PERPETUAL NATIONAL LIFE INSURANCE CO., Respondent v. BROWN AND BOTTUM, Appellants
Files Nos. 10637, 10751
Supreme Court of South Dakota
December 18, 1970
Rehearing denied January 22, 1971
182 N.W.2d 216
HANSON, Judge.
Roswell Bottum, Rapid City, for defendant and appellant Bottum.
Whiting, Lynn, Jackson, Freiberg & Shultz, Gene N. Lebrun and Horace R. Jackson, Rapid City, for plaintiff and respondent.
HANSON, Judge.
This is an action by Pеrpetual National Life Insurance Company to recover on a promissory note secured by a mortgage upon real property. Defendants, Byron T. Brown and Joseph H. Bottum III, answered and alleged the note had
The facts are not materially disputed. On June 24, 1964, Perpetual National Life Insurance Company made a loan of $35,000 to Swim, Inc., a corporation organized to construct and operate a swimming pool in the City of Custеr. In consideration of its loan Perpetual received a promissory note from Swim, Inc., signed also by defendants Brown and Bottum personally. The note was secured by a real estate mortgage on certain lots in the City of Custer, South Dakota uрon which a swimming pool was to be or was being constructed.
On December 9, 1964 Perpetual National commenced an action in the Circuit Court of Custer County against the mortgagor, Swim, Inc., and certain lienholders requesting judgment against the mortgagor in the amount of $35,000 plus interest; for the foreclosure and sale of the property; and for a determination of the inferiority of the liens. The lien claimants answered and counterclaimed, alleging priority over the mortgage. Subsequently other liеn claimants, including the Custer Swimming Pool, Inc., as holder of a vendor‘s lien, were allowed to intervene. Brown and Bottum were not made parties to the foreclosure action and did not seek intervention.
During the trial of the foreclosure action the note and mortgage were identified as exhibits and admitted into evidence. Priority of the various mechanics liens was established by stipulation of counsel for Perpetual National. The priority of the vendor‘s lien was determined by the court аfter a hearing. The mortgage holder made no offer to establish the fair and reasonable value of the mortgaged pre-
The judgment entered in the Custer foreclosure action provided, substantially, as follows: (1) Each of the lienholders wаs granted judgment against the mortgagor, Swim, Inc., (2) all of the mechanics liens were of equal rank, (3) the mortgaged premises was ordered sold by the Sheriff of Custer County “to satisfy the amounts of the several liens“, (4) the Sheriff was ordered to distribute the proceeds of the sale in the following order:
- Fees, disbursements and commissions of the Sheriff‘s sale.
- Amounts due mechanics lienholders.
- Amount of vendor‘s lien.
- Any balance remaining to be paid to Perpetual National Life Insurance Co. in the amount not to exceed $35,000 plus interest from and after June 24, 1964, and
- Any sum remaining after payment of the aforesaid to be рaid to Swim, Inc.
Pursuant to this judgment the mortgaged property was advertised for sale by the Custer County Sheriff and sold on July 25, 1965 for the sum of $21,000 ostensibly to the Custer Swimming Pool, Inc. In applying the proceeds of sale as directed by the judgment the Sheriff paid the sum of $94.61 to Perpetual National for application on the mortgage obligation.
Sometime prior to the foreclosure sale Perpetual National advanced $21,000 to the holder of the vendor‘s lien, Custer Swimming Pool, Inc., which was used to make and satisfy the bid at the foreclosure sale. A certificate of sale was issued to Custer Swimming Pool, Inc., and later assigned to Perpetual National. Subsequently, Perpetual National received a Sheriff‘s Deed and eventually sold the swimming pool property to the City of Custer.
The basic issue on appeal is whether the following deficiency judgment act applies to, or affects, the present action to recover on the promissory notе.
“21-47-15. Purchase by mortgagee at sale—Fair and reasonable bid required.—In any foreclosure of a mortgage upon real estate by action, the mortgagee, his assigns or their legal representatives, may purchase the premises, оr any part thereof, at such foreclosure sale, providing he bids fairly and in good faith, and bids the fair and reasonable value thereof.
“21-47-16. Proof required of mortgagee bidding less than amount of debt—Court decree permitting bid—Execution for deficiеncy.—If the holder of such mortgage is not willing at such sale to bid the full amount of the judgment debt, it shall be the duty of such mortgage holder to establish at the time of the trial by competent proof to the satisfaction of the court, the fair and reasonаble value of the mortgaged premises, and the court shall determine the same in its decree; and if the court shall find such fair and reasonable value to be less than the sum due on said mortgage, with costs and expenses of sale, it may by such deсree authorize such mortgage holder to bid not less than the fair and reasonable value as thus determined, and if a deficiency remains after the foreclosure sale, such mortgagee, or his assigns, shall be entitled to a general execution for such deficiency only upon application to the court in which the judgment was rendered.
“21-47-17. Foreclosure as complete satisfaction of debt.—Except as provided by § 21-47-16, the foreclosure by action of a mortgage uрon real estate shall operate as a complete extinguishment, satisfaction and payment of the debt secured by such mortgage.”
The legislative purpose in enacting the above act was “to Prevent Unjust Enrichment and Gain by the Hоlders of Real Estate Mortgages Through the Foreclosure Thereof by Action.” See Chapter 146, S.L.1939. Other related remedial acts reflect a general legislative intent to establish a new standard of fairness in the mortgagor-mortgagee relationship in this state. In this regard, see
In order to recover any deficiency in a foreclosure of a real estate mortgage by action the following procedure is mandatorily directed by
- The mortgage holder must inform the court of his intention to claim a deficiency;
- The court must determine the fair and reasonable valuе of the mortgaged premises;
- The mortgage holder may bid not less than the fair and reasonable value of the mortgaged premises as determined by the court;
- The allowable deficiency after a foreclosure sale cannot еxceed the difference between the judgment debt and the fair and reasonable value of the mortgaged premises regardless of who bids in the property at the foreclosure sale or regardless of the actual sale price.
Contrary to Perpetual National‘s contention the foregoing provisions of our deficiency judgment act applied to
Perpetual National elected to foreclose its real estate mortgage by action in the Circuit Court of Custer County and is bound by that election. Having failed to comply with the mandatоry and exclusive provisions of
In view of our conclusion the procedural issue presented by defendant Brown is rendered moot. The proceеdings appealed from are accordingly reversed with instructions to enter an order dismissing the action.
ROBERTS, P. J., and RENTTO and BIEGELMEIER, JJ., concur.
HOMEYER, J., dissents.
HOMEYER, Judge (dissenting).
The judgment in the case at bar gives judgment to four separate holders of mechanics liens for the amount of their respective claims and counsel fees, but in no manner does it purport to give judgment for the mortgage debt. It directs the sheriff to sell the real estate to which the liens are attached to satisfy the amounts of the four mechanics liens and costs “above specified” but it in no way indicates the sale is to be made to satisfy the mortgage debt. It is true the judgment directs application of surplus funds, if any, among subsequent lienholders including the mortgagee in a certain order of priority, but in my opinion this does not constitute a judgment of foreclosure of a mortgage.
The notice of sale in this case describes the judgment in favor of the four mechanics lienholders and the respective amounts of the judgments, but it does not mention any mortgage, or any mortgagе judgment debt, which it could not, because there was no judgment for the mortgage debt.
In my opinion the mortgage of respondent was never foreclosed and consequently it was under no duty to comply with the provisions of