Bridges v. United Sav. Ass'n

• Decision Date: 24 February 1969
• Docket Number: No. 5--4732,5--4732
• Citation: 246 Ark. 221,438 S.W.2d 303
• Parties: Shanon D. BRIDGES et al., Appellants, v. UNITED SAVINGS ASSOCIATION, Appellee.
• Court: Arkansas Supreme Court

Page 303

438 S.W.2d 303

246 Ark. 221

Shanon D. BRIDGES et al., Appellants, v. UNITED SAVINGS ASSOCIATION, Appellee.

No. 5--4732.

Supreme Court of Arkansas.

Feb. 24, 1969.

Rehearing Denied April 7, 1969.

Bethell, Stocks, Callaway & King, Ft. Smith, for appellant.

Bill B. Wiggins, Ft. Smith, for cross-appellant.

Warner, Warner, Ragon & Smith, Ft. Smith, for appellee.

JONES, Justice.

This is an appeal by Shanon D. Bridges and a cross-appeal by Sam Sexton, Jr., from a decree of the Sebastian County Chancery Court in which a joint and several deficiency judgment was awarded in favor of United Savings Association in a mortgage foreclosure against Bridges and Sexton. Bridges satisfied the judgment and was awarded judgment over against Sexton on a cross-complaint. The facts of record appear as follows:

On October 1, 1964, Bridges and a Mr. Wilson, together with their wives, borrowed $12,600.00 from United Savings Association of Fort Smith. The loan was evidenced by a promissory note bearing interest at six per cent and payable in equal monthly installments of $81.19 each. The note was secured by a mortgage on a new house and lot with an appraised value of $14,000.00. Bridges and Wilson placed $1,400.00 of the amount borrowed into savings accounts with United and pledged these accounts to United as collateral security for the loan until such time as the principal loan balance should be reduced to $10,500.00. This collateral security enabled Bridges and Wilson to borrow 90% of the appraised value of the house and lot rather than the customary 80% of appraised value.

On December 25, 1964, Sam Sexton, Jr. signed an offer to purchase the property for a purchase price of $12,900.00; $300.00 to be paid in cash and the loan to be assumed for the balance of $12,600.00. On January 8, 1965, Sam Sexton, Jr., did purchase the property from Bridges and Wilson. He paid $300.00 in cash and took title by warranty deed containing the following provisions:

'This conveyance made subject to a Mortgage in favor of United Savings Association of Fort Smith, Arkansas as recorded in Record Book 83, Page 519, filed October 9, 1964, for an original sum of $12,600.00, which there is an unpaid balance of $12,563.53, which the grantee herein assumes and agrees to pay.'

Also on January 8, 1965, Sexton signed a separate 'assumption of indebtedness' form, agreeing to make the payments on the mortgage indebtedness to United. After a few months Sexton defaulted in the payments to United resulting in the foreclosure action against Bridges, Wilson and Sexton. Bridges cross-complained seeking judgment over against Sexton for any judgment which United might recover against him and Sexton cross-complained against Bridges alleging that the sale to him was induced by fraud and that the collateral pledge should be applied first to any deficiency.

Wilson assigned his interest in the savings accounts to Bridges and the chancellor rendered a decree of foreclosure in favor of United for the full amount of the indebtedness and decreed that the real property be first sold and the proceeds applied on payment of the mortgage indebtedness; that the savings accounts pledged as security be next applied on the mortgage indebtedness with joint and several judgment against Bridges and Sexton for any deficiency. The chancellor also decreed judgment over in favor of Bridges against Sexton for any amount Bridges should be required to pay in excess of the proceeds from the sale of the real property and after application of the savings accounts under the collateral pledge.

Bridges purchased the property at foreclosure sale for $11,000.00 and after crediting this amount, together with the pledged savings accounts, to the mortgage indebtedness, attorney's fee and court costs, a deficiency judgment was decreed against Bridges and Sexton in the amount of $2,078.41. The final decree for deficiency judgment then recites:

'It further appearing to the court that the defendants, Shanon D. Bridges and Helen L. Bridges, have paid in full the above set out deficiency amount of $2,078.41 and are entitled to a judgment over against the defendant, Sam Sexton, Jr., for said amount, all in accordance with the foreclosure decree heretofore filed herein.

IT IS FURTHER CONSIDERED, ORDERED, ADJUDGED AND DECREED that defendants, Shanon D. Bridges and Helen L. Bridges, do have and recover of and from the defendant, Sam Sexton, Jr., the sum of $2,078.41, with interest thereon at the rate of 6% per annum from December 27, 1967.'

On direct appeal Bridges relies on the following points for reversal:

'The chancellor erred as a matter of law in failing to grant Shanon D. Bridges, et ux, judgment against Sam Sexton, Jr., for the amount of the Bridges savings deposits utilized to satisfy the obligation assumed by Mr. Sexton.

The findings of fact of the chancellor are sustained by the overwhelming weight of the evidence.'

On cross-appeal Sexton relies on the following points:

'The device employed by Bridges and United Savings to accomplish the sale of the property constituted 'constructive fraud.'

The remedy in a fraud action of this type is to off-set damages against a claim for purchase price.'

We are forced to the conclusion that the appellant is correct in his contention. There were actually two separate transactions involved in this case. The first transaction was between the Bridges and the Wilsons on one side and the United Savings on the other. The second transaction was between the Bridges and the Wilsons on one side and Sexton on the other. In the first transaction the Bridges and Wilsons gave a mortgage on their real property to secure the payment of a loan made to them by United. In addition to the mortgage on their real estate, they pledged their savings accounts to United as additional security for the loan.

In the second transaction Sexton purchased the mortgaged property from the Bridges and the Wilsons for the sum of $12,900.00. He paid $300.00 in cash and agreed to pay the balance of $12,600.00 by assumption of the mortgage indebtedness, payable in monthly installments of $81.19 each. Sexton only purchased the real property from the Bridges and the Wilsons. He did not purchase, nor does he claim any interest in, the savings accounts which the Bridges and the Wilsons pledged as additional security for their loan. Sexton gave no collateral security when he purchased the property, but only paid $300.00 cash and purchased the property subject to the real estate mortgage indebtedness of $12,600.00 which he agreed to pay. Assuming that the Bridges and the Wilsons had mortgaged their automobiles and furniture and their children had pledged their separate savings accounts as collateral security for their loan, such additional mortgages and pledges would not secure Sexton against a deficiency judgment on his own obligation under his separate contract, especially in the absence of fraud in its inducement.

We now come to Sexton's cross-appeal. We are of the opinion that the chancellor's finding, that the sale of the property to Sexton was not induced by fraud, is...