Bank of Ephraim v. Davis , 1978 Utah LEXIS 1346 ( 1978 )

MAUGHAN, Justice:

Defendant Davis appeals an order denying his motion to quash a writ of attachment. Plaintiff Bank, as defendant’s mortgagee, had the writ issued to attach certain personalty of Davis’. The writ was issued prior to the foreclosure sale of realty belonging to defendant. It was subject, as security, to the terms of the bank’s mortgage. The writ also suffered from other infirmities intrinsic to it, which are treated hereafter.

We reverse and remand with instructions to quash the writ. Costs to defendant Davis. All statutory references are to U.C.A., 1953, unless otherwise noted. All Rule references are to U.R.C.P., unless otherwise noted.

First, attachment is not appropriate where a debt is secured, since a mortgagee is compelled to exhaust his security before he can reach the general assets of his debt- or. This court has consistently held since Salt Lake Valley Loan & Trust Company v. Millspaugh¹ that under the single action statute, 78-37-1, there can be but one action for the recovery of any debt secured by a mortgage. Thus the security must be exhausted as to quantity and value, before resort to other property of the debtor can be had, for the payment of the debt.

In Zion’s Savings Bank & Trust Co. v. Rouse,² this Court explained the mortgaged property constituted a primary fund or thing, to which the mortgagee must first resort for the discharge of the debt, and until that fund has been exhausted the mortgagee has no personal right of action against the mortgagor, unless the latter consents thereto. The courts can impose personal liability on the mortgagor only after having ordered sale of the property; and, if after sale, a deficiency appears. There was a legislative intent a writ of attachment would not issue if the obligation were secured by a mortgage or lien upon property.³ The status of a mortgage debt under 78-87-1 is somewhat analogous to one not yet due or one which lacks mutuality. Although the debt is past due, the creditor is not yet in a position to obtain personal judgment against the debtor, or to proceed to satisfy the debt out of the debt- or’s assets other than the mortgaged property.

. Until the fund set up as security for the debt is exhausted and the deficiency, if any, is ascertained, the debts are on a different footing. They are not mutual personal obligations which may be set off against each other and compensated pro tanto.⁴

A proceeding to foreclose a mortgage is not an action “upon any contract express or implied,” i. e., the type of action upon which an attachment may issue under Rule 64C(a). The underlying purpose of the single-action statute is to preclude the creditor from waiving the security and suing directly on the contract to pay money and hold the debtor rather than the security primarily liable.

Additionally, the purpose of the statute prohibiting an attachment where the indebtedness was already secured is to prevent a secured creditor from attaching additional property and thus tying up more of the debtor’s property than was necessary to secure the indebtedness. . .⁵

The Idaho statute interpreted here carries the same proscription as our Rule 64C.

The impropriety of the ancillary proceeding of attachment in the instant case is best illustrated by the Writ of Attachment and the Affidavit for Writ of Attachment. The writ recites the action was commenced by plaintiff to recover from the defendant the sum of $59,996.96 with interest and costs of court. The writ requires attachment of all property of defendant located at Hal’s Palace Cafe, not exempt from execution, or so much as may be sufficient to satisfy plaintiff’s demand; unless defendant gives security in a sufficient amount to satisfy plaintiff’s demand. The affidavit of plaintiff, by its President, states the amount of plaintiff’s judgment is in the sum of $59,-996.96, and only a portion of that is entitled to a first lien on the property. With other debtors, there are judgments in excess of $85,957.54. The total judgments are greater than the sums which can reasonably be expected at Sheriff’s Sale and a deficiency judgment in favor of plaintiff will result.

The affiant further claimed, upon information and belief, defendant was about to remove the property in an attempt to avoid creditors; and unless the writ issued irrepa-rabie damage would result to plaintiff. Af-fiant stated the attachment was not sought to hinder, delay, or defraud any creditor of defendant; and payment of the indebtedness, as it related to the deficiency judgment, had not been secured by a mortgage lien upon real or personal property, situated in Utah. Affiant further stated the security, which plaintiff had upon real property, had become impaired, without any act of plaintiff; and would not cover the full amount of any judgments against it.

