Calvert Fire Ins. Co. v. Environs Development Corp.

• Decision Date: 30 August 1979
• Docket Number: Nos. 77-1505,77-1839,s. 77-1505
• Citation: 601 F.2d 851
• Parties: CALVERT FIRE INSURANCE COMPANY et al., Plaintiff-Appellee, v. ENVIRONS DEVELOPMENT CORPORATION et al., Defendants, Pringle Associated Mortgage Corporation, Defendant-Appellant. CALVERT FIRE INSURANCE COMPANY et al., Plaintiffs-Appellees, v. ENVIRONS DEVELOPMENT CORPORATION et al., Defendants, Pringle Associated Mortgage Corporation, Defendant-Appellant, O'Neal Construction Co., Movant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 851

601 F.2d 851

CALVERT FIRE INSURANCE COMPANY et al., Plaintiff-Appellee, v. ENVIRONS DEVELOPMENT CORPORATION et al., Defendants, Pringle Associated Mortgage Corporation, Defendant-Appellant.

CALVERT FIRE INSURANCE COMPANY et al., Plaintiffs-Appellees, v. ENVIRONS DEVELOPMENT CORPORATION et al., Defendants, Pringle Associated Mortgage Corporation, Defendant-Appellant, O'Neal Construction Co., Movant-Appellant.

Nos. 77-1505, 77-1839.

United States Court of Appeals Fifth Circuit.

Aug. 30, 1979.

Charles E. Watkins, Jr., F. Carlton King, Jr., Atlanta, Ga., for pringle.

Andrew Robert Greene, Edward L. Savell, Atlanta, Ga., for Calvert Fire Ins. Co.

Robert J. Abrams, Atlanta, Ga., for Lexington.

Raymond A. Cunningham, Brian W. Wertheim, Decatur, Ga., for intervenor O'Neal Construction Co.

Appeals from the United States District Court for the Northern District of Georgia.

Before AINSWORTH and VANCE, Circuit Judges, and BOOTLE, District Judge. ^*

BOOTLE, District Judge:

There are two appellants presenting unrelated legal issues. Pringle Associated Mortgage Corporation appeals from the district court's grant of summary judgment against its claim to proceeds payable under a fire insurance policy. O'Neal Construction Company appeals from the district court's denial of its motion to intervene pursuant to Fed.R.Civ.P. 24. We conclude that the district court erred in granting summary judgment against Pringle and that O'Neal should have been permitted to intervene. We, therefore, reverse.

I. Pringle's Appeal

In 1972 Pringle Associated Mortgage Corporation (Pringle) loaned $2,000,000 to Lexington Developers, Inc. (Lexington) to fund the construction of sixteen two-story condominiums in Albany, Dougherty County, Georgia. Pringle secured the loan by accepting a security deed on the property from Lexington. Lexington procured insurance on the property from Calvert Fire Insurance Company (Calvert) and, as required by the provisions of the security deed, named Pringle as loss-payee under the policy's New York Standard Mortgage Clause. On August 8, 1974 a fire, of allegedly suspicious origin, destroyed one partially completed building and damaged others. The policy issued by Calvert was in force and covered the interests of both Lexington and Pringle with respect to this fire loss.

In October 1974, Pringle declared Lexington's note in default and foreclosed. By letter dated October 24, 1974, Pringle gave notice to Lexington requiring payment within ten days to avoid an additional assessment of 12% attorney's fees. No payment being made, Pringle sold the property at public auction on November 5, 1974 pursuant to a power in the security deed. Pringle bought the property with a bid in the amount of $1,950,020.80 covering all principal and accrued interest but not covering the $234,000 attorney's fees allegedly due under the contract. Pringle did not seek judicial confirmation of this sale as provided by Georgia Code Ann. § 67-1503. ¹

After the fire and before foreclosure, Pringle began negotiating with Calvert concerning this fire loss. Around October 1, 1974, Pringle learned that Lexington had not filed proof of loss as required under the policy. Pringle subsequently filed its own proof of loss as it was entitled to do under the policy. Pringle and Calvert continued negotiations until early in 1975 when a tentative agreement was reached. At this point Lexington finally reared its head by filing a much belated proof of loss. As a result Calvert refused to pay anyone and sought to settle the matter in court. This suit was filed by Calvert as a declaratory judgment action against Pringle, Lexington, and various creditors of Lexington who had sought access to the insurance proceeds.

Pringle answered Calvert's complaint by asserting a counterclaim for the insurance and by cross-claiming against Lexington. Lexington responded with a motion for summary judgment which asserted that Pringle's cross-claim and counterclaim were in substance actions for a deficiency judgment against Lexington and thus barred by § 67-1503. The district court agreed and granted Lexington's motion.

