Summary
stating that "[a]lthough they may be properly joined, an action to foreclose a mortgage and an action for personal judgment on the note secured by the mortgage, are separate and distinct"
Summary of this case from In re Perrysburg Marketplace Co.Opinion
No. 31029
Decided December 3, 1947.
Mortgages — First mortgagee brought foreclosure action — Second mortgagee cross-petitioned only for finding of amount due it — No prayer for foreclosure, sale or money judgment in cross-petition — Judicial sale proceeds insufficient to pay any sum to second mortgagee — Mere finding of amount due mortgagee, not judgment for money, when — Unenforceability of deficiency in money judgment on indebtedness secured by realty mortgage — Section 11663-1, General Code — Applies where indebtedness is so secured at time action commenced — Expression "any deficiency remaining due thereon" — Presupposes judgment creditor realized some amount from judicial sale — Statute not extended by implication to deny right to enforce satisfaction of indebtedness — Second mortgagee may obtain and enforce judgment on promissory note, when — Second mortgagee deprived of security and may collect full indebtedness — Where judicial sale proceeds used to satisfy superior lien.
1. The provision of Section 11663-1, General Code, that any judgment for money rendered upon any indebtedness which is secured or evidenced by a mortgage on real property of a described character shall be unenforceable as to any deficiency remaining due thereon, after the expiration of two years from one of two designated events, applies to a situation where the indebtedness, upon which an action for money is brought, is so secured at the time such action is commenced.
2. In an action to foreclose a mortgage on real property, where there is no prayer for a money judgment on the part of a mortgagee and none is rendered for him, a mere finding of the amount due him on account of the mortgage does not constitute a judgment for money in his favor.
3. The expression, "any deficiency remaining due thereon," as used in Section 11663-1, General Code, presupposes that a judgment creditor has realized on his judgment some amount from a judicial sale of the real property which secured the indebtedness owed him.
4. Section 11663-1, General Code, represents a special restriction on the general right to enforce satisfaction of an indebtedness in the usual way and, therefore, should not be extended by implication to deny that right.
5. Section 11663-1, General Code, does not by any of its terms inhibit one who was the holder of a second mortgage on real property of the character described in the statute from obtaining and enforcing a judgment on the promissory note secured by such mortgage, where (a) prior to the taking of judgment on the note, the holder of the first mortgage instituted an action to foreclose his mortgage, (b) the holder of the second mortgage made a party to that action asked for and obtained thereon no more than a finding of the amount due him on his second mortgage, and (c) upon the judicial sale of the mortgaged property, the proceeds derived therefrom were insufficient to yield anything to the holder of the second mortgage on the indebtedness owed him.
6. In circumstances where the security of a second mortgagee is taken away from him entirely by a judicial sale to satisfy a superior lien, such second mortgagee becomes a general creditor of the mortgagor to the full amount of the debt owed and may proceed accordingly to collect such indebtedness.
APPEAL from the Court of Appeals for Cuyahoga county.
This case is here following the allowance of a motion to require the Court of Appeals for Cuyahoga county to certify its record. The important question involved is the applicability of Section 11663-1, General Code, limiting the enforcement of judgments as to any deficiencies, to the facts of this case.
It appears from the pleadings and an agreed statement of facts contained in the record, that on December 29, 1934, Frank C. Carr, an appellee herein, and Flora F. Carr, who died July 11, 1945, executed and delivered to The Cleveland Trust Company, appellant herein, their promissory note for $346.83, payable on or before three years from the date thereof. Such note was secured by a second mortgage on land on which was located a single-family dwelling occupied by the Carrs as a home.
A first Mortgage on these premises was held by the Home Owners Loan Corporation. The described note delivered to The Cleveland Trust Company contained the statement:
"It is a condition of this note that the mortgagee or holder hereof cannot institute legal proceedings upon this indebtedness for a period of three years from date hereof."
During September of 1936, the Home Owners Loan Corporation commenced an action against the Carrs to foreclose its first mortgage, making the trust company a party defendant.
In its answer and cross-petition the trust company set up its second mortgage in the amount of $346.83, with interest, and asked that such amount be paid out of the proceeds of the sale of the property, in the event of a sale.
The cross-petition, upon which no summons was issued, did not ask for foreclosure or sale and contained no prayer for a money judgment.