At the time the writ was issued, defendant was not personally liable to plaintiff for any sum and certainly not for $59,996.96, since the indebtedness was secured by a mortgage. The writ requires attachment of sufficient property to satisfy this sum unless defendant gives security in this amount. The effect of the writ is to give plaintiff double security. Plaintiff may not have recourse to defendant’s general assets until the security is exhausted, and a deficiency judgment has been entered against him. After the deficiency judgment is entered, the creditor must proceed by execution. See 78-37-2 and Rule 69(a). By utilizing an attachment, plaintiff has attempted to bring an action on the note, and at the same time to foreclose the security; contrary to both 78-37-1 and Rule 64C(a).

Rule 64C, was not intended to be utilized when the indebtedness is secured by a lien or a mortgage, upon real or personal property, situated in this state. First, the mortgaged property constitutes the primary fund to discharge the debt. Second, until the fund is exhausted, the mortgagor is not personally liable, the existence or amount of indebtedness is unknown and unliquidated, until after sale and a deficiency judgment has been entered. All of which is inconsistent with an attachment, which is permitted in proper cases for a sum certain any time after filing the complaint, Rule 640(a). Under Rule 640(f)(1), the defendant, to secure a discharge of the attachment, must furnish a bond, with sufficient sureties, in a sum of not less than double the amount claimed by plaintiff. The condition of such undertaking shall be, if plaintiff recovers judgment, defendant will pay the same, together with interest and all costs assessed against him; not exceeding the sum specified in the undertaking. The patent unfairness of this rule is obvious in a case where the defendant’s indebtedness is secured, and personal liability, if any, is unknown.

Affiant further stated the security had become impaired and would not cover the full amount of any judgments against it. Thus plaintiff sought to bring its case within the exception of Rule 64C(a) which permits an attachment where “if originally so secured, that such security has, without any act of the plaintiff or the person to whom the security was given, become impaired; . . . .”

In Paramount Insurance, Inc. v. Rayson & Smitley,⁶ the court interpreted a similar provision in N.R.S. 31.010: “ . . become valueless or insufficient in value to secure the sum due the plaintiff. . . . ” The court stated:

The affidavit by counsel for Paramount, upon which the attachment was issued, stated only the sum by which the affiant believed the indebtedness exceeded the value of the security. It is a conclusory affidavit which affords no basis for a court to conclude that the security has in fact diminished in value from what it had when accepted by plaintiff as security, and, as directed by N.R.S. 31.-010, has ‘become valueless or insufficient in value to secure the sum due the plaintiff.’ See Barbieri v. Ramelli, 84 Cal. 154, 23 P. 1086 (1890). We hold that an affidavit seeking issuance of a writ of attachment in a judicial foreclosure proceeding must not be merely conclusory and must contain an opinion of value by a witness qualified - to express such an opinion. Furthermore, the affidavit must show that the security has decreased in value from the time the security interest attached. The affidavit relied upon in this case does not meet that test. .

In Barbieri v. Ramelli,⁷ which incidentally was the authority for this Court in the Millspaugh case, note 1 supra, the court interpreted section 537, Code Civil Pro., which is similar to our Rule 64C(a). The court stated:

. Section 537 refers to a case where the security has changed in the value it had when originally taken, and has so depreciated as to become of no value. It has no reference to a case where there has been no change in value. Having elected to take the security at the value it possessed when the mortgage was originally executed, no change in value having since occurred, he cannot be allowed to urge, to evade a compliance with the provisions of section 726, [California’s single-action statute] that it has become valueless. .

Plaintiff’s affidavit was inadequate to invoke the exception under Rule 64C(a), since it did not set forth any facts indicating the value of the security had decreased or been impaired since the time its security interest attached. Plaintiff’s statement that the security was impaired, since it would not cover the full amount of any judgments against it, is not in accord with the meaning of the term “become impaired,” under Rule 64C(a). It was incumbent on plaintiff to set forth facts indicating the security had, in fact, diminished in value since the time, •it had been accepted by plaintiff as Security-

Defendant is correct in his contention he was denied procedural due process when his property was seized under a writ of attachment which was issued without prior notice, hearing, or court supervision.

