Big Valley, Inc. v. First Nat. Bank of Pulaski County

• Citation: 578 S.W.2d 616
• Decision Date: 08 March 1979
• Docket Number: No. 10600,10600
• Parties: BIG VALLEY, INC., and Lloyd E. Mitchell and Julia Mitchell, Plaintiffs-Appellants, v. FIRST NATIONAL BANK OF PULASKI COUNTY and Arthur B. Cohn, Defendants-Respondents.
• Court: Court of Appeal of Missouri (US)

Page 616

578 S.W.2d 616

BIG VALLEY, INC., and Lloyd E. Mitchell and Julia Mitchell, Plaintiffs-Appellants, v. FIRST NATIONAL BANK OF PULASKI COUNTY and Arthur B. Cohn,

Defendants-Respondents.

No. 10600.

Missouri Court of Appeals, Southern District, Division Two.

March 8, 1979.

Margaret Bush Wilson, Wilson, Smith, Wunderlich & Smith, St. Louis, for plaintiffs-appellants.

William C. Morgan, Waynesville, for defendants-respondents.

MAUS, Judge.

This is an action to enjoin a foreclosure under a power of sale in a deed of trust. The deed of trust was executed on February 2, 1970, to secure a note for $63,500.00 due on demand or 180 days. The petition was filed September 2, 1976, after publication of notice of the sale was commenced. As bases for the relief sought the amended petition in substance alleged: the plaintiffs were not in default; an agreement to accept installment payments; that a dispute existed between the parties concerning credits and the amount of the indebtedness. It was further alleged that among the credits not given to plaintiffs were the proceeds from four collateral transactions involving sums ranging from $5,000 to $22,500. The plaintiffs sought a restraining order, an interlocutory judgment for an accounting and a determination of the balance due, and a permanent injunction against foreclosure upon the basis of defendant bank's existing claims of default.

A restraining order was issued and the defendants ordered to show cause why a temporary injunction should not be granted restraining the foreclosure sale and directing the defendants to provide an accounting. On the day set for the show cause hearing the defendants filed a motion to dissolve the restraining order and an answer. On that day, the record shows that on the request of the parties "the matter is passed for resetting." The restraining order was continued upon an increased bond. Some four months later the case was called for hearing and both parties announced ready. There is now a dispute concerning whether this hearing was upon the order to show cause or upon the merits of the case. Nevertheless, the plaintiffs assumed the lead ¹ and presented five witnesses and a host of exhibits principally pertaining to the issue of credits. These exhibits included schedules of payments provided plaintiffs by defendant bank in August before the scheduled foreclosure in September and 242 receipts for payments. The defendants' only evidence was testimony pertaining to attorney fees. The matter was taken under advisement and five days later a judgment was entered dissolving the restraining order, awarding defendants $1,000 plus interest on the unpaid balance during the period of the restraining order and dismissing the petition. Plaintiffs appeal.

The unilateral, non-judicial exercise of a power of sale is a potent means for the enforcement of a security interest. It is capable of being used in an arbitrary and oppressive manner. On the other hand, it is a remedy agreed to by the parties to the security instrument. It is a recognized and useful device facilitating and lending stability to security transactions. The courts should interfere with the exercise of this remedy only under compelling circumstances, and then only upon such conditions that will protect the interests of the secured party.

A legitimate interest of the debtor is to know with reasonable certainty the amount of the indebtedness for which his property is to be sold. When there is a bona fide dispute as to a proportionately substantial amount of the indebtedness, a sale upon an excessive demand can be oppressive. For example, before the sale the debtor is entitled to pay the indebtedness and retain his property. If a substantially excessive sum is demanded, he may be unable to do so.

This does not mean that in every instance in which a debtor disputes the amount of the indebtedness he is entitled to a judicial determination of what is due before foreclosure. If the situation involves only a calculation of the application of payments to principal and interest, he may well be cast upon his own determination. But, circumstances may justify the stay of a sale until such a determination is made. "A sale under the power may be enjoined where it appears that the amount of the debt is unliquidated, uncertain, in dispute, or only capable of ascertainment on a detailed and complicated accounting; but, where the amount due, although in dispute, is capable of ascertainment, a temporary, rather than a permanent, injunction should be granted." 59 C.J.S. Mortgages § 552, p. 895.

The evidence in this case concerning the amount due is far from satisfactory. Neither side presented a comprehensive summary of the debits and credits alleged to be involved. It may well be plaintiffs, as they contend in this court, regarded the hearing as a hearing upon the show cause order with an accounting to follow. While the hearing on the merits may be advanced and consolidated with the hearing upon the show cause order upon agreement ² or notice, ³ the record before this court does not reflect the notice of the hearing in this case. For the proper procedure in this connection see Adams v. Adams, 294 S.W.2d 18 (Mo.1956); State ex rel. Eagleton v. Cameron, 384 S.W.2d 627 (Mo.1964); Bayer v. Associated Underwriters, Inc., 402 S.W.2d 11 (Mo.App.1966).

The determination of the balance of the indebtedness does involve a complicated accounting. This results from the following: the loan was a participation loan and two schedules of payments were maintained, with an initial entry of 50% Of the loan for each participating bank. Payments were often allocated, with no adherence to an established pattern, between the two schedules. Mitchells had the loan in question (No. 1527), and at least two other loans with defendant bank. Receipts issued by defendant bank, with no established pattern, contained the loan number in question one of the other loan numbers or more often no loan number at all. Further complications are involved because of the sales of portions of collateral which will be hereinafter mentioned.

There was evidence to lend some credence to plaintiffs' claim of excessive indebtedness as a bona fide dispute rather than such a claim being asserted for mere delay. From a cursory examination we are unable to correlate receipts bearing Loan No. 1527 totalling $600 with corresponding credits on the schedule of payments. On the other hand, we find many receipts bearing no loan number that correlate with credits on the schedule of payments. Mitchells' daughter correlated many receipts with other loans.

As stated, plaintiffs alleged four transactions in which their property was sold to third parties with the proceeds to be applied upon the loan in question. In their petition plaintiffs alleged two of these sales occurred in 1972. Before the hearing commenced, plaintiffs sought to amend the year in one instance to 1970 and the other to 1971. They were not permitted to do so and plaintiffs' tendered proof on those transactions was excluded as outside the scope of the pleadings. Since the total of credits upon the note is a principal issue, plaintiffs should be permitted to amend and show those transactions.

One of these transactions involved the sale of a tract of real property originally covered by the deed of trust in question. On January 29, 1971, this tract was sold for $11,000, paid in the form of a check for $7,500 and a trailer valued at...