Continental Federal Sav. and Loan Ass'n v. Fetter

• Decision Date: 24 May 1977
• Docket Number: No. 48887,48887
• Citation: 564 P.2d 1013
• Parties: CONTINENTAL FEDERAL SAVINGS AND LOAN ASSOCIATION, a corporation, Appellant, v. Louis B. FETTER, Jr. and Billie C. Fetter, husband and wife, and Charles P. Liddell and Irma I. Liddell, husband and wife, Appellees.
• Court: Oklahoma Supreme Court

Page 1013

564 P.2d 1013

CONTINENTAL FEDERAL SAVINGS AND LOAN ASSOCIATION, a corporation, Appellant, v. Louis B. FETTER, Jr. and Billie C. Fetter, husband and wife and Charles P. Liddell and Irma I. Liddell husband and wife, Appellees.

No. 48887.

Supreme Court of Oklahoma.

May 24, 1977.

Spradling, Stagner, Alpern & Friot by John T. Spradling, Stephen P. Friot, T. Scott Spradling, Oklahoma City, for appellant.

Heiple Law Offices, Inc. by H. L. Heiple, Norman, for appellees.

McAfee, Taft, Mark, Bond, Rucks & Woodruff by Stewart W. Mark, Frank D. Hill, Rebecca O. Marshall, Oklahoma City, for Oklahoma Savings League, amicus curiae.

Elliott, Woodard & Rolston by Ted R. Elliott, Oklahoma City, for Local Federal Savings & Loan Ass'n.

Gable, Gotwals, Rubin, Fox, Johnson & Baker by G. Ellis Gable, Richard W. Gable, Tulsa, for State Federal Sav. and Loan Ass'n.

Morehead, Savage, O'Donnell, McNulty & Cleverdon by Jacob L. Morehead, Tulsa, for Mid-America Federal Sav. & Loan Ass'n Houston & Klein by Ed Jacoby, Tulsa, for Sooner Federal Sav. & Loan ass'n.

Northcutt, Northcutt, Ellifrit, Raley, Gardner & Northcutt by C. D. Northcutt, Ponca City, for Frontier Federal Sav. & Loan Ass'n.

Park, Nelson & Caywood by Robert B. Park, Chickasha, for First Federal Sav. & Loan Assn. of Chickasha.

Horsley, Epton & Culp by Dudley H. Culp, Wewoka, for First Federal Sav. & Loan Ass'n.

Berry, Murphy & Osborn by Everett E. Berry, Stillwater, for Stillwater Sav. & Loan Ass'n.

Fogg, Fogg & Howard by Rupert M. Fogg, El Reno, for El Reno Federal Sav. & Loan Ass'n.

Godlove, Joyner, Godlove, Garrett, Meyers & Davis, Inc. by Ernest F. Godlove, Lawton, for Home Sav. & Loan Ass'n.

Hemry & Hemry by Jerry L. Hemry, Oklahoma City, for Mut. Federal Sav. & Loan Ass'n.

HODGES, Chief Justice.

This is an appeal by Continental Federal Savings and Loan Association, appellant, (Continental Federal) from a judgment denying recovery on a note and foreclosure of a mortgage.

On August 8, 1972, appellees, Louis B. Fetter, Jr. and Billie C. Fetter, executed a promissory note in the amount of $30,400 with interest at the rate of 7 1/2% Per annum, payable to Continental Federal in monthly installments of $212.58, beginning on September 5, 1972. To secure payment of the note, the Fetters mortgaged certain real property in Cleveland County to Continental Federal. The mortgage, a standardized printed form prepared by Continental Federal, was delivered and properly filed of record in the office of the county clerk of Cleveland County.

Fetter called the Liddells to ask if they would like to purchase the Fetters' home on approximately October 17, 1973. Liddell called Continental Federal on October 22, 1973, for an assumption statement which was furnished. The assumption statement reflected a transfer fee of $300.76. Continental Federal had a general policy of requiring payment of a transfer fee before it granted consent to a transfer of property securing payment of Continental Federal's loan, although neither the note nor the mortgage required payment of a transfer fee as a condition precedent to granting consent. The usual policy was that the vendee paid one hundred dollars if the mortgage interest rate was equal to or greater than the prevailing interest rate or the greater of one hundred dollars or one percent of the unpaid loan balance if the mortgage rate was below the market rate or if the loan exceeded $10,000. On approximately the First of November, 1973, Liddell gave Fetter a check for $500 and Fetter signed and delivered a deed to the property to Liddell. The mortgaged premises were conveyed without payment or tender of the transfer fee and without the written consent of Continental Federal.