Although Rule 64A was not in effect at the time the attachment was issued, the law in effect was that which is now reflected in Rule 64A. The obvious purpose of this amendment was to provide procedural due process as required by the United States Supreme Court in the issuance of prejudgment writs of replevin, attachment, and garnishment.

In North Georgia Finishing, Inc. v. Di-Chem, Inc.⁸ the Supreme Court reiterated its holding in Fuentes v. Shevin,⁹ viz., any significant taking of property by the State is within the purview of the- Due Process Clause. The Court ruled a Georgia statute violated the Fourteenth Amendment, where an official seizure deprived a debtor of a significant property interest by a writ of garnishment issued by a court clerk; without notice or opportunity for an early hearing, and without participation of a judicial officer.

Rule 64C, without the modification provided in Rule 64A, has the same infirmities as the Georgia statute in the Di-Chem case. The writ is issuable on the affidavit of the creditor; the affidavit need contain only conclusory allegations; the writ is issuable by the court clerk without participation of the judge; and upon service of the writ the debtor is deprived of a significant property interest.

In the instant case, upon issuance and service of the writ of attachment, the defendant-debtor was deprived of a significant property interest. The constructive seizure by the sheriff, encumbered the property with the lien of the attachment and inhibited defendant’s right to dispose or encumber his assets.

Finally, defendant contends the failure of the sheriff to file an inventory, with the return of the writ of attachment, rendered the proceeding void.

Rule 640(h), provides:

The officer must return the writ of attachment to the court within twenty days after its receipt, together with a certificate of his proceedings endorsed thereon or attached thereto. Such certificate shall contain a full inventory of the property attached. To enable him to make such return as to the debts and credits attached he must request, at the time of service, the party owing the debts or having the credits to give him a memorandum stating the amount and description of each; and if such memorandum is refused, the officer must return the fact of refusal with the writ. [Emphasis supplied.]

Although there is authority to the contrary, the better ruling appears to be that a failure to file an inventory and return in compliance with mandatory statutory requirements renders the attachment proceeding void.¹⁰

The principle is illustrated in Dickinson v. First National Bank of Cody Wyoming,¹¹ wherein the court ruled an attachment proceeding is purely a statutory proceeding for the purpose of establishing a lien to aid in the collection of a debt, and the only way this lien can be established is by strictly following every provision of the statute. The court held that, under the law of North Dakota, it was necessary to make and file the inventory and return within twenty days from the time the property was seized; the failure to comply with this statute rendered the whole proceeding void.

As one of its sources of authority the court quoted Shinn on Attachment 231:

An inventory of the property seized is required by some statutes as one of the steps necessary to complete service and return of the writ, in which case there can be no lien acquired without such an inventory.

In the instant case there was a failure to comply with Rule 64C(h), thus plaintiff did not acquire a lien on the attached property.

For all of the foregoing reasons, the trial court erred by not quashing the writ of attachment.

WILKINS, J., concurs. HALL, J., concurs and adopts the concurring remarks of CROCKETT, J.

1 . 18 Utah 283, 54 P. 893 (1898).

2 . 86 Utah 574, 577-579, 47 P.2d 617 (1935).

3 . See Blue Creek Land & Livestock Co. v. Kehrer, 60 Utah 62, 66, 206 P. 287 (1922).

4 . At p. 579 of 86 Utah, at p. 619 of 47 P.2d.

5 . Blankenship v. Myers, 97 Idaho 356, 544 P.2d 314, 328 (1975).

6 . 86 Nev. 644, 472 P.2d 530, 534 (1970).

7 . 84 Cal. 154, 23 P. 1086, 1087 (1890).

8 . 419 U.S. 601, 606, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975).

9 . 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972).

10 . 6 Am.Jur.2d § 310, p. 778; 7 C.J.S. Attachment § 236, p. 409.

11 . 64 N.D. 273, 252 N.W. 54, 93 A.L.R. 739 (1933).