Salter v. Bank of Commerce

The act of the General Assembly of 1935 (Ga. L. 1935, p. 381) does not inhibit sale, under power conferred by security deed, of property other than property previously sold by the creditor-grantee in such deed, which other property failed to bring at the previous sale the amount of the debt for which it was conveyed as security. The statute cited being inapplicable, it can not be invoked by the debtor-grantor by way of suit to enjoin the creditor from selling such other property, on the alleged ground that the creditor had failed to comply with the statute by applying to the court for confirmation of the previous sale.

No. 12955. NOVEMBER 29, 1939. On January 12, 1931, E. J. Salter executed a deed conveying three described lots of land to the Bank of Commerce as security for an existing promissory note for $637.10. The deed was duly recorded. It contained the clause: "This conveyance is also made with the understanding and agreement that it shall operate as security for any and all renewals of indebtedness herein described, and shall also operate as security for any and all other indebtedness which the grantor herein may now owe or may hereafter owe to grantee, its successors, transferees, and assigns, before the surrender and cancellation of this deed by the grantee or its or their heirs, successors, or assigns." It contained a power of sale exercisable "upon default in the payment of said indebtedness, any renewal thereof, or any other indebtedness now due or which may hereafter become due by grantor." The note was renewed in September, 1933, by giving a new note for the sum of $786.33. Two other loans during the year 1934 were made, for which notes were given. Four other loans were made respectively in April, June, July, and December, 1935, for which notes were given. Each of these notes, except the two for the June and July loans, recites that it is executed "with the understanding and agreement that it is given for the purpose of renewing balance of loan secured with deed recorded in the office of the clerk, . . book No. 11, page 478, Jan. 12, 1931." Several other loans were made in 1936, for which notes were given, one of them dated March 24, for $263.45. This note was secured by a separate deed identical with the first security deed, except as to date, amount, and property, conveying land other than that conveyed by the deed executed in 1931. Under exercise of the power of sale in the security deed of 1931, the bank, at the October 1938, sale day, exposed to public sale the land described in that deed, and became the purchaser at a price less than the indebtedness evidenced by the first and subsequent notes secured by that deed. The amount of the price was applied to payment of taxes and costs of sale, and the balance to retirement of five of the outstanding notes (returned to the maker), and as a credit on one of the remaining notes, thus leaving a substantial deficiency. The bank did not within thirty days after the sale apply to the judge of the superior court for consummation of the sale as provided for under the act approved March 28, 1935 (Ga. L. 1935, p. 381), but nevertheless it proceeded under the power contained in the security deed of March 24, 1936, to advertise for sale in March, 1939, other land of Salter which was given in that deed, as security for the $263.45 note, reciting in the advertisement that the deed was given "to secure note of even date therewith for $263.45, as well as any and all other indebtedness due by grantor to grantee before the cancellation of deed."

On the day before the advertised date of sale, Salter presented his petition for injunction to prevent the sale, alleging substantially what is stated above, and the following: "While a portion of this indebtedness was created and said security deed of 1931, above referred to, to wit, Jan. 10, 1931, and which was prior to the passage of said act, and while the supreme court has held that said act of 1935, requiring the confirmation of sale made under power of sale in the security deed, in so far as it affected prior obligations, was unconstitutional and did not apply to said prior contracts, your petitioner shows and contends that by the terms of the security deed itself it secured any and all indebtedness that now or that may hereafter be made; that with the exception of an item of $754.43, which was a renewal of a note dated January, 1931, all of the indebtedness of petitioner, including the sum of $263.45 contracted for in May, 1936, were all obligations made, contracted, and assumed by your petitioner with said defendant on and after the passing of said act of 1935, and that by the terms of the additional contracts themselves said security deed was novated by special writing in said notes, so as to include said new loans and new contracts to the extent of approximately eighteen or nineteen hundred dollars and for the payment of said increased indebtedness which by contract in writing made, secured by said security deed dated January 19, 1931, and by so including said new indebtedness said security deed executed in 1931 by your petitioner was by operation of law brought within the terms of said act of 1935, and that accordingly said defendant, having sold the property of your petitioner to pay said indebtedness created of [after] March, 1935, was under obligation to make application to the judge of the superior court of Sumter County, where said land was sold, for a confirmation of said sale; and that [as] said defendant failed to make application within thirty days after said sale, as required by said act, as for the same unpaid balance of said indebtedness so concerned, as right of said defendant to proceed for the further collection of such unpaid balance said defendant is barred and foreclosed from so doing, as provided by the terms of said act of 1935. . . That while said act of 1935, regarding sales under power and confirmation of the same after sale where the property fails to bring the amount of the debt secured by such deed, provides, `No action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceedings shall, within thirty days after such sale, report the sale to the judge of the superior court,' etc., your petitioner contends and avers that a proper construction of said act not only precludes an action of a deficiency on said indebtedness, but it also applies to and precludes the exercise of the sale of other lands or property of the grantor in said security deed for any balance of indebtedness which was not paid by the proceeds of the sale under the first security deed, which sale failing to bring the amount of the indebtedness claimed was not confirmed by order of the judge of the superior court. That under the facts and circumstances herein alleged, and the provisions of the act of 1935 aforesaid, said defendant is proceeding illegally in its effort to sell your petitioner's land as advertised to be sold on March 7, 1939."

