This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1998).







John Redmond and Lynda Arendt,

as Special Administrators for the

Estate of Gary A. Wagner,





Eugene S. McClelland, et al.,



Filed July 25, 2000

Affirmed in part, reversed in part, and remanded

Willis, Judge


Goodhue County District Court

File No. CX97246



George L. May, May Law Offices, 204 Sibley Street, Suite 202, Hastings, MN  55033; and Kent W. Speight, Watson & Speight, P.A., 411 West Third, Red Wing, MN  55066 (for respondents)


Paul L. Ratelle, Daniel J. McGarry, Fabyanske, Westra & Hart, P.A., 920 Second Avenue South, Suite 1100, Minneapolis, MN  55402 (for appellants)


            Considered and decided by Lansing, Presiding Judge, Randall, Judge, and Willis, Judge.

U N P U B L I S H E D   O P I N I O N


Appellants Eugene S. McClelland and Ione McClelland seek review of a judgment determining that their interest in certain real property is that of holders of an equitable mortgage.  The McClellands allege that the record lacks evidence that the original parties intended a loan, rather than an outright conveyance of the property.  By notice of review, respondents John Redmond and Lynda Arendt, as special administrators for the estate of Gary A. Wagner, claim that the district court erred in failing to order foreclosure by action and in dismissing respondents’ claims for fraudulent inducement, undue influence, breach of fiduciary duty, usury, and void transactions pursuant to “the Minnesota Guardians and Conservators Act,” Minn. Stat. § 525.56 (1998).  We affirm in part, reverse in part, and remand.


Gary A. Wagner owned ten parcels of farmland, totaling approximately 643 acres.  Wagner purchased parcels 1, 5, and 10 from his parents on a contract for deed.  Following the death of Wagner’s father, his mother conveyed the vendor’s interest in the contract for deed to the Wagner Trust, of which she and her daughter, respondent Lynda Arendt, were the trustees.  The Bank of Zumbrota held mortgages on parcels 1-7, 9, and 10.  Wagner purchased parcel 8 from Lloyd Befort on a contract for deed.

By September 1993, Wagner was in default in the amount of $22,000 on the contract for deed held by the Wagner Trust and $16,449 in default on the mortgages held by the Bank of Zumbrota.  On October 12, 1993, the Wagner Trust initiated cancellation of the contract for deed.  In early November, Wagner approached appellant Eugene S. McClelland (McClelland) in an effort to borrow the money necessary to retain his property.  McClelland told Wagner that he would provide the necessary funding only if he could be assured “first position” as a secured creditor, and to do that, Wagner must transfer the title on all of his property to McClelland. 

On November 12, 1993, rather than lending Wagner the $22,000 he needed to bring current the contract for deed on parcels 1, 5, and 10, McClelland purchased the vendor’s interest in the contract for deed from the Wagner Trust.  Shortly thereafter, McClelland paid $16,449 to the Bank of Zumbrota, the amount of interest Wagner owed under three promissory notes signed the previous year.  McClelland also gave the bank his personal guarantee in the amount of $200,608, the principal amount of Wagner’s indebtedness.  Wagner, as required by McClelland, executed quitclaim deeds transferring to McClelland his interest in the encumbered parcels.

On March 8, 1995, Wagner signed a power of attorney that granted McClelland authority to transact all of Wagner’s farming and banking business.  McClelland also required Wagner to sign new quitclaim deeds that reconveyed all parcels to McClelland.  On April 1, 1995, as Wagner’s attorney-in-fact, McClelland entered into a lease with Bryan Fredrickson, by the terms of which Fredrickson rented 547 acres of Wagner’s farmland for $100 per acre.  McClelland continued to rent the land to Fredrickson from 1996 through 1999, receiving a total of $347,554 in rental payments.  McClelland did not offset this amount against Wagner’s debt and did not provide Wagner with an accounting.

