First Federal Savings & Loan Ass'n of Rapid City v. Clark Investment Co.
First Federal Savings & Loan Ass'n of Rapid City v. Clark Investment Co.
Opinion of the Court
First Federal brought a mortgage foreclosure action against mortgagors Clark Investment Company and William E. Clark and other named defendants based on the due-on-sale clause contained in the long-term redemption mortgage, executed November 8, 1971, First Federal held on the mortgaged property. First Federal also sought enforcement of a separate assignment of rents agreement it had with mortgagors Clark Investment Company and William E. Clark and for attorney fees incurred in the commencement and prosecution of this action. The trial court entered a Partial Judgment and Decree of Foreclosure, ordering the mortgaged property sold and awarding First Federal $6,592.40 in attorney fees. Subsequently the trial court entered a Supplemental Judgment, ordering the assignment of rents agreement enforced and directing that First Federal make proper accounting, as provided by law, to defendants and the court upon conclusion of the foreclosure proceedings. The ordered sale was conducted by the Sheriff of Hughes County. First Federal, the only bidder, purchased the property; there was no deficiency. Clark Investment Company and William E. Clark (appellants) appeal from the Judgments and Order Confirming Sale. We affirm in part, reverse in part, and remand.
The first issue is the enforceability of the due-on-sale clause. In First Federal Savings & Loan Association of Rapid City v. Kelly, 312 N.W.2d 476 (S.D. 1981), we held that in the case of a 180-day redemption mortgage, executed pursuant to SDCL ch. 21-49, the lender need not show an impairment of security before its rights under a due-on-sale clause can be enforced. In Kelly, as in this case, appellants argued that a due-on-sale clause is a restraint on alienation. In Kelly, citing Occidental Savings and Loan Association v. Venco Partnership, 206 Neb. 469, 293 N.W.2d 843 (1980), we stated:
Since historically the law has abhored any unreasonable or inequitable restraints on the alienation of property, and the purpose of a due on sale clause is to protect the lender’s security, these courts have generally concluded that absent any such impairment, the lender cannot prevent the borrower from transferring the property involved to a third party. Inherent in this rationale is the premise that due on sale clauses are, at least, an indirect restraint on alienation and thus violative of public policy.
Kelly, supra at 479. In Kelly we said we were precluded from deciding whether a due-on-sale clause constitutes a restraint on alienation due to the explicit language of SDCL 21-49-13(7).
Appellants attempt to avoid the result in Kelly by arguing that this case concerns a long-term redemption mortgage and therefore Kelly is inapplicable. We do not consider this distinction persuasive in light of SDCL 44-8-27 and 28,
In support of their position appellants refer to numerous cases cited in Kelly, and particularly to Dawn Investment Co., Inc. v. Superior Court, Etc., 30 Cal.3d 695, 180 Cal.Rptr. 332, 639 P.2d 974 (1982). Dawn continues the line of recent California cases
Appellants next argue that the trial court should not have enforced the assignment of rents agreement. This agreement was executed by appellants simultaneously with the promissory note and mortgage as additional security for the note. Appellee
Appellant next contends the trial court erred in allowing appellee attorney fees of $6,592.40. The statute governing attorney fees upon foreclosure by action is SDCL 15-17-8
Appellants’ final argument is that the sale of the mortgaged property must be vacated because the trial court’s order confirming the sale does not comply with SDCL 15-19-21 and 22.
That part of the trial court’s judgment enforcing the due-on-sale clause and its order confirming sale are affirmed, the judgment enforcing the assignment of rents is reversed, and that part of the judgment awarding attorney fees is remanded for entry of an award in the amount of $2,649.38.
. SDCL 21-49-13(7) reads: In particular, but without limitation, any mortgage subject to the provisions of this chapter, may contain provisions relating to:
(7) If the mortgaged premises are sold without the prior consent of the mortgagee, that the entire balance owing may at the option of the mortgagee be declared immediately due and payable upon sixty days notice to the mortgagor, and the mortgage foreclosed as provided in this chapter.
. SDCL 44-8-27 reads: For the purpose of this section and § 44-8-28, a due-on-sale clause is a provision of a real estate mortgage which requires that the note secured by the mortgage be paid at the time the property is transferred and no assumption of the original note is permitted.
SDCL 44-8-28 reads: No lender may enforce a due-on-sale clause unless the real estate mortgage includes such clause.
. La Sala v. American Sav. and Loan Assn., 5 Cal.3d 864, 97 Cal.Rptr. 849, 489 P.2d 1113 (1971); Tucker v. Lassen Sav. & Loan Assn., 12 Cal.3d 629, 116 Cal.Rptr. 633, 526 P.2d 1169 (1974); Wellenkamp v. Bank of America, 21 Cal.3d 943, 148 Cal.Rptr. 379, 582 P.2d 970 (1978).
. While the source annotated under SDCL 43-3-5 does not refer to the California Civil Code, as do other sections in SDCL ch. 43-3, nevertheless California Civil Code § 711 is specifically cited as the source of § 200 in the 1883 Revised Code.
