Carolina Commercial Bank v. Allendale Furniture Co., Inc.
| Decision Date | 06 February 1984 |
| Docket Number | No. 0059,0059 |
| Citation | 312 S.E.2d 569,280 S.C. 247 |
| Court | South Carolina Court of Appeals |
| Parties | CAROLINA COMMERCIAL BANK, Respondent, v. ALLENDALE FURNITURE COMPANY, INC., Bankers Trust of South Carolina, and WSCS, Inc., Defendants, of whom Allendale Furniture Company, Inc., is Appellant. |
Steven M. Anastasion, of Callison, Tighe & Rush, Columbia, for appellant.
Thomas O. Lawton, Jr., Allendale, for respondent.
This is an action for foreclosure of a mortgage on real property brought by Carolina Commercial Bank, the mortgagee, against Allendale Furniture, Inc., the mortgagor, and two other defendants, a junior mortgagee and a judgment creditor. The case was tried before a Master who recommended foreclosure. The circuit court concurred and ordered the mortgage foreclosed.
The principal issues on appeal are (1) whether a mortgagee can invoke an acceleration clause without notifying the mortgagor of its intent to change a long-standing practice of accepting late payments, and (2) whether the mortgagee herein exercised its option to accelerate the note prior to receiving a late payment from the mortgagor. We hold that while the mortgagee was not estopped from invoking the acceleration clause of its note, its failure to do so prior to receipt of the one payment that cured the default prohibited its acceleration of the note. We therefore reverse.
On April 26, 1974, Allendale Furniture executed its note and mortgage in favor of Carolina Commercial Bank in the principal amount of $75,000.00, payable in one hundred twenty equal, consecutive, monthly installments of $919.99, the first payment being due on June 1, 1974. The mortgage encumbers certain real property in Allendale County as well as other property in Barnwell County.
The monthly payments under the note and mortgage were made on or near the first of the month from 1974 through September, 1976. From September, 1976 until February, 1980 however, payments on the mortgage were sporadic, some being made in the month in which they were due, but later than the payment date and sometimes running from as little as eight (8) days to several months late.
Despite the timing of these payments, the Bank never refused a late payment until February 22, 1980. It also never demanded payment of any delinquency charges prior to the institution of this action.
The monthly payment for February, 1980 was received from Allendale Furniture by the Bank on February 22, 1980. The latter returned the payment to Allendale Furniture with a letter informing it that the Bank's attorney would be "in touch." According to the Bank it placed the note and mortgage in the hands of its attorney with instructions to foreclose on February 14, 1980. On March 10, 1980, Allendale Furniture was served with the summons and complaint in this action. Between February 1, and March 10, no notice was given to Allendale Furniture of the Bank's intention to accelerate the maturity of the indebtedness.
By letter dated March 10, 1980, Allendale Furniture again tendered the February payment along with the March payment, but these were returned to it by the Bank on March 31, 1980.
The initial question for consideration is whether the Bank is estopped from exercising its option to accelerate by virtue of its established practice of accepting late payments. The loan note provided, inter alia:
(a) If default be made in the performance of or compliance with any of the covenants and conditions of this note or of the mortgage or any other instrument securing this note, then in any of said events, said principal sum with all accrued interest thereon shall become at once due and payable at the option of the holder hereof without further notice. [Emphasis added].
(b) Failure to exercise this option [default in payment or a breach of any covenant or condition] shall not constitute a waiver of the right to exercise the option in the event of any subsequent default. [Emphasis added].
The master found that from sometime in 1978 through December 1979 the bank records indicated some 26 telephone calls and eleven (11) letters to Allendale Furniture regarding the status of the loan. Allendale's president admitted to receiving some of these letters and telephone calls. It is apparent that Allendale Furniture was on notice that the Bank was less than satisfied with the manner in which payments were being made.
We find the doctrine of equitable estoppel to be inapplicable to the facts of this case. The essence of equitable estoppel is that the party entitled to invoke the principle was misled to his injury. The essential elements are: "(1) lack of knowledge and of the means of knowledge of the truth as to the facts in question; (2) reliance upon the conduct of the party estopped, and (3) action based thereon of such a character as to change [one's] position prejudicially." South Carolina State Highway Department v. Metts, 270 S.C. 73, 240 S.E.2d 816 (1978).
There is a lack of evidence that Allendale relied on the representations, acts or silence of the Bank or was misled in any way to change its position by reason of such. We therefore find that the Bank has neither waived, nor is it estopped from exercising its right to foreclose.