In early 1996, Wagner’s attorney contacted McClelland to determine the amount McClelland required Wagner to pay to regain title to his land.  McClelland demanded $120,746.69 and stated that interest would accrue in the amount of $30.94 daily.  Wagner was unable to pay the principal.  In December 1996, McClelland paid off the Bank of Zumbrota, Befort, and other creditors who had judgment liens against Wagner’s property.

On January 23, 1997, McClelland advised Wagner that he must now pay McClelland $350,000 to regain title to his land.  On February 7, 1997, Wagner secured a loan commitment in the amount of $425,000 from the Marquette Bank Hutchinson, but on February 12, McClelland raised his demand to $518,419.38.  Each time McClelland raised the price, he claimed additional costs but provided no accounting to Wagner. 

Respondents were named special conservators for Wagner in February 1997, and commenced an action against the McClellands seeking cancellation of the quitclaim deeds that Wagner signed in 1993 and 1995, purportedly conveying the ten parcels of farmland to appellants, as well as damages for fraud, breach of fiduciary duty, duress, coercion, undue influence in violation of the “Minnesota Guardians and Conservators Act,” and violation of the Racketeer Influenced Corrupt Organizations Act (RICO).  The McClellands removed the action to federal district court.  The federal district court dismissed respondents’ RICO claim, dismissed the state claims without prejudice, and remanded the case for trial on the state claims.

Following trial, the district court concluded that when Wagner and McClelland entered into the initial transaction, it was their intent that the funds advanced by McClelland would be considered loans to Wagner and, therefore, the quitclaim deeds Wagner signed were given as security for indebtedness and constituted an equitable mortgage in favor of the McClellands.  The district court calculated the amount advanced by McClelland and, based on a 1998 appraisal, granted him ownership in fee simple absolute of parcels 1 through 8; the court granted respondents ownership in fee simple absolute of parcels 9 and 10.  The district court dismissed all remaining claims with prejudice and on the merits.  This appeal follows.


Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses.


Minn. R. Civ. P. 52.01.  “Findings of fact are considered clearly erroneous only if they are not reasonably supported by the evidence.”  Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 102 (Minn. 1999) (citation omitted).  But this court need not defer to the district court’s decision on a purely legal issue.  Frost-Benco Elec. Ass’n v. Minnesota Pub. Utils. Comm’n, 358 N.W.2d 639, 642 (Minn. 1984).

Equitable Mortgage

            Appellants argue that the district court erred in concluding that their interest in Wagner’s property was that of holders of an equitable mortgage because McClelland and Wagner originally intended an outright conveyance, rather than a loan.  In determining that the parties intended a loan, the district court relied on its findings regarding “the financial details of the transaction, the subsequent behavior of the parties, and the affidavits of McClelland and Wagner.”  In light of what it considered to be clear-and-convincing evidence that the transactions were intended to be loans, the district court concluded that the quitclaim deeds signed by Wagner were “given as security for the indebtedness and therefore constitute an equitable mortgage in favor of McClelland.”  We agree.

            “[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).  “The relevant intention is that of the parties at the time of conveyance.”  Id. at 138, 239 N.W.2d at 210(citation omitted).  But “[t]estimony as to the intention of one party only is insufficient as proof that a transaction in form a sale was in fact an equitable mortgage.”  Id.  Intent is determined by reference to the written documents and to “all the facts and circumstances surrounding the transaction.”  Gagne v. Hoban, 280 Minn. 475, 479, 159 N.W.2d 896, 899 (1968).  “In the final analysis, the question of whether the parties to a conveyance really intended it to be absolute or security for indebtedness is for the triers of fact.”  Id. at 480-81, 159 N.W.2d at 900.

Because Wagner died before trial, it is necessary to rely on his affidavit to ascertain his intent at the time he and McClelland entered into this agreement.  The affidavits signed by Wagner and McClelland on May 6, 1996, in connection with another claim, both indicate that Wagner approached McClelland for a loan and that Wagner’s sole purpose was to avoid losing his farm property through foreclosure and cancellation of the contracts for deed.  McClelland’s affidavit indicates that he required that his name be in “first position” to make himself “fully secured,” language that the district court found to be consistent with a loan transaction.

