This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).




Du Won Park, et al.,



Owatonna State Bank, defendant

and third-party plaintiff,



CTX Mortgage Company,

a Nevada corporation,

Third-Party Defendant.

Filed September 16, 1997

Affirmed in part and reversed in part

Norton, Judge

Dakota County District Court

File No. 19-C1-95-9965

Allen E. Christy, Jr., Joanne H. Turner, Mackall, Crounse & Moore, PLC, 1400 AT&T Tower, 901 Marquette Avenue, Minneapolis, MN 55402-2859 (for Respondents)

Stephen J. Smith, Mark J. Rahrick, Smith & Tollefson, 113 W. Main St., P.O. Box 271, Owatonna, MN 55060 (for Appellant)

Considered and decided by Amundson, Presiding Judge, Norton, Judge, and Peterson, Judge.



Appellant bank challenges the trial court's ruling that the bank's mortgage on a parcel of property was discharged. The trial court did not abuse its discretion when it discharged the bank's mortgage, excluded evidence under the parol evidence rule, and admitted the mortgagor's criminal record into evidence. The trial court properly denied the bank's motion for a directed verdict. The trial court did, however, abuse its discretion when it awarded costs and fees to respondents. We affirm in part and reverse in part.


Allan Just procured a $200,000 construction loan from appellant Owatonna State Bank (OSB) in November 1991. Just gave the bank a mortgage on two lots in Apple Valley (the 1991 mortgage).[1] OSB recorded the mortgage on January 8, 1992. The term of the loan was one year. OSB advanced funds to Just as needed to build a home. By November 24, 1992, the balance on the loan reached $199,868.47. Just renewed the loan twice while construction progressed. Each time OSB renewed the loan, it added this notice on the note: "This note is give [sic] for renewal and extension of note #41164, dated 11-14-1991, and not in payment of original note."

When the Justs sought to refinance the loan through the Investors Savings Bank (Investors), Investors agreed to loan the Justs $198,000, an amount insufficient to cover the Justs' debt. The Justs received additional loans of $95,000 and $35,000 from OSB to cover the difference. OSB issued separate notes for these loans.

In the meantime, respondent North Star Title (North Star), the company in charge of closing the refinancing, requested from OSB the amount necessary to pay off the 1991 mortgage. OSB sent a letter informing North Star that the "payoff" on Just's account was "$208,071.57, with the daily per diem at $56.57."

As part of the closing process, Investors required that North Star get the check to cover the balance for the refinancing as well as an agreement to subordinate OSB's mortgage to Investors' primary mortgage on the lots. When the Justs closed on their refinancing on April 23, 1993, they presented the two checks from OSB for $35,000 and $95,000, but the status of the subordination agreement is under dispute.

OSB claims that it issued a subordination agreement on April 23, 1993, in which it agreed to subordinate the lien of its mortgage to the lien of Investors' mortgage on the property. OSB claims that Allan Just delivered the subordination agreement to North Star at the closing, along with the two checks from OSB. Just testified that he presented the agreement at the closing along with various other documents from OSB.

North Star, however, denies ever having received the document at the closing. No North Star employees remember receiving the subordination agreement. The assistant vice president of the closing department testified, however, that she found the subordination agreement in North Star's file after the closing, along with a reference that on May 3, North Star returned the agreement to OSB for correction of errors. OSB responded to the letter by telephone and did not alter the document. Neither the letter nor the phone call are dated.

Five days after the closing, North Star issued a check for $208,468.26 payable to OSB "For: loan payoff" "Allan Just" "RE: 8763 Highwood Way." North Star enclosed with the check a request for a satisfaction of mortgage. OSB never completed and returned a satisfaction, but did cash the check.

In November 1993, the Justs consolidated and renewed the two loans they still had with OSB. The promissory note listed the total principal as $129,640.25, secured by a "MORTGAGE DEED DATED 11-14-1991 LOT 13, BLOCK 1, HUNTERS WOOD THIRD ADDITION."

When the Justs sold their house, the buyers, respondents Du Won and Gye Nyo Park (the Parks) went through CTX Mortgage and First Security Title closing company. A title search on the property revealed that the 1991 mortgage had never been discharged. Believing that OSB was simply behind in issuing its satisfaction of mortgage statement, North Star agreed to indemnify First Security against any claim that OSB may have on the property, in an effort to allow the Parks to close on their purchase.[2] North Star never notified OSB of the sale of the property. When OSB later learned of the sale, it demanded its proceeds pursuant to its purported second mortgage on the property.