The court, in its foreclosure decree, made a finding for the trust company on its mortgage, but rendered no money judgment in its favor.
Thereafter, the entire mortgaged premises were sold by the sheriff for a sum insufficient to pay anything to the trust company on account of its second mortgage. The sale was confirmed on June 7, 1937, more than six months prior to the time that the trust company could have brought suit on the promissory note it held against the Carrs, according to the terms thereof.
On July 22, 1938, the trust company obtained a cognovit judgment against the Carrs on its note in the Court of Common Pleas of Cuyahoga county, which judgment was kept alive and active in conformity with the procedure prescribed by statute.
On July 11, 1944, shortly after the trust company had caused an execution to issue, the Carrs filed their petition in the Court of Common Pleas, entitled, "Petition to Declare Deficiency Judgment Unenforceable," in which they alleged, among other things, that The Cleveland Trust Company had recovered a judgment against them in the foreclosure proceeding and that later it had recovered a cognovit judgment on the same claim; that the judgment in the foreclosure action "was a full and final determination of the matter between them and the same became and is res judicata"; and that hence the cognovit judgment was and is a nullity.
In the prayer of their petition the Carrs asked that the judgment secured by the trust company in the foreclosure action and the later cognovit judgment "be held and deemed one and the same and [that] they both and each * * * be declared unenforceable * * *."
The trust company filed an answer denying the recovery of any judgment in the foreclosure action and admitting the recovery of the cognovit judgment, which latter judgment, it alleged, is valid and enforceable and that execution and other proceedings thereunder are not barred by the provisions of Section 11663-1, General Code.
Judgment was rendered in favor of the Carrs by the trial court upon the theory advanced by them in their petition and such judgment was affirmed by the Court of Appeals.
In its opinion the Court of Appeals stated that "the finding in the foreclosure action of an amount due the cross-petitioning defendant therein [The Cleveland Trust Company] did not constitute res judicata in respect of the right to a separate judgment upon the note and the trial court erred in holding that the judgment, later rendered on the cognovit note was a nullity."
However, the appellate court did hold in substance that the "finding" in favor of the trust company in the foreclosure action amounted to a judgment for money within the contemplation of Section 11663-1, General Code; that under such section the two-year limitation prescribed began to run from the confirmation of the judicial sale in the foreclosure proceeding; and that Section 11663-1, General Code, operated as a bar to the enforcement of the trust company's cognovit judgment.
Mr. Lex Kintner, for appellees.
Messrs. Todd Todd, for appellant.
So much of Section 11663-1, General Code, as may be pertinent to the pending case, reads as follows:
"Any judgment for money rendered * * * upon any indebtedness, which is secured or evidenced by a mortgage * * * on real property * * * upon which real property there has been located a dwelling * * * for not more than two families which has been used in whole or in part as a home * * * shall be unenforceable as to any deficiency remaining due thereon, after the expiration of two years from the date of the confirmation of any judicial sale of such property completed subsequent to the rendition of such judgment, or after August 19, 1939, whichever shall be later."
As a preliminary to the discussion which follows, it is important to bear in mind that the statute by its express language applies only to a " judgment for money rendered * * * upon any indebtedness, which is secured or evidenced by a mortgage," etc. (Italics ours.)
The first question engaging our attention is whether the trust company secured a judgment for money prior to the date it obtained the cognovit judgment on the note.
From an examination of the answer and cross-petition filed by the trust company in the foreclosure action, it is apparent that the trust company did not ask for a money judgment against the Carrs. It is likewise clear from an examination of the decree rendered in the foreclosure action that the trust company obtained no more than a finding that it was entitled to a stated amount on account of its second mortgage, payable out of, the proceeds of sale from the mortgaged premises.
Furthermore, by reason of the quoted condition in the note given to the trust company by the Carrs, it is at least questionable whether it could have demanded or rightfully secured a personal judgment for money against the Carrs until the expiration of three years from the date of the note.
Investigation discloses that this court on several occasions has distinctly held that in a suit to foreclose a mortgage, where there is no prayer for a money judgment and none is rendered, a mere finding of an amount due, does not constitute a judgment for money. Myers v. Hewitt, 16 Ohio, 449, 455; Moore, Admr., v. Ogden, 35 Ohio St. 430; Doyle v. West, 60 Ohio St. 438, 54 N.E. 469; 27 Ohio Jurisprudence, 654, Section 473.
