Cooley v. Fredinburg

• Decision Date: 13 November 1996
• Docket Number: J-1
• Citation: 927 P.2d 124,144 Or.App. 410
• Parties: Marian C. COOLEY, Plaintiff, v. Robert Roger FREDINBURG, Appellant, Marion C. Cooley, as assignee of U.S. National Bank of Oregon, a national banking association; First Interstate Bank of Oregon, N.A.; L. Ken Casteel; John C. Preston and Patricia J. Preston, husband and wife; Timotheas John Horn and Normalee D. Horn, husband and wife; Tischhauser, Cooper & Co., a partnership; Frieda A. Kuttig; and Federal Deposit Insurance Corporation, in its corporate capacity as successor to Bear Creek Valley Bank, Defendants, and Hogue Investment Corporation, Respondent. 88-0971-; CA A89024.
• Court: Oregon Court of Appeals

Page 124

927 P.2d 124

144 Or.App. 410

Marian C. COOLEY, Plaintiff, v. Robert Roger FREDINBURG, Appellant Marion C. Cooley, as assignee of U.S. National Bank of Oregon, a national banking association; First Interstate Bank of Oregon, N.A.; L. Ken Casteel; John C. Preston and Patricia J. Preston, husband and wife; Timotheas John Horn and Normalee D. Horn, husband and wife; Tischhauser, Cooper & Co., a partnership; Frieda A. Kuttig; and Federal Deposit Insurance Corporation, in its corporate capacity as successor to Bear Creek Valley Bank, Defendants and Hogue Investment Corporation, Respondent.

88-0971-J-1; CA A89024.

Court of Appeals of Oregon.

Argued and Submitted July 22, 1996.

Decided Nov. 13, 1996.

Douglas J. Richmond, Medford, argued the cause for appellant. With him on the briefs were Kellington, Krack, Richmond & Blackhurst and Matthew Sutton.

Richard D. Adams, Grants Pass, argued the cause and filed the brief for respondent.

Before WARREN, P.J., and EDMONDS and ARMSTRONG, JJ.

EDMONDS, Judge.

Appellant Fredinburg appeals from a judgment dismissing his claim for restitution against respondent Hogue Investments (Hogue) and awarding judgment against him for $14,581, representing the surplus proceeds from a previous foreclosure sale of Fredinburg's property. We reverse.

Fredinburg is the owner of real property that was subject to several liens. The senior lienholder, Cooley, filed a complaint for foreclosure and joined as defendants all junior lienholders as well as Fredinburg. One of the junior lienholders was the Federal Deposit and Insurance Corporation (FDIC). Cooley's complaint requested foreclosure of all liens on the property and sought a judgment against Fredinburg for the amount owed to her. Cooley's complaint also requested that the court apply

"any proceeds of the sale * * * first toward the costs of sale, then toward satisfaction of plaintiff's judgment prayed for herein, and any surplus to the party or parties who may establish their right thereto." (Emphasis supplied.)

Except for FDIC and one other lienholder that had assigned its interest in the property to Cooley, all of the defendants, including Fredinburg, failed to appear, and the court entered orders of default against them. FDIC eventually entered into a stipulated judgment with Cooley that foreclosed all of the parties' liens. The stipulated judgment did not reduce to judgment the debt owed to FDIC. The judgment, however, provided:

"6. The proceeds of sale shall be applied (a) to the costs of sale; (b) then toward the satisfaction of plaintiff's judgment awarded in paragraph 1 above; (c) next toward the satisfaction of defendant's, Marian C. Cooley as assignee of U.S. National Bank of Oregon, judgment awarded in paragraph 3 above; and (d) the surplus, if any, to the Clerk of this Court to be disposed of by further order of this Court."

A third party bought the property at the foreclosure sale for more than was necessary to satisfy the judgment in favor of Cooley. As a result, the sheriff paid $14,581 as surplus proceeds to the clerk of the court. The clerk thereupon sent the surplus proceeds to Fredinburg. The trial court, upon learning of the clerk's action, sent a letter to Fredinburg demanding that Fredinburg return the money. Fredinburg did not respond to the court's letter or return the money.

