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Bank Midwest, Minnesota, Iowa, N.A. v. Lipetzky

January 15, 2004

BANK MIDWEST, MINNESOTA, IOWA, N.A., RESPONDENT,
v.
JEROME LIPETZKY, ET AL., APPELLANTS, JAMES LIPETZKY, ET AL., RESPONDENTS.



SYLLABUS BY THE COURT

1. A contract for deed consent clause that a vendee cannot transfer the property without the written consent of the vendor is breached by the vendee's grant of a mortgage without consent of the vendor.

2. When a vendee breaches a consent clause in a contract for deed by mortgaging the property without consent of the vendor and the mortgagee had constructive notice of the consent clause, the mortgage is invalid as to the vendor.

Reversed.

Heard, considered, and decided by the court en banc.

The opinion of the court was delivered by: Hanson, Justice

OPINION

The question presented in this appeal is whether the grant of a mortgage by a contract for deed vendee without the consent of the contract for deed vendor is a breach of a consent clause that provides "Buyer agrees they cannot sell, transfer or assign this property without written permission or consent of seller." The district court concluded that it is, but the court of appeals disagreed, holding that the grant of a mortgage is not a "transfer." We reverse the court of appeals and reinstate the decision of the district court.

On November 9, 1993, James and Tamara Lipetzky*fn1 entered into a contract for deed with James' parents, Jerome and Marion Lipetzky, for the purchase of a portion of the family farm located in Redwood County, Minnesota. The farm had been in Jerome's family for over 80 years. The contract provided a purchase price of $72,000, which was less than half of the Assessor's Estimated Market Value of $184,300. The contract contained the consent clause quoted above.

In January 1994, Jerome and Marion conveyed fee title to the property and their vendor's interests in the contract for deed to their respective revocable trusts, the trustees of which have joined as appellants in this proceeding (hereinafter referred to collectively as the "Trusts.").

Almost 4 years after they acquired their vendees' interests, James and Tamara granted a mortgage on those interests to respondent Bank Midwest*fn2 in the amount of $110,000. Eighteen months later, they granted a substitute mortgage in the increased amount of $215,000. At the time of the substitute mortgage, James and Tamara also assigned their rights in the contract for deed to the Bank as additional security. James and Tamara did not obtain written consent from Jerome and Marion or their Trusts for any of these transactions.*fn3 At the time of the substituted mortgage and assignment, James and Tamara were still subject to a prepayment restriction in the contract for deed that precluded prepayment "for the first seven (7) years of the contract without the written consent of the seller."*fn4

When James and Tamara defaulted on their loan to the Bank, the Bank commenced foreclosure proceedings. Jerome and Marion deny that they had any knowledge of the mortgages or the assignment until they were made aware of them by the foreclosure proceedings. In March 2001, the Trusts served a Notice of Cancellation of Contract for Deed, pursuant to Minn. Stat. §á559.21, subd. 2a (2002), on James and Tamara and the Bank. The notice described the event of default as the breach of the contract for deed by granting the assignment and the mortgages. The Bank then brought this action to enjoin the cancellation of the contract for deed and for a declaratory judgment that the mortgage and assignment are valid and enforceable.

Both parties filed cross-motions for summary judgment, agreeing that the critical issue was whether the consent clause prohibited the mortgage and assignment without the consent of the vendors. The district court granted the Trusts' motion for summary judgment, holding that the consent clause prohibited the grant of the mortgage and the assignment without the consent of the vendors and that the mortgage and assignment to the Bank were invalid.

The court of appeals affirmed in part and reversed in part, holding that the consent clause prohibited the assignment but not the mortgage. Bank Midwest, Minnesota, Iowa, N.A. v. Lipetzky, 661 N.W.2d 290, 294 (Minn. App. 2003). The court remanded the case for further proceedings, expressly declining to "speculate on the parties' future positions that may or may not result from our holding." Id. at 294, n.7. We granted the Trusts' petition for further review on the issue whether the mortgage is valid but denied the Bank's cross-petition on the issue whether the assignment is valid.

On appeal from the grant of summary judgment, we must review the record to determine whether there are any genuine issues of material fact and the trial court erred in the application of the law. Hermeling v. Minnesota Fire and Cas. Co., 548 N.W.2d 270, 273 (Minn. 1996). Summary judgment is inappropriate where terms of a contract are at issue and those terms are ambiguous or uncertain. Donnay v. Boulware, 275 Minn. 37, 45, 144 N.W.2d 711, 716 (1966). If, however, terms of the contract may be given their plain and ordinary meaning, construction of the ...


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