The term "finding" ordinarily imports the ascertainment of a fact by a judge in a judicial proceeding, which ascertainment may form the basis for a subsequently rendered judgment. The term "judgment," as defined by Section 11582, General Code, "is the final determination of the rights of the parties in action," and a judgment for money is one in which it is adjudged that a definite sum of money is payable by a party or parties to an action.
Since there was no judgment for money in favor of the trust company in the foreclosure action and it received nothing on the indebtedness owed it, can it properly be said that the later cognovit judgment on the note assumed the aspects and character of a judgment for a deficiency as that expression is generally accepted and understood? We think not. The very word "deficiency" denotes a lack, shortage or insufficiency and presupposes that a creditor has already realized some amount on his claim from the security held. Black's Law Dictionary (3 Ed.), 543. The word "deficiency" is employed with that meaning in Section 11663-1, General Code, and comprehends receipt of a part of the indebtedness owed from a judicial sale of the mortgaged property.
In the case of Bank of Douglas v. Neel, 30 Ariz. 375, 381, 247 P. 132, 134, the court remarked in its opinion:
"Technically speaking, there is no such thing under our law as a 'deficiency judgment' in the sense that a formal judgment of that description is rendered by the court, or entered by the clerk for the amount not made by the sale of the mortgaged property. There is only the original judgment for the full amount of the indebtedness, upon which a deficiency may exist after the issuance and return of the special execution * * *. It has nevertheless been customary in ordinary parlance to refer to the amount still due after the return of the special execution as a 'deficiency judgment' * * *."
There are other cases holding that the term "deficiency judgment" embraces a personal judgment rendered against a mortgagor and represents the mortgage debt remaining unsatisfied out of the proceeds of the sale of the mortgaged property; and that a "deficiency judgment" is the balance of personal indebtedness above the amount realized on the sale of the mortgaged property securing such indebtedness. Stretch v. Murphy, 166 Ore., 439, 446, 112 P.2d 1018, 1020; Phillips v. Union Central Life Ins. Co. (C.C.A. 8.), 88 F.2d.), 188, 189.
In the foreclosure suit against the Carrs, it was established only, so far as the trust company is concerned, that it had a valid claim against the mortgaged premises, payable out of the proceeds from the sale thereof, if enough was realized from such sale.
Although they may properly be joined, an action to foreclose a mortgage and an action for personal judgment on the note secured by such mortgage, are separate and distinct.
An action in foreclosure constitutes a proceeding for the legal determination of the existence of a mortgage lien, the ascertainment of its extent, and the subjection to sale of the property pledged for its satisfaction, and no more. 37 American Jurisprudence, 35, Section 533.
In the foreclosure action against the Carrs, the decree contained nothing which would have enabled the trust company to levy execution on any property of the Carrs, nor did the decree create a lien in favor of the trust company on any property belonging to them.
Next, we come to the question whether the trust company's action on the promissory note was one on an indebtedness which is secured by a mortgage, within the purview of Section 11663-1, General Code. According to our understanding, a secured obligation is one which, when the time cames to enforce payment of the claim, has at least some existing security to which the creditor may look for his money.
In analyzing Section 11663-1, General Code, it is apparent that it speaks as of the present; it says a judgment for money rendered on an indebtedness which is secured, not an indebtedness which is or has been secured. Certainly, the language used comprehends the time when an action is brought and not the time of the execution of a note covering an indebtedness.
Preceding the date the trust company brought suit on its note, the mortgaged premises had been sold by court order at the instance of the one holding the first mortgage. The trust company had nothing to do with instituting the foreclosure action and received nothing from the sale of the property. By the sale of the mortgaged premises, the security the trust company had held for its note completely vanished.
Since Section 11663-1, General Code, contemplates the present, it would seem logically to follow that at the time the trust company brought action on its note to obtain a money judgment, the indebtedness represented by such note was in fact unsecured.
It has been held in a number of cases involving statutes bearing a similarity to Section 11663-1, General Code, that, where the security for an indebtedness is nonexistent at the time action is brought to collect the indebtedness, such statutes are without application.