. We recognize Fidelity Federal Savings and Loan Association v. de la Cuesta, - U.S. , 102 S.Ct. 3014, 73 L.Ed.2d 664, handed down by the United States Supreme Court on June 28, 1982. That decision holds that the Federal Home Loan Bank Board’s 1976 regulation, allowing federal savings and loan associations to include and enforce due-on-sale clauses in their loan instruments, preempted California’s contrary due-on-sale law and that the Board’s action was within the scope of its delegated authority. Since this decision is in harmony with de la Cuesta, further discussion is unnecessary.
. Judy v. Ruden, 59 S.D. 527, 241 N.W. 614 (1932); Harms v. Miller, 57 S.D. 85, 230 N.W. 766 (1930); Knudson v. Powers, supra; Pratt v. Minahan, 56 S.D. 611, 230 N.W. 281 (1930); Kettering v. Barber, 37 S.D. 602, 159 N.W. 133 (1916); Rudolph v. Herman, 4 S.D. 283, 56 N.W. 901 (1893).
. SDCL 15-17-8 reads: In all actions commenced and prosecuted to judgment in the circuit court for the foreclosure of any chattel or real estate mortgage the plaintiff in such action shall be allowed an attorney fee as follows: on the first one hundred dollars or under of such judgment, ten dollars, and three per cent on each dollar of judgment in excess of one hundred dollars and not exceeding five hundred dollars. Such attorney fee in no case shall exceed the sum of twenty-five dollars unless the court shall by order allow an additional sum when issue has been joined in such action. If the plaintiff shall fail to recover in such action, the defendant in such action shall be allowed an attorney fee not exceeding twenty-five dollars.
. The declaratory judgment action was initiated by appellants against appellee in Pennington County but was dismissed by Judge Davis on December 22, 1980, and part of the case file transferred to Hughes County. The record is not clear, but it appears the declaratory judgment action was dismissed because this foreclosure action was pending in Hughes County.
. SDCL 15-19-21 reads: At any time within ten days after such return has been filed, any party interested may file exceptions to such sale, and serve same upon purchaser, and they shall thereupon be determined by the court either upon motion to confirm such sale, or to set it aside. SDCL 15-19-22 reads: If no exceptions be filed as aforesaid upon the certificate of the clerk to that effect, the report may be presented to the court for confirmation ex parte, and if the court shall, after having carefully examined the proceedings of the officer, be satisfied that the sale has, in all respects, been made in conformity to the provisions of this code, the court must make an order confirming the sale, which shall recite that the court is satisfied of the legality of such sale and shall direct that the officer make to the purchaser a deed of such real property, or interest therein, at the expiration of the period of redemption, unless the same be redeemed as herein provided.
Concurring Opinion
(concurring specially).
I concur specially because I believe that there is substance in Chief Justice Krivo-sha’s excellent opinion in Occidental Savings & Loan Assn. v. Venco, 206 Neb. 469, 293 N.W.2d 843 (1980), which should be emphasized.
In an indepth study of the argument that due-on-sale clauses are void as restraints on alienation, the opinion examines the California line of authority on which appellant relies and to which the majority opinion refers, dwelling at length on the Wellen-kamp decision. As the Chief Justice noted:
A more interesting aspect of the Wellen-kamp decision is the basis upon which the court reached its conclusion. Relatively few legal principles are relied upon as authority. The decision is based primarily on considerations of social need and the assumed effect of a “due-on-sale” clause in the market place. The rights and needs of the seller, as seen by the court, are detailed and balanced against the rights and needs of the lender, as seen by the court. The court concludes that the rights and needs of the seller outweigh those of the lender, notwithstanding the fact that the parties have freely entered into a contract to the contrary.
Occidental Savings & Loan Assn., 293 N.W.2d at 847. The opinion then goes on to hold, as pointed out in the majority opinion here, that “[t]he restraint, if any, in this case does not attach itself to the title and the conveyance thereof but rather to the mortgage and the assumption thereof. The lender never promised the seller that another could assume the mortgage; as a matter of fact, it told the seller the contrary.” Id., 293 N.W.2d at 848.
The key point in the Occidental opinion follows, to-wit “[a] ‘due-on-sale’ clause is a form of an acceleration clause and, as such, should be subject to the same rules as other acceleration clauses, including the protection of equitable defenses.” Id., 293 N.W.2d at 849. As in Nebraska, this court has said: “[b]y the great weight of authority the courts hold that a court of equity has the power to relieve a mortgagor from the effect of the acceleration clause when the default was the result of some inequitable conduct of the mortgagee. . . . Also many courts have relieved the mortgagor against a default which is unintentional, technical and without prejudice.... ” Larson v. Western Underwriters, 77 S.D. 157, 161-62, 87 N.W.2d 883, 886 (1958) (citations omitted).
Absent appellant’s pursuit and proof of any of the above equitable defenses, I, too, join in affirming the trial court’s decision.
Reference
- Full Case Name
- FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF RAPID CITY, South Dakota, a Corporation, Plaintiff and Appellee, v. CLARK INVESTMENT COMPANY, a Limited Partnership; And William E. Clark, Defendants and Appellants, and Nicholas L. Didier; David E. Morrill; James D. Vaughn; Larry M. Owen; William R. Bohannan; Gene Strascheim; And Charles H. Halgrimson, Defendants
- Cited By
- 13 cases
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- Published