Armstrong v. Csurilla, 19041

• Decision Date: 27 August 1991
• Docket Number: No. 19041,19041
• Citation: 817 P.2d 1221,112 N.M. 579,1991 NMSC 81
• Parties: Calvin W. ARMSTRONG and Dorothy M. Armstrong, Plaintiffs-Appellees, v. William P. CSURILLA, Josephine Csurilla and Victoria L. Lamkin, Defendants-Appellants.
• Court: New Mexico Supreme Court

Page 1221

817 P.2d 1221

112 N.M. 579

Calvin W. ARMSTRONG and Dorothy M. Armstrong, Plaintiffs-Appellees, v. William P. CSURILLA, Josephine Csurilla and Victoria L Lamkin, Defendants-Appellants.

No. 19041.

Supreme Court of New Mexico.

Aug. 27, 1991.

[112 N.M. 581] Michael Allison, Albuquerque, for defendants-appellants.

Thomas G. Fitch, Socorro, for plaintiffs-appellees.

OPINION

MONTGOMERY, Justice.

When property subject to a mortgage or other lien is sold in foreclosure proceedings, the buyer is usually the mortgagee or other lien creditor and the price for which the property is "bought in" is sometimes significantly less than the property's fair market value. This can result in considerable unfairness to the debtor, the owner of the property, who may wind up both losing the property (and any attendant equity) and becoming subject to an onerous deficiency judgment, while the creditor may realize a substantial profit on ultimate disposition of the property and collect the deficiency from the debtor's other assets, if any. This problem can lead to abuse, an abuse which has been well documented and the subject of various attempts at legislative or judicial correction or amelioration.¹

In this case the debtors, whose property became subject to a judgment lien after their default under two contracts by which they had purchased the property, attempt to invoke a New Mexico statute providing that the price at an execution sale shall be not less than two-thirds of the property's appraised value. They also seek to set aside the foreclosure sale by relying on the equitable doctrine that permits a court to invalidate a judicial sale when the price is so low as to "shock the conscience" of the court. We hold that the statute is inapplicable to foreclosure sales and that the debtors, having been afforded opportunities to protect themselves from the consequences of an inadequate price and to provide evidence that the price was inadequate, cannot now avail themselves of that equitable doctrine. We also consider issues relating to the trial court's jurisdiction to enter a foreclosure decree in a suit on a real estate contract, as well as issues concerning the substantiality of the evidence to support the court's findings of fact. We hold that the trial court did not err in the proceedings that led ultimately to confirmation of the sale of the debtors' property, and we affirm its judgment.

I.

The case has a simple factual history and a more complicated procedural one. The debtors, William and Josephine Csurilla, entered into two contracts to purchase the real property at issue from Calvin and Dorothy Armstrong on April 5, 1987. The contracts were more or less standard, long-term real estate contracts, prepared by the Csurillas' attorney. The two contracts covered adjacent parcels of land and improvements in Quemado, New Mexico. One covered a gasoline service station, with associated pumps, inventory, and a storage building (the "station contract"); the other covered an adjoining residential dwelling and garage-carport (the "house contract"). One well serves both the house and the service station; electrical, sewer and plumbing lines run through one property to the other; and the garage-carport and storage building share a common wall. The trial court found that the parties used two separate contracts for tax purposes and the convenience of the Csurillas and for no other reason.²

The purchase price under the station contract was $156,594, with $1,000 paid down and the balance payable in monthly installments of $1,122.31 commencing April 1, 1987.³ The station property included approximately $28,600 in inventory. The purchase price for the house property was $75,000, on which $1,000 was paid down, another $52,000 credited by virtue of an exchange of property owned by the Csurillas in Lake Havasu, Arizona, and the deferred balance of $22,000 payable $194.42 per month. Thus, the total purchase price for the two properties was $231,594, and the total monthly debt service was $1,316.73.

Three months after signing the contracts, the Csurillas defaulted under the station contract. They continued making payments on the house contract and did not relinquish possession of either property. They continued to operate the station for a few months but closed it in November 1987. Mr. Armstrong retook possession of the station in September 1988, when the court appointed him as receiver to protect the property. By that time, the property had deteriorated significantly in value; much of the inventory was depleted, and the station was in generally poor condition. It never reopened as a service station.