Liddell, through his attorney, wrote a letter to Continental Federal on November 13, 1973, tendering an assignment of trust funds signed by the Fetters and Liddells whereby the escrow accounts were transferred to the Liddells; a financial statement for Liddell; a loan assumption agreement apparently prepared by counsel for appellees specifically refusing to pay any transfer fee amounting to one percent of the unpaid balance of the loan; and a check payable to Continental Federal covering all outstanding payments and charges except the transfer fee. The Liddells also offered to furnish all documents and do all things necessary to afford reasonable assurances regarding payment of the note. This tender was refused by Continental Federal on November 19, 1973, and the appellees' attorney was advised that no further payments would be accepted until the transfer fee was paid and that foreclosure proceedings would be initiated.

On December 7, 1973, Continental Federal wrote Liddell and informed him of Continental Federal's election to accelerate the maturity of the note under paragraph seven of the mortgage, ¹ declared the full amount of the loan due and payable no later than December 17, 1973, and notified the Liddells if the loan remained unpaid, a foreclosure suit would be commenced. Continental Federal was notified December 13, 1973, that a savings account containing all amounts currently due had been established in the name of Liddell and Continental Federal and Liddell offered to pay a reasonable transfer fee. Liddell visited a representative of appellant, seeking a waiver or substantial reduction in the transfer fee on the basis that it was excessive and not related to the work involved in transferring the loan. Liddell did not object to Continental Federal's right to withhold consent to the transfer as long as the fee was reasonable when consent was given. The reduction was refused. At no time was any further information requested from Liddell and the refusal to transfer was apparently based solely on his refusal to pay the transfer fee. Continental Federal accelerated the mortgage indebtedness, and when payment was not made, it brought suit to foreclose the mortgage.

The appellees resisted the foreclosure action on the grounds that the transfer of the mortgaged property without the written consent of Continental Federal was not a proper basis for acceleration of the balance due on the note and foreclosure of the mortgage, and that Continental Federal was not entitled to require as consideration for its consent to the transfer payment of a fee equal to one percent of the outstanding loan balance where no provision for payment was contained in either the note or the mortgage. The deposition testimony of its president disclosed that the approximate cost to Continental Federal of all transactions necessary to accomplish the transfer was $100, and that the cost of transfer bore no relationship to the size of the loan.

After discovery, depositions stipulation as to facts, and consideration of briefs, the trial court found the transfer fee to be unreasonable and rendered summary judgment for appellees on Continental Federal's petition on July 31, 1975, ² denying foreclosure, denying judgment on the note, and granting appellees a $5,000 attorney fee. A timely motion for new trial was overruled on September 2, 1975, and this appeal was lodged on September 15, 1975.

The legal proposition for consideration on appeal is a case of first impression. It concerns whether appellant had the right to accelerate the mortgage and foreclose, based on the language contained in the mortgage because of failure of appellees to pay the transfer fee. Although Continental Federal argues that its authority to require the payment of a transfer fee was derived from an acceleration clause in the mortgage, neither the note or the mortgage contained a provision requiring payment of a transfer fee. It is argued by amicus curiae that the issue on appeal is the validity of the due on sale clause in the mortgage. However, the trial court found that the mortgage was a valid and enforceable instrument ³ and the validity of the acceleration clause was never challenged by the appellees. ⁴ Apart from the dispute as to Continental Federal's application of paragraph seven of the mortgage, ⁵ there is no dispute as to the validity of the mortgage.

Acceleration clauses are bargained-for elements of mortgages and notes to protect the mortgagee from risks connected with transfer of the mortgaged property. The underlying rationale for an acceleration clause is to insure that a responsible party is in possession, to protect the mortgagee from unanticipated risks, and to afford the lender the right to be assured of the safety of his security. ⁶ However, an action to accelerate and foreclose a mortgage is an equitable proceeding, and the equitable powers of the court will not be invoked to impose an extreme penalty on a mortgagor with no showing that he has violated the substance of the agreement. ⁷

There are no Oklahoma cases involving either due on sale or due on encumbrance clauses or payment of transfer fees pursuant to real estate mortgages. Ray v. Oklahoma Furniture Manufacturing Co., 170 Okl. 414, 40 P.2d 663 (1935) contains the following provision in the promissory note covering fixtures;

'This note shall at the option of the holder, become at once due and payable if any change takes place in the ownership of the business of the maker * * * or if any stock of goods or fixtures be damaged by fire, or if maker * * * or either of them become insolvent, or if I fail to pay any other indebtedness to the payee hereof at maturity, or if I be sued by any other creditor, or if a chattel mortgage be placed on his stock of goods or fixtures . . .'

This Court held the acceleration clause was for the protection of the plaintiff and was not void as being contrary to public policy or in restraint of trade. ⁸ It did state, however, that agreements restricting the sale of property must be reasonable to be valid. At page 665 the Court said:

'. . . The rule invalidating contracts in restraint of trade does not include every contract of an individual by which his right to dispose of his property is...