The district court's ruling might be a plausible liberal construction of § 67-1503 but it does not represent the view which the Georgia courts are likely to accept. Section 67-1503 states that "no action may be taken to obtain a deficiency judgment unless the person instituting the foreclosure proceedings shall, within 30 days after the 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." Section 67-1503 is in derogation of the common law and thus is construed strictly by the Georgia courts. First National Bank & Trust Co. v. Kunes, 128 Ga.App. 565, 197 S.E.2d 446 (1973). The purpose of the statute is, as the district court stated, to protect debtors from the burden of double payment where a foreclosure sale brings an unreasonably low price and thus results in a deficiency. First National Bank & Trust Co. v. Kunes, supra.

The Georgia courts have refused to ignore key statutory language which prohibits only an "action . . . to obtain a deficiency judgment . . . ." As a result two important principles have been established by the Georgia case law. The first is that § 67-1503 does not operate to extinguish a debt; it just limits the creditor's remedies. Powers v. Wren,198 Ga. 316, 31 S.E.2d 713 (1944); Turpin v. North American Acceptance Corp., 119 Ga.App. 212, 166 S.E.2d 588 (1969); Marler v. Rockmart Bank,146 Ga.App. 548, 246 S.E.2d 731 (1978). And the second is that failure to have a sale confirmed does not prevent a creditor from pursuing other contractual security on the debt. Salter v. Bank of Commerce, 189 Ga. 328, 6 S.E.2d 290 (1939); Marler v. Rockmart Bank, supra.

In Salter, the creditor foreclosed on a second tract of land after an unconfirmed foreclosure sale of another tract left a deficiency. The court said:

The inhibitive words "no action may be taken to obtain a deficiency judgment," considered with the context, refers to an "action" or suit in a court against a debtor for a deficiency "judgment," . . . . 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."

Salter v. Bank of Commerce, 189 Ga. at 331-32, 6 S.E.2d at 293. (Emphasis in the original).

The supreme court characterized the second sale under power as simply a contractual remedy affecting only the property conveyed in the deed and not as a deficiency judgment, prohibited by § 67-1503, which creates an original general lien against all of the debtor's property.

In Marler, the Georgia Court of Appeals adhered to the principles announced in Salter even though the previous foreclosure had been the subject of a confirmation proceeding in which the superior court refused to confirm the sale. The debtor had executed three security deeds to the creditor, each conveying a separate parcel of land as security for a separate promissory note. Upon default, the creditor foreclosed on all three properties. The first property sold at a substantial surplus over the note which it secured. The second sold at a substantial deficiency and a superior court refused to confirm this sale. The third tract sold for a small deficiency and no confirmation was sought. After being denied confirmation on the second sale the creditor sought to apply the surplus received from the first sale to the deficiencies on the second and third sales pursuant to open-end clauses in all three security deeds. The court of appeals said:

The bank had (a) contractual right to apply any monies belonging to plaintiff coming into its possession to any existing indebtedness of the plaintiff to the bank. Because (the) foreclosure of a security deed did not extinguish the debt on that parcel of property, but had the effect only of foreclosing the right to sue for a deficiency judgment, the sale of Land B and Land C for amounts less than that owed left the remaining amounts due on the note. The bank had the contractual right to apply the excess money from the sale of Land A to the deficiencies in the promissory notes on Land B and Land C.

Marler v. Rockmart Bank, 146 Ga.App. at 550-51, 246 S.E.2d at 734.

Although no Georgia court has yet faced a creditor's claim to insurance proceeds as loss-payee following an unconfirmed foreclosure sale, this court is satisfied that Pringle's status as loss-payee gives it no less a separate contractual remedy than would an additional security deed on other property. Under Salter and Marler, we conclude that § 67-1503 does not bar Pringle's claim to the insurance proceeds.

The next inquiry is whether Pringle's claim to the insurance proceeds must fail for any other reason. Pringle has argued that it is proceeding on a separate and distinct contractual relationship between itself and Calvert. It wishes to prove that it is entitled to all of the proceeds by showing that the property was actually worth less than the amount bid at the foreclosure sale. Pringle argues that it is not bound by its bid as against Calvert though it would be in an action against Lexington. Alternatively, Pringle argues that the $234,000 attorney's fees are due as a part of the loan principal. At least this amount is unpaid and thus Pringle asks for insurance proceeds to that extent.

The problem with Pringle's arguments is that the real underlying dispute in this case is who should receive the insurance proceeds, Pringle or Lexington. Pringle is bound by its bid. Nationwide Financial Corp. v. Banks,147 Ga.App. 73, 248 S.E.2d 54 (1978); Whitestone Savings & Loan Ass'n v. Allstate Insurance Co., 28 N.Y.2d 332, 321 N.Y.S.2d 862, 270 N.E.2d 694 (1971); Campagna v. Underwriters at Lloyd's London, 549 S.W.2d 17 (Tex.Civ.App.1977). Pringle cites as authority for its position, ...