The Parks and North Star brought this action against OSB to clear title to the land. OSB counterclaimed to foreclose and enforce its mortgage lien. At trial, amid the examination of Allan Just, counsel for North Star and the Parks discovered that Just had a serious criminal record in Arizona. Counsel asked the court for permission to investigate the matter because, if it were true, he believed the evidence would be admissible for impeachment purposes. The trial court asked the county sheriff to investigate and left the trial court record open to allow inclusion of this evidence, should the search prove fruitful. Counsel for OSB repeatedly objected on the record with regard to the admissibility of evidence of prior convictions, opposing counsel's failure to give adequate notice of the evidence, and the trial court's active role in conducting the investigation to produce the evidence. After receiving the initial confirmation of Just's conviction from the Arizona Department of Corrections, the judge asked counsel to get more information. Ultimately, the judge received a copy of Just's presentence investigation and the appellate court's decision affirming his conviction for second-degree murder. Based on this evidence, the trial court found that Just was not credible as a witness because he was a "convicted murderer."

The court discharged OSB's mortgage based on its finding that the later loans had not been secured by the 1991 mortgage, which had been paid in full when Just refinanced in 1993. OSB moved for amended findings or, in the alternative, a new trial alleging the trial court abused its discretion when it found the 1991 mortgage satisfied and the later loans unsecured by the 1991 mortgage; when it excluded evidence relating to the loan documents under the parol evidence rule and admitted evidence of Just's criminal history; and when it awarded costs and fees to North Star and the Parks. After a hearing, the trial court denied the motion in its entirety.


1. Subordination agreement

OSB contends the trial court abused its discretion when it found that the Justs never presented the subordination agreement at the closing and, consequently, failed to preserve OSB's right to the mortgage lien. In viewing the evidence in a light most favorable to the prevailing party, this court will only overturn the trial court's findings of fact if they are clearly erroneous, whether based on oral or documentary evidence. Minn. R. Civ. P. 52.01; First Trust Co., Inc. v. Union Depot Place Ltd. Partnership, 476 N.W.2d 178, 181-82 (Minn. App. 1991), review denied (Minn. Dec. 13, 1991). Indeed, we should reverse only if we have a "definite and firm conviction the trial court made a mistake." First Trust Co., 476 N.W.2d at 182.

This issue revolves around a credibility determination; North Star employees testified that they did not receive the subordination agreement whereas Just testified that he presented the document and discussed the document with them at the closing. This court will overturn findings that were based on conflicting evidence only if the findings are manifestly and palpably contrary to the evidence. Dexheimer v. Bratrude, 254 Minn. 145, 148, 94 N.W.2d 359, 364 (1959). Further, in a case tried without a jury, we must defer to the trial court's opportunity to weigh credibility of the witnesses. Minn. R. Civ. P. 52.01; Thuma v. Kroschel, 506 N.W.2d 14, 18 (Minn. App. 1993), review denied (Minn. Dec. 14, 1993). Even if this court would have reached a different result, we must affirm if the evidence supports the trial court's findings. Dexheimer, 254 Minn. at 198, 94 N.W.2d at 364.

Various North Star employees testified that they did not receive the subordination agreement at closing and did not find it in the file even though Just testified that he delivered it. Although North Star did have the document some time after closing, it is not clear that North Star had it at the closing. The undated letter North Star sent asking OSB to correct the subordination agreement is not helpful in our inquiry as to when North Star first received that document. The reference to North Star's phone call to OSB is similarly undated and nondeterminative. Given this level of conflicting testimony, we must defer to the trial court's opportunity to have observed the witnesses and judged their credibility. Thuma, 506 N.W.2d at 18. The record contains evidence to support the trial court's finding that North Star did not receive the subordination agreement at the closing. The trial court's findings are not manifestly and palpably contrary to the evidence.

2. Parol evidence rule

OSB alleges the trial court erred when it invoked the parol evidence rule and excluded various documents and accompanying testimony that sought to add meaning to the promissory notes between OSB and the Justs. We disagree. Under the parol evidence rule, the court will not consider evidence outside a written document to change or contradict the unambiguous terms of the document. Torgerson-Forstrom H.I. of Willmar, Inc. v. Olmsted Fed. Savs. & Loan Ass'n, 339 N.W.2d 901, 904 (Minn. 1983). The parol evidence rule bars the maker of a promissory note "from showing an agreement contrary to the terms of the note." Northwestern State Bank v. Gangestad, 289 N.W.2d 449, 452 (Minn. 1979).

Here, the original 1991 mortgage set forth a $200,000 ceiling in clear and unambiguous terms. Unlike some construction loans/mortgages that specifically provide the same collateral to secure a sum certain and "future advances," OSB contracted for a specific dollar amount and included no provision that the same collateral would secure any future advances. When OSB loaned the Justs the additional $35,000 and $95,000 in 1993, its documentation that the 1991 mortgage deed secured the loan was insufficient to alter the parties' rights and responsibilities under the language of the 1991 mortgage. The trial court correctly ruled that mortgage security does not extend beyond the definite sum provided in the mortgage instrument. Kingsley v. Anderson, 103 Minn. 510, 511, 115 N.W. 642, 643 (1908) (mortgage securing note stated to be for specific sum in security only for that sum stated, despite fact that note actually is for larger sum). Consequently, the parol evidence rule prohibits OSB from referring to the 1993 notes in an attempt to extend the clear, unambiguous terms of the 1991 mortgage.

