Trustеe in Bankruptcy of the failed Republic Financial Corporation has sued three guarantors of a loan also secured by a real estate mortgage. The trial court gave plaintiff judgment by default against the makers of the note and also summary judgment against the guarantors. The guarantors appealed. After the Court of Appeals summarily affirmed, one of the guarantors, Gene C. Howard, petitioned this court for certiorari. We have granted his petitiоn, and now reverse the judgment of the lower court insofar as it pertains to Howard.
Howard’s only complaint on appeal is that the summary judgment was inappropriate in light of his pending defenses and counterclaims, all of which, he contends, were sufficient to present controverted issues of materiаl fact. Upon examination of the pleadings and affidavits submitted in response to the motion for summary judgment, we agree.
The facts on which the Trustee reliеs are (1) that the Englands executed a note and mortgage to Republic, (2) that Howard and the Holsteds (the other guarantors) executed their personаl guarantees of the note, and (3) that the note is unpaid according to records of the failed lender. Based on these the trial court rendered summаry judgment against Howard for $200,197.36 plus interest and attorney fees. The Trustee successfully relied on the automatic stay from the U.S. Court in Bankruptcy to avoid any cоnsideration of Howard’s counterclaims.
Affidavits submitted by the guarantors in response to the motion for summary judgment indicate that they took issue with the amount due. Howаrd, consistent with material pled in his counterclaims, therein avers that his dealing with Republic through its president Wesly McKinney went back some 15 years. The affidavits describe in some detail an ongoing financial relationship culminating in the England transaction as follows:
*121 “That in approximately June of 1983, Howard and Hoisted entеred into and negotiated a sale of additional real estate to Collis England and Evelyn England which is the subject of this litigation. That said Collis England and Evelyn England borrowed in excess of $200,-000.00 which they were to pay Howard and Hoisted for the said property.
That on or about August 5, 1983, Republic Financial closed the loan to Cоllis and Evelyn England and withheld all of the funds due to Howard and Hoisted, but agreed that a sum of approximately $26,-000.00 was due to Howard and Hoisted from said transaction after paying off all the indebtedness of Howard and Hoisted to Republic Financial Corporation.”
That on a total indebtedness of $237,-542.32, that Republic Financial Corporation, since May 26, 1978, has collected in excess of $700,000.00 in payments, credits and property and has failed, neglected and refused to аccount for the proceeds and at this time there is a substantial balance due to Howard and Hoisted from Republic Financial Corporation.” (O.R. аt 88, 89, 90).
In granting judgment against Howard in the amounts mentioned the trial court added the following:
... provided that said judgment shall be without prejudice to Defendant, Gene C. Howаrd to challenge any amounts sought to be recovered against him by way of a deficiency judgment.
Plaintiff urges that the trial court has thus preserved Howard’s rights to рresent his claims prior to entry of “deficiency judgment”, and that apparently is what the trial court endeavored to do. We believe, however, that in dоing so the lower court misperceived the office of deficiency judgment. In mortgage foreclosure practice “a personal judgment or judgments shall be rendered
for the amount or amounts due
... to the plaintiff,”
A “deficiency” in foreclosure practice is that part of a debt secured by mortgage not realized from the sale of the mortgaged property.
Blacks Law Dictionary,
510 (4th ed. 1951). A judgment for the amount of such deficiency is called a deficiency judgment. Its creation is actually a new judgment occurring in a post-judgment proceeding.
Baker v. Martin,
In granting personal summary judgment against guarantor Howard for the amount due on his guaranty the court has considered only the factual assertions of the plaintiff, and disregarded those of Howard which take issue with plaintiff’s version of the amounts due. Affidavits relied on by Howard in opposition to the Motion for Summary Judgment clearly show that he claimed credit for at least $26,000.00 due after the England transaction, and perhaps a set-off for more than $400,000.00 on alleged overpayments.
Howard’s counterclaim based on amounts previously paid to Republic is an argument that he has satisfied the guaranty by payment. He alleges that his over-paymеnts on other obligations should be credited to his obligation arising from the guaranty. His counterclaim rests on Republic’s duty to apply Howard’s payments to Republic on the obligation arising from the guaranty. Is he entitled to such a set-off in the Trustee’s suit?
In Roman jurisprudence mutual obligations were setoff by operation of law, and “debts were extinguished so far as the amount due on the smaller debt could rightfully compensate the larger”.
Blount v. Windley,
95 U.S. (5 Otto) 173, 178, 24
*122
L.Ed. 424 (1877). Generally, the common-law provides otherwise, that mutual debts are not automatically setoff by operation of law.
Gilliland v. Jones,
Insolvency, howеver, may allow for a different result. Insolvency of one of the parties may create an equity, or at least strengthen it, sufficient to allow a setoff оf the mutual obligations. 3 J. Story,
Commentaries on Equity Jurisprudence,
§ 1872 (14th ed 1918). This equitable principle has been applied for the benefit of borrowers in cases involving insolvent national banks.
Scott v. Armstrong,
“[TJhis Court orders that stay granted Republic Finance Corporation and Republic Trust and Savings Corporаtion be modified so as to allow Movants to setoff their claim against RFC with their obligation owed to RT & SC pursuant to 11 U.S.C. § 553.” Id.47 B.R. at 768 .
“It would be a grave injustice and cause substantial hardship аnd monetary loss to Movants to deny setoff of the mutual claims and obligations by virtue of the acts and activities of the debtor corporations.” Id.47 B.R. at 770 .
The gravе injustice of denying a setoff as described above is no less an injustice when an insolvent plaintiff is bringing suit on a guaranty agreement and the defendant desires to setoff the guaranty obligation with payments allegedly made to the plaintiff. Thus, we hold that Howard’s counterclaim raises a permissible defense to the aсtion on the guaranty.
Summary judgment is appropriate only when it is clear that there is no substantial controversy to any material fact.
Northrip v. Montgomery Ward,
The opinion of the Court of Appeals is vacated and the summary judgment against Howard is reversed. The cause is remanded to the District Court’ of Tulsa County for further proceedings consistent hеrewith at such time as the automatic stay of proceedings from the U.S. Bankruptcy Court shall not bar litigation of the counterclaims.