Baker v. Gardner

• Decision Date: 20 December 1988
• Docket Number: No. CV-88-0104-PR,CV-88-0104-PR
• Citation: 160 Ariz. 98,770 P.2d 766
• Parties: , 57 USLW 2399 John P. BAKER and Deborah Mae Baker, husband and wife, Plaintiffs/Appellants, v. Gary GARDNER and Margaret Gardner, husband and wife, Defendants/Appellees.
• Court: Arizona Supreme Court

Page 766

770 P.2d 766

160 Ariz. 98, 57 USLW 2399

John P. BAKER and Deborah Mae Baker, husband and wife, Plaintiffs/Appellants, v. Gary GARDNER and Margaret Gardner, husband and wife, Defendants/Appellees.

No. CV-88-0104-PR.

Supreme Court of Arizona, In Banc.

Dec. 20, 1988.

Supplemental Opinion on Grant of

Reconsideration March 20, 1989.

[160 Ariz. 99] Norman Rosenblum, Scottsdale, for plaintiffs/appellants.

Oscar C. Rauch, Phoenix, for defendants/appellees.

Ryley, Carlock & Applewhite, P.A. by George Read Carlock, Abigail Carson Berger, Phoenix, for amici curiae Arizona Bankers' Ass'n and Sav. and Loan League of Arizona, The Arizona Bank, Citibank (Arizona), First Interstate Bank of Arizona, The Valley Nat. Bank.

Norling, Oeser & Williams by Steven H. Williams, Reinhard W. Fischer, Phoenix, for amici curiae Strom.

FELDMAN, Vice Chief Justice.

A promissory note evidencing the deferred balance of the purchase price of residential property was secured by a second deed of trust. We granted review to determine whether the note's holder may waive the security of the deed of trust and bring an action for the entire unpaid balance. We have jurisdiction under Ariz. Const. art. 6, § 5(3) and A.R.S. § 12-120.24.

FACTS

The Bakers sold the Gardners a single-family home for $131,000. Most of the purchase price was financed by an ICA Mortgage Corp. (ICA) loan, secured by a deed of trust. For the balance of the price, the Gardners gave the Bakers a promissory note for $17,500, secured by a second trust deed. The Gardners subsequently defaulted on both loans. ICA noticed a trustee's sale, as A.R.S. §§ 33-807 and 33-808 permit.

Before the sale, the Bakers brought this action to recover the unpaid balance of the promissory note. They did not exercise their rights under the second trust deed. Both the Bakers and the Gardners moved for summary judgment. The trial judge granted the Gardners' motion, holding that A.R.S. § 33-814(E) (the so-called "anti-deficiency" statute) precluded the action on the note.

The court of appeals reversed, reasoning that A.R.S. § 33-722 (providing for a creditor's election of remedies) permitted the action. Baker v. Gardner, No. 2 CA-CV 87-0282 (Ariz.Ct.App. Feb. 2, 1988) (memorandum decision). Consequently, the court held that a trust deed beneficiary/creditor can choose either to exercise his rights under the trust deed or waive the security and file an action for the unpaid balance of the note. Id. at 3. We granted review because the issue is of statewide importance and of first impression. See Rule 21, Ariz.R.Civ.App.P., 17B A.R.S.

ISSUE AND CONTENTIONS

We must decide whether the "anti-deficiency" statute, A.R.S. § 33-814(E), limits the trust deed beneficiary to selling the secured property to satisfy the debt or if A.R.S. § 33-722 allows the beneficiary to waive the security and bring an action for the unpaid balance of the promissory note.

The Bakers argue that A.R.S. § 33-722 allows them to waive the security and sue on the promissory note. The statute provides as follows:

If separate actions are brought on the debt and to foreclose the mortgage given to secure it, the plaintiff shall elect which to prosecute and the other shall be dismissed.

If correct, the Bakers could obtain a judgment against the Gardners for the loan's unpaid balance and collect that judgment by execution against all the Gardners' non-exempt property. See, e.g., A.R.S. § 14-2402. The Gardners counter that this interpretation of § 33-722 circumvents A.R.S. § 33-814(E), which specifically applies to trust deeds encumbering certain residential parcels. That statute reads:

E. If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee's power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses. ¹

The Gardners contend that where the property meets the criteria of § 33-814(E), that statute supersedes § 33-722. Any other interpretation, they argue, permits the beneficiary to collect the entire loan balance when § 33-814(E) limits the beneficiary to only the proceeds of the forced sale of the property.

DISCUSSION

A. The Court of Appeals' Decision

At first reading, the statutes conflict: if § 33-722 applies, the Bakers obtain a judgment for the balance of the debt, but if § 33-814(E) applies, the Bakers can only force the sale of the encumbered property and cannot recover any deficiency between the sale proceeds and the balance of the debt. The court of appeals resolved this conflict by relying on its holding in Southwest Savings & Loan Association v. Mason, 155 Ariz. 443, 747 P.2d 604 (Ct.App.1987), vacated, 156 Ariz. 210, 751 P.2d 526 (1988). ² Baker, memo. decision at 2.