A restraining order was issued. At interlocutory hearing the bank filed a general demurrer, and an answer admitting the sale and application of the proceeds as alleged, and that no application was made to the judge of the superior court for confirmation of the sale. It was denied that the effect of the subsequent papers brought about novation of the security deed of 1931, so as to bring a sale thereunder within the terms of the act of 1935. It was alleged, that the reason for not applying for confirmation of the sale was that the security deed antedated the act of 1935; and that the part of the act of 1935 inhibiting deficiency judgments unless the person instituting foreclosure proceedings shall, within thirty days after sale, apply to the judge for confirmation, etc., is violative of article 1, section 3, paragraph 2, of the constitution of this State, inhibiting passage of any retroactive law or law impairing the obligation of contracts, and that it violates article 1, section 10, paragraph 1, of the constitution of the United States, that "no State shall pass any law impairing the obligations of contracts." At the interlocutory hearing the only evidence introduced was the affidavit of the president of the bank, supporting the matters of fact alleged in the answer. The judge denied an injunction, and dismissed the action. The plaintiff excepted. In section 1 of the act approved March 28, 1935 (Ga. L. 1935, p. 381), it is declared, "that from and after the passage of this act when any real estate is sold on foreclosure, without legal process, under powers contained in security deeds, mortgages or other lien contracts, and at such sale said real estate does not bring the amount of the debt secured by such deed, mortgage, or contract, no action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceedings shall, within thirty days after such sale, report the sale to the judge of the superior court of the county in which the land lies, for confirmation and approval, and obtains an order of confirmation and approval thereon. The court shall require evidence to show the true market value of the property sold under such powers, and shall not confirm the sale unless he is satisfied the property so sold brought its true market value on such foreclosure sale. The court shall direct notice of the hearing to be given the debtor at least five days prior thereto, and at the hearing the court shall also pass upon the legality of the notice, advertisement, and regularity of the sale. The court may, for good cause shown, order a resale of the property." The inhibitive words "no action may be taken to obtain a deficiency judgment," considered with the context, refer to "action" or suit in a court against a debtor for a deficiency "judgment," such as was the procedure in Guardian Life Insurance Co. v. Laird, 181 Ga. 416 (182 S.E. 617); Hunter v. Associated Mortgage Companies Inc.,183 Ga. 506 (188 S.E. 700). The words do not inhibit subsequent sale under power of property other than the property which at a former sale under power had failed to "bring the amount of the debt."

(a) Sale under power contained in a security deed is a contractual remedy (Atlantic Loan Co. v. Peterson, 181 Ga. 266,182 S.E. 15), which the parties have seen fit to provide, affecting only the property conveyed by the deed; whereas a deficiency judgment is by the court, and creates an original lien against all the property of the grantor.

(b) As the act does not inhibit sale, under a power contained in a security deed, of property other than property previously sold by the grantee, which failed to bring the amount of the debt, it is inapplicable, and can not be invoked as a bar by the grantor in a suit to enjoin the grantee from selling such other property under power of sale, where the ground of complaint is that after the previous sale of property the grantee failed, within the time required by the statute, to apply to the court for confirmation of the sale.

(c) The action in the instant case for injunction being predicated solely on the failure to comply with the statute as indicated above, and the statute being inapplicable to the case, the petition necessarily fails to state a cause of action.

(d) As the statute is inapplicable, whether or not it is constitutional, as contended by the plaintiff, is irrelevant.

(e) The judge in dismissing the action did not put his decision on the ground that the statute was inapplicable; but its applicability is at the foundation of any right of the plaintiff to the relief he seeks, and the judgment of dismissal can not be reversed, although the reason for refusal to apply the statute was its alleged unconstitutionality.

(f) The case of Atlantic Loan Co. v. Peterson, supra, was on its facts similar to the instant case, except that the note and security deed in question both antedated the act. The judge applied the act, and enjoined the proposed second sale under exercise of the power contained in the deed. On review the judgment was reversed on the ground that the statute was unconstitutional. The result of the decision was refusal to give effect to the statute. As relates to the instant case, that decision could be no more than a physical precedent for putting aside the question of inapplicability of the act and passing on its constitutionality. In the instant case the trial judge refused to apply the act; and the plaintiff, whose case depended upon its applicability, seeks to reverse the judgment. In view of this difference in the cases (putting aside the question of inapplicability of the act), the decision in the former case can not be accepted as a binding precedent. The judge did not err in dismissing the action on general demurrer.

Judgment affirmed. All the Justices concur.