelevant to the basis for the declaratory judgment.

2. The Statute of Limitations

Because FNB sought a judgment declaring that IMS had no interest, right, or title in the mortgages, we conclude that Minn. Stat. § 541.023 (1992), providing that actions involving title to real estate can be brought on instruments executed or recorded within the last 40 years, is the appropriate statute of limitations. In applying section 541.023, we reject both IMS's argument that this is not the appropriate statute because FNB did not bring its action to clarify title and the argument that FNB's action is for IMS's 1987 breach of contract, thus coming within the requirements of Minn. Stat. § 541.05 limiting contract actions to six years from the breach.

In its arguments regarding applicable statutes of limitations, IMS mischaracterizes this action. It was brought not because IMS failed to pay for the assignments or record reassignments in 1987, but because IMS asserted a right to the proceeds from the mortgages in 1993. FNB brought this action soon after and in response to IMS's assertion that it had a right to the 1993 mortgage proceeds.

Minn. Stat. § 541.05 does bar IMS's counterclaim, which is based on the events of 1987.

3. Standing

The mortgages were paid off in late 1993; FNB brought its action in 1994. IMS argues that FNB lacked standing because it then had no interest in the properties. We note again that FNB brought this action seeking a declaration that IMS had no right in the proceeds resulting from FNB's prior interest in the properties, not to assert FNB's own interest in those properties. FNB did not lack standing to bring this action.

If IMS were correct in its assertion that FNB's lack of interest in the properties deprived it of standing to bring this action, IMS would be similarly deprived of standing to assert its counterclaim.

4. Evidentiary Rulings

IMS first argues that, because the Miller-Davis forms were not ambiguous and stated that payment had been received, testimony showing that payment had not been received was precluded by the parol evidence rule. We disagree.

Parol evidence is generally not admissible to contradict the express terms of a written agreement. Baker v. Citizens State Bank of St. Louis Park , 349 N.W.2d 552, 558 (Minn. 1984). However, the parol evidence rule does not apply to evidence that challenges the validity of a contract rather than contradicts its terms. Ridgway v. County of Hennepin , 289 Minn. 128, 137, 182 N.W.2d 674, 679 (1971); Stromberg v. Smith , 423 N.W.2d 107, 109 (Minn.App. 1988).

In every instance where the parol evidence rule is sought to be applied, however, a threshold question must be asked: Is the contract valid and operative? * * * [P]arol evidence may be admissible to show that, notwithstanding the existence of a written contract, it was the intention of the parties that the contract should not become operative except upon the happening of some future event.

Jansen v. Herman , 304 Minn. 572, 575, 230 N.W.2d 460, 463 (1975). Here, testimony of the mortgage division manager who signed the assignments on behalf of FNB indicated that an executed assignment stating that payment had been received was required by IMS before payment was made or the assignment became operative. IMS did not refute this testimony. Since the testimony did not challenge the terms of the assignments but rather challenged their validity, it was not barred by the parol evidence rule.

FNB's mortgage division manager testified it was common industry practice to sign assignment documents stating that payment had been made even though payment had not been made, and that she had signed the assignments of these mortgages to IMS knowing that IMS had not paid for them. IMS claims there was no foundation for this testimony because the mortgage division manager did not work in the accounts receivable department and, therefore, she did not know which payments had been received. Again, we disagree. The manager also testified that she had set up the division, was very familiar with its operation, knew the disputed loan packages were returned by IMS, and personally delivered the returned packages to the FNB president so FNB could service them. Her testimony as to both general industry practice and specific practice in the mortgage division of FNB provided foundation for her statement that IMS did not pay FNB. IMS offered no testimony to refute that statement. Importantly, at no time did IMS offer any evidence of payment or even claim that payment had been made.

IMS also challenges the testimony of FNB's mortgage division manager regarding the FNB payment log which identified mortgage assignees, the dates of sending final packages to the assignees, and the date FNB received the wire transfer of funds from the assignees. IMS contends that the manager's testimony about the log was inadmissible because she did not personally make the entries. As the custodian of the log and the head of the department which generated it, however, the manager was competent to testify about it.

The dates when the wire transfers were received are all after the dates when the final package was sent, corroborating the practice of sending assignments before payment was actually received.

IMS raises two other objections to the log, arguing that the log showed only payments made by wire transfer and IMS could have paid by check, and that three versions of the log were admitted as evidence. Neither objection is valid: testimony from an IMS employee indicated that IMS customarily made payments by wire transfer; the three log versions were simply an original and two copies.

5. Invalidity of the Assignments

Finally, IMS argues that even if it did not pay FNB, the assignments are valid because there was "alternative consideration." IMS cites Baker , 349 N.W.2d at 558, for the propositions that when consideration in a conveyancing document is legally insufficient, courts must examine whether other consideration was given, and that parol evidence is admissible for this purpose. Baker is distinguishable, however, because here the consideration recited in the Miller-Davis assignment form was not insufficient; it was the full amount of the mortgage. Consequently, parol evidence of other consideration would not be admissible.

Further, neither of the two forms of "alternative consideration" alleged by IMS is legitimate. IMS's claim that its promise to pay was itself consideration must fail. A promise to pay a pre-existing debt cannot be alternative consideration for that debt, because no benefit accrues to the creditor. IMS's claim that the work it did on the mortgages was alternative consideration also fails. The work IMS did was needed for IMS to purchase the loans, not for the benefit of FNB. Because FNB had to assume the loans when IMS rejected them, no benefit accrued, and the work was not consideration.

We conclude that this declaratory judgment was not precluded by the statute of frauds, the statute of limitations, or FNB's lack of standing, that the evidence supporting FNB's argument that the assignments were never paid for was admissible, and that in the absence of payment there was no alternative consideration to render the assignments valid.


Summaries of


Minnesota Court of Appeals
May 7, 1996
No. CX-95-1919 (Minn. Ct. App. May. 7, 1996)
Case details for


Case Details


Court:Minnesota Court of Appeals

Date published: May 7, 1996


No. CX-95-1919 (Minn. Ct. App. May. 7, 1996)