The Armstrongs took the position that each contract stood as security for the purchasers' obligations under the other and that they were entitled to repossess both properties. However, since the Csurillas refused to surrender the house, the Armstrongs commenced this action in December 1987, seeking a declaration that the house contract effectively cross-collateralized the station contract and that both contracts were in default. By their amended complaint, filed in March 1988, the Armstrongs sought a money judgment for the balance due under each contract, a declaration of cross-collateralization as just mentioned, and a decree of foreclosure with respect to the real estate subject to each contract. The Csurillas answered, and the case was set for trial on September 2, 1988. When the parties and witnesses appeared for trial, however, the Csurillas' attorney announced that he would probably have to testify on behalf of his clients, whereupon the court vacated the trial setting and conferred with counsel to determine what could be resolved by stipulation. Based upon the parties' agreement, the court entered a partial summary judgment in favor of the Armstrongs, awarding them a money judgment for the balance due on the station contract, declaring that the judgment would constitute a lien on the station property, entering a decree of foreclosure on this judgment lien, and directing that the property be sold at a judicial sale. All other issues raised by the pleadings--including whether the contracts collateralized each other, whether the Armstrongs were entitled to judgment for the balance due under the house contract, and whether the Armstrongs would be entitled to a deficiency judgment if the proceeds from the judicial sale did not equal the judgment awarded on the station contract--were reserved for future determination at trial. Immediately after entry of the partial summary judgment, the Armstrongs filed a transcript of the judgment with the county clerk.

The Csurillas obtained a new attorney, and the special master proceeded with the judicial sale, selling the station property to the Armstrongs for $75,000. Over the Csurillas' objections, the court confirmed the sale and entered a deficiency judgment against them for $99,913. The court made findings of fact in connection with its order of confirmation, noting that the fair market value of the station property was far less than the amount of the judgment, but that the Csurillas had not requested an appraisal nor provided evidence concerning value. The court certified its order as a final judgment under SCRA 1986, 1-054(C)(1); and the Csurillas appealed to this Court, asserting that the Armstrongs were not entitled to a deficiency judgment (because the issue had been reserved for trial) and that the sale should not have been confirmed because (a) the sale price was less than two-thirds of the property's value, contrary to NMSA 1978, Section 39-5-5, and (b) the sale price was so low in relation to the value of the property as to shock the conscience of the court.

While the appeal was pending, the case proceeded to trial on the remaining issues in the summer of 1989 before a new district judge. The court found generally in favor of the Armstrongs and entered a final judgment in November 1989, awarding the Armstrongs judgment of $21,088 on the house contract, declaring that the judgment was a first lien against the house property, ordering a judicial sale of that property, the proceeds of which were to be applied (after expenses of sale) to the amounts due the Armstrongs under both the judgment and the September 1988 partial summary judgment, and foreclosing the Csurillas' interest in the real estate. In its findings of fact, the court found that the two contracts in effect constituted a single agreement, that a default under one was a default under the other, and that there had been no misrepresentation or fraud on the part of the Armstrongs in negotiating the contracts with the Csurillas.

Meanwhile, the Csurillas obtained still another attorney. He negotiated with counsel for the Armstrongs and the parties entered into a stipulation, following which the Csurillas moved to dismiss the appeal. The Armstrongs did not respond to the motion. The stipulation provided that the station property and the house property should be resold at a new judicial sale and that the first judicial sale should be set aside "to the extent necessary" to accomplish the new sale. The stipulation also provided, "Defendant[s] may have the property appraised prior to Judicial Sale." We granted the motion to dismiss on the ground that the appeal was moot, observing that the previous foreclosure sale, which was being attacked on appeal, had been vacated by agreement and that the effect of this action necessarily was to abrogate the deficiency judgment, which had also been attacked on the appeal.⁴

The new judicial sale then took place in December 1989, with the Armstrongs buying in both properties for $90,000. As they had before, the Csurillas objected to confirmation of the sale, asserting that the property had been sold for less than two-thirds of its value as purportedly required by statute, that the court had no jurisdiction to order foreclosure in a suit for the balance due under a real estate...