Southwest Savings dealt with the conflict between A.R.S. §§ 33-722 and 33-729(A). Section 33-729(A) prohibits a deficiency judgment on foreclosure of purchase money mortgages encumbering property of two and one-half acres or less utilized for one-family or two-family residences. The court of appeals concluded that it should read the anti-deficiency and election statutes in pari materia

to give meaning to each.... Both sections can be given meaning by allowing an election but also by holding that once the mortgagee elects to bring an action on the note, he cannot thereafter attempt to attach the [mortgaged] property in order to satisfy that judgment on the note.

155 Ariz. at 445, 747 P.2d at 606. The appellate court's construction, in other words, effectively amends A.R.S. § 33-722 to read as follows:

If separate actions are brought on the debt and to foreclose the mortgage given to secure it, the plaintiff shall elect which to prosecute and the other shall be dismissed, however should the plaintiff elect to waive the mortgage, he shall not be allowed to later attach the property formerly subject to the mortgage in order to evade the provisions of A.R.S. § 33-729(A).

Id. (Howard, J., dissenting) (emphasis added). The majority provided no support for this construction, ³ but had to use it because otherwise the majority's reconciliation of the conflicting statutes would not only have circumvented the anti-deficiency statute, it would have repealed it.

In the present case, the majority of the court of appeals reasoned that Southwest Savings was "dispositive," so that the beneficiary of the trust deed, like the "mortgagee [in Southwest Savings ] could proceed at law to collect the debt, but could not look to the property given as trust deed security...." Baker, memo. decision at 3. Judge Howard, dissenting in both cases, believed that "A.R.S. § 33-722 is a general statute governing mortgages, but that

[160 Ariz. 101] A.R.S. § 33-729(A) is a specific statute governing [a special] type of mortgage." Southwest Savings, 155 Ariz. at 446, 747 P.2d at 607 (Howard, J., dissenting). Consequently, the "remedy provided by the [anti-deficiency] statute is exclusive." Id.; see also Baker, memo. decision at 3 (Howard, J., dissenting from court's analysis of § 33-814(E) on the same grounds). We agree with Judge Howard.

B. General Principles

Courts construe seemingly conflicting statutes in harmony when possible. State v. Perkins, 144 Ariz. 591, 594, 699 P.2d 364, 367 (1985), overruled on other grounds, State v. Noble, 152 Ariz. 284, 731 P.2d 1228 (1987). However, when two statutes truly conflict, either the more recent or more specific controls. E.g., Pima County v. Heinfeld, 134 Ariz. 133, 136, 654 P.2d 281, 284 (1982); State v. Davis, 119 Ariz. 529, 534, 582 P.2d 175, 180 (1978).

Under both principles, the anti-deficiency statute would prevail. The legislature adopted it in 1971, while the statute permitting the plaintiff to elect between separate actions comes from territorial days. See Civil Code § 3274 (1901). Further, the anti-deficiency statutes apply to a particular, limited group of mortgages and trust deeds--those encumbering parcels of two and one-half acres or less and used for single-family or two-family dwellings. Thus, they are more specific.

C. Legislative Objectives

Such general principles, however, help courts decide questions of statutory conflict only when legislative intent or objectives are unknown. Here, therefore, dealing with conflicting and ambiguous statutes, we must try to determine legislative intent or, at least, objectives and construe the statutes to further those objectives. See State v. Tramble, 144 Ariz. 48, 51, 695 P.2d 737, 740 (1985).

The legislature enacted both anti-deficiency statutes in 1971 with several other consumer-oriented laws. ⁴ 1971 Ariz.Sess. Laws ch. 182, § 3 and ch. 136, § 7. See generally Boyd & Balentine, Arizona's Consumer Legislation: Winning the Battle but ..., 14 ARIZ.L.REV. 627, 654 (1972). These statutes were to preclude "artificial deficiencies resulting from forced sales." Id.; see also A.R.S. § 33-814(A). More importantly, the statutes created the "direct benefit of ... the elimination of hardships resulting to consumers who, when purchasing a home, fail to realize the extent to which they are subjecting assets besides the home to legal process." Id.

The legislative history of A.R.S. § 33-729(A), which applies to mortgages, demonstrates the legislature's objective of protecting consumers from financial ruin. Section 33-729(A) was part of H.B. 330, enacted in 1971 "to protect the homeowners from deficiency judgments." Minutes of Meeting, Committee on Ways and Means, March 31, 1971, at 2 (emphasis added). We must assume the same purpose accounts for the contemporaneous statute applying to trust deeds that encumber similar residential property. Therefore, we read both anti-deficiency statutes--ss 33-729(A) and 33-814(E)--as evincing the legislature's desire to protect certain homeowners from the financial disaster of losing their homes to foreclosure...