FDIC thereafter moved for an order directing that the surplus proceeds be disbursed to it. It did not serve Fredinburg with the motion. By this time, Fredinburg had redeemed the property. Pursuant to the motion, the trial court ordered "that the Trial Court Administrator pay to the FDIC, or its assigns, the excess proceeds of Sheriff's sale in the sum of $14,581.40." It further ruled:

"6. On or about June, 1990, [Fredinburg] without seeking or obtaining approval or order of this Court, wrongfully obtained from the Trial Court Administrator payment to him of the $14,581.40 in excess proceeds of sale which should properly have been subject to further order of this Court; this Court has requested of Fredinburg the prompt return of these improperly obtained funds, which request has been refused.

"7. The FDIC has represented to the Court that it intends to exercise an existing right to further redeem the subject property on or about February 11, 1991, during the course of which it will deposit with the Trial Court Administrator the approximate sum of $87,350, which sum would ordinarily be disbursed as a matter of course to Fredinburg as the previous redemptioner of the property.

" * * * * *

"IT IS FURTHER ORDERED that the Trial Court Administrator, in the event of a further redemption of the subject property, shall recover from any future redemption funds received which would otherwise be payable [to] [Fredinburg] the sum of $14,581.40, as a recovery of the excess proceeds from the original Sheriff's sale of June 14, 1990, which were previously inadvertently paid to Mr. Fredinburg without authority. That sum shall then be paid by the Trial Court Administrator to the FDIC or its assigns in accordance herewith."

Fredinburg received no notice of the court's order before its entry.

Eventually, Hogue Investments, as the assignee of any interest that FDIC had in the property, gave notice of its intention to redeem the property from Fredinburg. Fredinburg objected, but the trial court concluded that Hogue was entitled to redeem the property. On appeal, we reversed, holding that the judgment of foreclosure had foreclosed FDIC's lien and that Hogue, as FDIC's assignee, lost its right to redeem the property because it had not "established" its lien before the foreclosure. Cooley v. Fredinburg, 114 Or.App. 532, 836 P.2d 162 (1992), rev. den. 315 Or. 311, 846 P.2d 1160 (1993). While that appeal was pending, Hogue remained in possession of the property, received rents from it and made improvements.

After our decision, Fredinburg brought this action against FDIC ¹ and Hogue seeking restitution for the actual rent received from the property or the property's reasonable rental value, whichever was greater, during the time that Hogue was in possession of the property. Hogue counterclaimed, alleging that the improvements that it had made to the property while it was in possession had increased the property's fair market value and that the costs of those improvements should be offset from the rent it had received. It also alleged that Fredinburg was indebted to it for the surplus of $14,581, as determined by the previous order and that it was entitled to recover that amount from him. The trial court dismissed Fredinburg's claims for restitution against both Hogue and FDIC on the ground that the cost of Hogue's improvements was greater than the rent received. It further ruled that the earlier order had determined FDIC's entitlement to the surplus proceeds and that it was binding on Fredinburg. Fredinburg appeals from the judgment reflecting these rulings.

We first consider whether the trial court erred in dismissing Fredinburg's claim for restitution. In Lytle v. Payette-Oregon Slope Irr. Dist., 175 Or. 276, 152 P.2d 934 (1944), the court held that, when a judgment creditor purchases land at an execution sale pursuant to an erroneous judgment, the judgment debtor is entitled to complete restitution including the

"reasonable rental value, or the rents, issues and profits of the premises for the period during which the judgment debtor was deprived of possession." Id. at 287, 152 P.2d 934.

The court, relying on Restatement of Restitution § 74e (1937), further said that the compensation to the debtor should be offset by "expenses necessarily incurred in its protection, and disbursements for taxes and other liens." Id. at 287, 152 P.2d 934 (emphasis supplied). In other words, only those expenses that are necessary for the protection of the property, including costs associated with taxes and other liens, may be offset from the restitution owed the judgment debtor. Section 74e of the Restatement provides that those expenses do not include "the expense of improvements." ² In light of these authorities, we hold that the trial court erred in determining that Fredinburg's claim for restitution should be offset by the costs of improvements that raised the property's fair market value. The only costs that the trial court could properly consider as offsets were those that were incurred for the property's protection.

Fredinburg also argues that Hogue did not charge the fair rental value of the property when it rented the property, and that it did not rent some of the property that Fredinburg had rented while he was in possession. Hogue counters that it charged a fair rental value and that part of the rents Fredinburg received before he lost possession of the property were obtained in violation of county ordinances....