Aside from the question of waiver and estoppel, there still remains the question of whether the Bank in fact exercised its option to accelerate the balance due prior to the receipt of the February payment.
Generally, a tender of arrears due on a mortgage note containing an acceleration clause will prevent foreclosure if made before the mortgagee has exercised its option to declare the entire amount of the debt due. Florance v. Friedlander, 209 Va. 520, 165 S.E.2d 388 (1969); Hiller v. Prosper Tex, Inc., 437 S.W.2d 412 (Tex.Civ.1969); River Holding Co. v. Nickel, 62 So.2d 702 (Fla.1952); Lee v. O'Quinn, 184 Ga. 44, 190 S.E. 564 (1937); Clark v. Paddock, 24 Idaho 142, 132 P. 795 (1913); Lee v. Security Bank and Trust Co., 124 Tenn. 582, 139 S.W. 690 (1911); Gunby v. Ingram, 57 Wash. 97, 106 P. 495 (1910); 59 C.J.S. Mortgages Section 495(6)(b); 55 Am.Jur.2d Mortgages Section 389; 11 Am.Jur.2d Bills and Notes Section 296; Annot., 41 A.L.R. 732. The basis of this rule is that after a tender, there is no longer any default which is the prerequisite of the right to exercise the option.
It is well settled that a provision in a note accelerating the maturity on nonpayment of installments at the option of the holder, requires some affirmative, unequivocal act on the part of the holder, calculated to effectively apprise the maker of his election to take advantage of the accelerating provisions, and until such action has been taken the provision has no operation. In other words, some positive action on the part of the holder is an essential condition of the exercise of the option, and an intention to declare the full amount due is not sufficient. Florance v. Friedlander, supra; Hiller v. Prosper Tex, supra; 59 C.J.S. Mortgages Section 495(5)(b); 55 Am.Jur.2d Mortgages Section 386; 11 Am.Jur.2d Bills and Notes Section 296; Annot., 5 A.L.R.2d 968.
Relying on Dargan v. Metropolitan Properties, Inc., 243 S.C. 324, 133 S.E.2d 821 (1963), the Bank contends the law of South Carolina provides that Allendale Furniture's tender of the arrears due after the Bank had placed the note and mortgage with its attorney for foreclosure could not prevent foreclosure. The Bank argues that turning the file over to its attorney constituted the affirmative act necessary to evidence its exercise of the option to accelerate the loan. We find Dargan factually distinguishable.
In Dargan, the mortgagor tendered only a part of the amount in arrears after the mortgagee placed the note and mortgage in the hands of its attorney for foreclosure. The Court held that the partial tender 1 did not cure the default. Thus, the mortgagee had the legal right, without further notice or demand, to declare the entire balance due and commence the foreclosure action.
Allendale Furniture, in contrast, tendered funds sufficient to completely cure its default on February 22nd. Implicit in the Dargan holding is the conclusion that had the mortgagor tendered the entire arrearages, as here, the mortgagee's right to foreclosure would have been nullified.
It is undisputed that the only affirmative act taken by the Bank to accelerate the balance due on its note prior to receipt of Allendale's February payment was to turn the file over to its attorney to commence foreclosure. 2 In Dargan, the mortgagee placed its note into its attorney's hands prior to receipt of the partial tender. Yet, the court implicitly found that a full tender of all arrears to the mortgagee prior to any action being taken by the mortgagee's attorney to accelerate would have nullified the mortgagee's right to foreclose.
Since the attorney was the agent of the Bank and not the mortgagor, the Bank's action in placing its note with him was not sufficient to constitute an effective exercise of the option. See Stalder v. Riverside Groves & Water Co., 167 Cal. 560, 140 P. 252 (1913). Cf. Dargan v. Metropolitan Properties, Inc. supra; Cf. American Jet Leasing v. Flight America, Inc., 537 F.Supp. 745 (W.D.Va.1982).
Neither does the provision in the note accelerating the balance due upon default "without further notice" eliminate the requirement that the Bank affirmatively act to exercise its option prior to Allendale Furniture's tender of the amount in arrears. The lower court erred in finding that this provision justified the Bank's return of the check tendered and its commencement of these proceedings.
The distinction between an option to accelerate without notice and an election to accelerate is set out in Hiller v. Prosper Tex, Inc., 437 S.W.2d 412, 415 (Tex.Civ.1969):
Although the note specifically provides for optional acceleration without notice, the maturity date of such a note is not in fact accelerated until the holder does so treat it. The...
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