            McClelland’s deposition was taken on April 2, 1996, in connection with the other claim.  At that time, he stated that Wagner had asked to borrow money and that he told the president of the Bank of Zumbrota that he was going to “give [Wagner] a hand” and “pay off, bring everything current” or “pay off what’s due.”  When asked whether he and Wagner had reached an agreement as to “the terms under which you would lend him money,” McClelland answered, “Yeah, I’d straighten it out, and down the roads if he ever got back on his feet or got things going, he could pay me off.”  But at trial, McClelland testified that he did not agree to lend money to Wagner.  This court defers to the district court’s opportunity to judge witness credibility.  Town of Wahnena v. Dorholt, 465 N.W.2d 435, 437 (Minn. App. 1991).  Accordingly, the district court did not err in finding McClelland’s affidavit and deposition testimony, both given before this litigation was filed, to be more credible than his trial testimony on the issue of intent.

            Also, it is uncontroverted that McClelland possessed far greater business and real estate expertise than did Wagner, and McClelland had previously made loans to other individuals.  “The fact that [only one party] is experienced in business and real estate transactions” is material, and due to “the fraudulent possibilities inherent in a transaction where a deed absolute on its face was intended as security,” a court is permitted to construe such an instrument as an equitable mortgage.  Ministers Life, 307 Minn. at 138, 239 N.W.2d at 210 (citations omitted).  A district “court will exercise its equitable powers to effectuate the intent of both parties to a transaction and to prevent any overreaching by one party which would unfairly exploit the other party’s financial position or relative lack of expertise in real estate dealings.”  Id. at 139, 239 N.W.2d at 210.

McClelland also argues that the quitclaim deeds signed by Wagner in 1995 indicate that Wagner intended to transfer title in all his property to McClelland.  But in his 1996 affidavit, McClelland stated that these quitclaim deeds were signed for the purpose of clarifying possibly misstated legal descriptions.

            McClelland contends that the transaction with Wagner was a conveyance with an option to repurchase.  But there is in the record no written agreement memorializing such a transaction.  Also, in 1995, McClelland implicitly acknowledged Wagner’s ownership of the property when he obtained Wagner’s power of attorney to allow McClelland to arrange for Fredrickson to rent the land.  Additionally, in his letter of April 1, 1996, McClelland stated that he had an “interest in Wagner farm of 120,746.69 plus 200,000 at Bank of Zumbrota through March 96,” which is more consistent with the existence of a loan than with a claim of ownership.  Further, McClelland’s requirement that Wagner pay interest indicates that McClelland considered the money to be a loan. 

            McClelland also asserts that, even if an equitable mortgage existed, parcels 1, 5, and 10 (the Wagner Trust properties) were not subject to the mortgage because he had purchased the vendor’s interest in the contract for deed for those parcels.  But the district court found that all of the transactions were unified in the sense that they were completed with the understanding between Wagner and McClelland that a loan, rather than a purchase, was intended.  We agree.

            The record supports the district court’s conclusion that the original intent of Wagner and McClelland, as evidenced by the circumstances surrounding the transaction and the subsequent behavior of the parties, was to have the money advanced by McClelland be a loan to Wagner.  Because the quitclaim deeds signed by Wagner were given as security for his indebtedness, the McClellands hold an equitable mortgage on the property.


Respondents argue that the district court erred in sua sponte partitioning the parcels and assert that the equitable mortgages must be foreclosed by action.  We agree.  No party sought partition in the district court, but the court exercised its equitable powers to fashion a remedy by partition in an effort to avoid the “inherent delays and additional costs to both parties” of a foreclosure action.  The standard of review in cases involving equitable relief is whether the district court abused its discretion.  City of Cloquet v. Cloquet Sand and Gravel, Inc., 312 Minn. 277, 279, 251 N.W.2d 642, 644 (1977).