OSB's position is only further complicated by the fact that it neither sought additional collateral for the 1993 loans nor recorded the mortgages and liens with the county pursuant to Minn. Stat. § 507.34 (1996). That statute provides that, if a conveyance of real estate is not recorded with the county recorder, it is void against any subsequent good faith purchaser. Id.

This analysis also relates to the satisfaction of the mortgage. OSB contends it merely sent the letter with the amount to "pay off" the 1991 mortgage, not to "satisfy" the entire obligation. Yet, without having taken the proper safeguards to ensure that it had a contractual basis to extend additional money to the Justs and had the necessary collateral to secure it, OSB has no foundation on which to base a claim that the payment it received for $208,000 did not satisfy the only valid, recorded mortgage it had here.

OSB is in the unfortunate position of having failed to protect itself. The trial court properly invoked the parol evidence rule and relied solely on the promissory notes, mortgage, and deed that the parties executed.

3. Evidence of prior conviction

OSB contends the trial court abused its discretion when it admitted evidence of Just's prior conviction for second degree murder. Critically, the trial court's finding that Just's testimony was incredible appears to be based solely on his prior conviction. Absent an abuse of discretion, this court will uphold the trial court's evidentiary ruling on admissibility of prior convictions for impeachment purposes. State v. Bias, 419 N.W.2d 480, 487 (Minn. 1988).

Minn. R. Evid. 609(a) allows impeachment of a witness by evidence of prior convictions if the crime were punishable by death or imprisonment, in excess of one year, and the probative value of the evidence outweighs its prejudice. The trial court record from Arizona shows that Just completed serving a 10-year sentence in March 1991; by the time of this trial, only five years had passed. See Minn. R. Evid. 609(b) (prior conviction not admissible if more than ten years has passed since date of conviction or release from confinement).

Even though the trial court here failed to weigh the probative value of the prior conviction against its potential prejudice, admission of the evidence was not an abuse of discretion because the conviction and Just's creative explanation of the facts are probative of his veracity. See State v. Lund, 474 N.W.2d 169, 172-73 (Minn. App. 1991) (trial court's failure to weigh probative versus prejudicial value on record was not reason for reversal where case met the pertinent factors and contained strong evidence of guilt). Just's prior conviction bears directly on his veracity. Just was accused and convicted of second-degree murder, a crime he denies committing; he had his own version of the incident that did not incriminate him. Because one of the key disputed issues at trial was the status of the subordination agreement at the time of closing, the veracity of Just's testimony regarding his delivery of that document was integral to the court's determination of this case. Consequently, the trial court did not abuse its discretion when it admitted the evidence of Just's prior conviction because its probative value regarding his veracity outweighed its potential prejudicial effect.

4. Directed verdict

OSB argues it was entitled to a directed verdict after North Star and the Parks rested. On review, this court independently assesses whether the evidence raised a fact question for the jury. Nemanic v. Gopher Heating & Sheet Metal, Inc., 337 N.W.2d 667, 669 (Minn. 1983). Given the conflicting evidence in the record, the trial court properly declined to direct a verdict.

5. Costs and fees

OSB claims the trial court abused its discretion when it awarded North Star and the Parks costs and fees. We agree. The trial court did not state a statutory basis for the costs and fees. Although North Star and the Parks argue that the award came under Minn. Stat. § 549.21, subd. 2 (1996), because OSB acted in bad faith by raising its counterclaim, the record does not suggest bad faith. Therefore, the award of costs and fees is reversed.

6. Motion to strike

Finally, OSB moves this court to strike the documents that the trial court received from the Arizona Department of Corrections and the Arizona Courts: the pre-sentence investigation, the appeal of Just's sentence, and his re-sentencing. Minn. R. Civ. App. P. 110.01 defines the record on appeal as all transcripts, exhibits, and papers filed with the district court. The trial court was within its discretion to take judicial notice of these documents. See Minn. R. Evid. 201 (allowing court to take notice of facts not in dispute and capable of accurate determination). The motion to strike is denied.

OSB also moves this court to include in the record on appeal a letter that counsel sent to the trial court to object to the procurement and admission of Just's inmate record. That letter is already in the record.

Affirmed in part and reversed in part.

[ ]1 At the time he originally secured this loan, Just was unmarried. Since that time, he has married and his wife, Janean Just, has signed the mortgage.

[ ]2 Although the Justs received a $37,342.70 profit from the sale of the house, they never paid OSB. Outside of one demand letter, OSB has not attempted to collect from the Justs.