The case of Echikson v. Zalenski, 106 N.J. Law, 508, 150 A. 335, was decided under a statute limiting proceedings to collect a "deficiency judgment" to six months from the date of the sale of the mortgaged premises. The court stated in its opinion:
"The prior foreclosure proceedings wiped out the plaintiff's mortgage, the plaintiff being a party defendant to that action. McCall v. Yard, 9 N.J. Eq. 358. Since the mortgage was wiped out by the foreclosure proceedings, the plaintiff held his bond unsecured by collateral. Seigman v. Streeter, 64 N.J. Law, 169 [44 A. 888].
" 'Consequently our statute requiring the holder of a bond and mortgage to first exhaust his remedy on the mortgage, before proceeding upon the bond, had no application at the time the judgment in this case was entered.' " (Citing cases.)
In 2 Glenn on Mortgages, 878, Section 161, the comment is made:
"But suppose there is no surplus at all, and thus the second mortgagee has no security, as demonstrated by the results that actually attended foreclosure of the first lien. Then, he is nothing but a general creditor to the full extent of his debt. * * * If, then, his security is actually worthless, the second mortgagee's position is no different from that of a general creditor. Since these deficiency judgment laws do not operate as a restriction upon general debts, it follows that they do not govern the second mortgagee, who is nothing but a general creditor under the circumstances. * * * The second mortgagee should have judgment for the full amount of his debt. See Section 11663, General Code.
If the General Assembly by the passage of Section 11663-1, General Code, meant to protect debtors in the situation of the Carrs, the language selected fails to accomplish that purpose.
The statute in issue, being a special restriction of the general right to enforce contracts in the usual way, should not be so construed as to forbid an action not plainly prohibited by its provisions. In other words, the statute should not be extended and stretched by implication to preclude the assertion of a claim which in the absence of the statute would be enforceable.
In conclusion, we think the trust company has established the following propositions for which it contends:
1. That its cognovit judgment was rendered on an unsecured indebtedness.
2. That Section 11663-1, General Code, does not appertain to a judgment on an indebtedness which is unsecured at the time judgment is rendered.
3. That Section 11663-1, General Code, does not limit enforceability of a judgment for an indebtedness when such judgment is rendered after the property originally securing such indebtedness has become wholly unavailable by reason of its previous sale to satisfy a senior claim.
In interpreting this decision it is important to bear in mind the peculiar facts of the case. We are dealing here with the holder of a second mortgage, which, in a foreclosure action instituted by the holder of the first mortgage, asked for and obtained no more than a finding of the amount owed it on account of its second mortgage, that amount being payable entirely out of the proceeds derived from the sale of the mortgaged premises. However, the amount realized from such sale was not enough to give the second mortgagee anything, with the result that the security it had held was wiped out and the indebtedness owed it remained wholly unsatisfied. The second mortgagee was awarded nothing in the foreclosure action which can properly be designated as a judgment for money, and the later money judgment it obtained on its promissory note did not constitute an attempt to collect a "deficiency," because, as has already been pointed out, it got absolutely nothing out of the foreclosure proceeding and there was no "deficiency" as to it. Its position then became that of a general creditor to the full extent of the debt owed. Section 11663-1, General Code, in its wording, does not affect a situation of the kind described.
The judgment of the Court of Appeals is therefore reversed and final judgment rendered for the trust company.
Judgment reversed.
WEYGANDT, C.J., HART and STEWART, JJ., concur.
TURNER, MATTHIAS and SOHNGEN, JJ., dissent.
Although I concur in the view that the Court of Appeals was in error in holding that the finding entered in the foreclosure proceeding was a judgment as defined by Section 11582, General Code, I am of the opinion that the construction of Section 11663-1, General Code, adopted in the majority opinion results in so limiting the application of its provisions as to practically defeat the evident purpose of its enactment.
I fear that the approval of the procedure followed in this case will result in few instances wherein mortgage debtors will be protected by the statute, for mortgagees may foreclose their mortgages and postpone the taking of judgments indefinitely and thus evade the statutory limitation prescribed and thwart the manifest intent and purpose of the General Assembly, which clearly was that after the limited period prescribed, the foreclosure of a mortgage should terminate the indebtedness secured thereby.