In Minnesota, partition is a statutory action filed by one or more of two or more persons who are joint tenants or tenants in common to determine their respective interests in real property.  Minn. Stat. § 558.01 (1998); See Carlson v. Olson, 256 N.W.2d 249, 255 (Minn. 1977) (stating that statutory procedure must be followed).  Therefore, a district court is not authorized sua sponte to partition property.  In addition, the supreme court has stated that an equitable mortgage must be foreclosed by action.  Albright v. Henry, 285 Minn. 452, 462, 174 N.W.2d 106, 112 (1970).  Accordingly, we conclude that the district court abused its discretion in ordering partition sua sponte, and we remand to allow foreclosure by action.

Laches and Waiver

            Respondents contend that as Wagner’s attorney-in-fact, McClelland rented out Wagner’s farmland for a total of almost $350,000, which McClelland failed to credit against the amount Wagner owed him.  The district court determined that McClelland’s affirmative defenses of laches and waiver were appropriate as to the rent received before February 1997, the time when Wagner asserted his rights to those monies, because it would have been inequitable for Wagner, who lacked the business acumen to rent out the farms, to profit from McClelland’s efforts.  We disagree.

            We review the district court’s decision on the applicability of the defense of laches under an abuse-of-discretion standard.  Opp v. LaBine, 516 N.W.2d 193, 196 (Minn. App. 1994), review denied (Aug. 24, 1994).  Under this equitable doctrine, the district court must question “whether there has been such an unreasonable delay in asserting a known right, resulting in prejudice to others, as would make it inequitable to grant the relief prayed for.”  Fetsch v. Holm, 236 Minn. 158, 163, 52 N.W.2d 113, 115 (1952) (citation omitted).  The purpose of the doctrine is “to prevent one who has not been diligent in asserting a known right from recovering at the expense of one who has been prejudiced by the delay.”  Aronovitch v. Levy, 238 Minn. 237, 242, 56 N.W.2d 570, 574 (1953).  Although evidence of prejudice is not necessary for laches to apply, it is an important consideration in determining the reasonableness of a delay.  Id. at 242-43, 56 N.W.2d at 574. 

Waiver has been defined as the “voluntary relinquishment of a known right.”  Engstrom v. Farmers & Bankers Life Ins. Co., 230 Minn. 308, 311, 41 N.W.2d 422, 424 (1950) (citations omitted).  Waiver “may be inferred from acts and conduct not expressly waiving the right.”  Id. at 312, 41 N.W.2d at 424.  Intent and knowledge, actual or constructive, are elements essential to a determination that a right has been waived.  Id. at 311-12, 41 N.W.2d at 424.  Where the relevant facts are in dispute, as they are here, waiver is a question of fact.  See Montgomery Ward & Co. v. County of Hennepin, 450 N.W.2d 299, 304 (Minn. 1990) (stating waiver “may” be decided as a legal issue on uncontested facts); Beck v. Spindler, 256 Minn. 543, 564, 99 N.W.2d 670, 684 (1959) (stating waiver is generally a fact question). 

            Here, McClelland failed to show that he was prejudiced by any delay.  Moreover, the record suggests that any action for the recovery of the rents would have to have been based on a cause of action subject to the six-year statute of limitations, and this action was filed well within that period.  See Minn. Stat. § 541.05 (1998).  Further, the record lacks support for a finding that Wagner expressly waived his right to the rents McClelland received from 1995 through February 1997 or that he knew McClelland was not crediting the rent against the amount Wagner owed him. 

            On these facts, we conclude that the district court erred in applying laches and waiver.


            By notice of review, respondents argue that the district court erred in dismissing its claim that McClelland charged a usurious rate of interest. 

            The interest on any indebtedness shall not exceed six percent per year unless the parties contract in writing for a different rate, not to exceed eight percent per year.  Minn. Stat. § 334.01, subd. 1 (1998).  But contracts for loans of $100,000 or more are exempt from the provisions of chapter 334; the interest rate for such loans shall be at the rate of six percent per year, unless the parties contract in writing for a different rate, which is not limited by statute.  Minn. Stat. § 334.01, subd. 2 (1998).

To conclude that a transaction is usurious within the definition of the statute, this court must find:

(a)  A loan of money or forbearance of a debt;

(b)  an agreement between the parties that the principal shall be repayable absolutely;

(c)  the exaction of a greater amount of interest or profit than is allowed by law; and

(d)  the presence of an intention to evade the law at the inception of the transaction.


Rathbun v. W.T. Grant Co., 300 Minn. 223, 230, 219 N.W.2d 641, 646 (1974) (citations omitted).  “Whether a transaction is usurious is ordinarily a question of fact.”  Kantack v. Kreuer, 280 Minn. 232, 240, 158 N.W.2d 842, 848 (1968) (citations omitted).  We will not disturb a district court’s finding on a claim of usury unless it is without substantial evidentiary support or reflects an erroneous view of the law.  See Pettibone Minnesota Corp. v. Castle, 311 Minn. 513, 514, 247 N.W.2d 52, 53 (1976). 

Relying on United Realty Trust v. Property Dev. & Research Co., 269 N.W.2d 737, 744 (Minn. 1978), and Negaard v. Miller Constr. Co., 396 N.W.2d 833, 835 (Minn. App. 1986), review denied (Jan. 21, 1987), appellant argues that respondents’ usury claim fails as a matter of law because Minnesota’s usury statute does not apply to loans involving sums greater than $100,000.  But both of these cases involved loan contracts where “a different rate [was] contracted for in writing.”  See Minn. Stat. § 334.01, subd. 2.  Because we conclude that McClelland held an equitable mortgage on Wagner’s property, a loan was made and the principal was repayable absolutely, but the record does not support a determination that any specific interest rate was contracted for in writing.  McClelland advanced money in increments, beginning with $92,038 to the Wagner Trust on November 12, 1993, and $16,449 to the Bank of Zumbrota on November 17, 1993.  McClelland also paid attorney fees and real estate taxes, and made further payments to the Bank of Zumbrota.  The first time McClelland gave Wagner an aggregate total of McClelland’s expenditures and stated an interest amount, was on April 1, 1996, when McClelland specified the amount ($120,746.69) that Wagner must pay him in order for McClelland to deed the farmland parcels back to Wagner.  At that time, McClelland notified Wagner that interest would accrue in the amount of $30.94 daily, which is a rate of interest higher than six percent per year.  On February 12, 1997, McClelland sent Wagner a letter stating that the total due had increased to $518,419.38 and that interest continued to accrue at the rate of $142 per day, also an interest rate higher than six percent per year.

            Respondents’ complaint claiming usury was filed February 25, 1997, within the two-year period required by Minn. Stat. § 334.02 (1998).  The statute requires that a person seeking a remedy for paying a usurious rate of interest must actually have paid the amount of interest charged.  See id.  Neither Wagner nor his conservators paid the interest demanded by McClelland, but the district court accepted McClelland’s undocumented interest figures and factored them into its admittedly “imprecise” calculations when it apportioned the property by value.

            We conclude that the district court erred in dismissing respondents’ usury claim.  But McClelland will be required to prove his interest claims as costs during the foreclosure action.  See Minn. Stat. § 581.03 (1998) (providing that court enters judgment for amount due, including costs).  Accordingly, we remand for further consideration of the usury issue during that proceeding. 

Other Claims

            By notice of review, respondents also argue that the district court erred in (1) concluding that they failed to demonstrate that McClelland unduly influenced Wagner into signing the quitclaim deeds purportedly transferring ownership of his land to McClelland at a time when Wagner was under financial pressure and addicted to alcohol and Ritalin; (2) dismissing their claim that McClelland’s fraudulent misrepresentations induced Wagner to convey his land to McClelland; and (3) failing to declare void the quitclaim deeds executed by Wagner in 1995, under a theory of breach of fiduciary duty or in violation of the “Guardianship and Conservatorship Act.”  The district court found that respondents had failed to satisfy their burden of proof on these issues and dismissed the claims with prejudice.  Because we conclude that the transaction involved a loan to Wagner, rather than a sale of his land, we do not reach these issues.

Affirmed in part, reversed in part, and remanded.