Costa and Head (Birmingham One), Ltd. v. National Bank of Commerce of Birmingham

• Decision Date: 28 September 1990
• Citation: 569 So.2d 360
• Parties: COSTA AND HEAD (BIRMINGHAM ONE), LTD., et al. v. NATIONAL BANK OF COMMERCE OF BIRMINGHAM, et al. 88-1211.
• Court: Alabama Supreme Court

Page 360

569 So.2d 360

COSTA AND HEAD (BIRMINGHAM ONE), LTD., et al. v. NATIONAL BANK OF COMMERCE OF BIRMINGHAM, et al.

88-1211.

Supreme Court of Alabama.

Sept. 28, 1990.

William H. Mills of Redden, Mills & Clark, Birmingham, for appellants.

Barry A. Ragsdale of Sirote & Permutt, Birmingham, for appellee Hibernia Nat. Bank.

Richard P. Carmody of Lange, Simpson, Robinson & Somerville, Birmingham, for appellee Deposit Guar. Nat. Bank.

Luther M. Dorr of Maynard, Cooper, Frierson & Gale, Birmingham, for appellee Nat. Bank of Commerce of Birmingham.

PER CURIAM.

This appeal involves a question of whether an "accommodation mortgagor," as holder of the legal title to the land located under a building in downtown Birmingham, has a statutory right to redeem only the land owned by it, which was mortgaged to the bank and which was sold by the bank at a foreclosure sale, or whether the "accommodation mortgagor" must pay the entire purchase price to the bank as purchaser at the foreclosure sale in order to redeem its own property.

The question presented, of course, requires us to examine Alabama law regarding the issue of "piecemeal redemption," and whether it applies under the facts of this case.

FACTS

Costa and Head (Birmingham One), Ltd., and certain individual plaintiffs who are general partners in Birmingham One (hereinafter all are referred to as "Birmingham One") filed suit for a declaratory judgment as to whether Birmingham One had the right to redeem some real property from a mortgage foreclosure without having to pay the entire purchase price paid by the purchaser at the foreclosure sale. Birmingham One asked the court to determine the amount necessary for it to pay in order to redeem.

The National Bank of Commerce of Birmingham (hereinafter "NBC") and other defendants held the mortgage, under which title to the land and the buildings and improvements had been transferred to the bank, and, after default on a note, the bank instituted foreclosure proceedings and at the foreclosure sale bought the property on a bid of $5,000,000. The property involved is land in downtown Birmingham that has on it buildings and other improvements that are not owned by Birmingham One. Birmingham One owned only the real estate; the improvements were owned by Costa and Head (Atrium), Ltd. (hereinafter "Atrium"), a limited partnership in which Birmingham One is the general partner. The trial court dismissed the complaint for failure to state a claim upon which relief could be granted. Rule 12(b)(6), A.R.Civ.P. The plaintiffs want to redeem the land only and pay only a portion of the purchase price paid by the bank at the foreclosure sale. The only issue is whether the law of redemption will permit an "accommodation mortgagor" that has transferred only its interest in the land to redeem that portion of the property sold at foreclosure by paying only a part of the mortgage debt.

I

Although motions to dismiss under Rule 12(b)(6) are rarely appropriate, we believe that sufficient facts were presented in this case from which it could be determined as a matter of law, whether Birmingham One was entitled to redeem the portion of the mortgaged property owned by it.

The facts, summarized in a light most favorable to the plaintiffs, are as follows:

On June 29, 1984, Birmingham One owned the subject real property. Birmingham One did not own the improvements located on the property. The improvements were owned by another limited partnership, Atrium.

On June 29, 1984, Birmingham One, as an accommodation mortgagor, gave a mortgage on the subject property, the land exclusive of improvements, to NBC to secure a loan from NBC to Atrium. Atrium was a party to the same mortgage, conveying its interest in the improvements located on the subject property. The mortgage recites that Birmingham One is the owner of the land described in the mortgage and that Atrium is the owner of the improvements located on this land. The mortgage described the "mortgaged property" as Birmingham One's title and interest in the land, Atrium's interest in the buildings and improvements on the land, and Atrium's leasehold interest in the land. The warranty provisions of the mortgage contain a recitation that Birmingham One warrants title to the land, but with "buildings and improvements excepted." Atrium warranted title to its leasehold interest in the land and its fee simple title to the buildings and improvements located on the land.

The mortgage contained a power of sale, which included a provision that NBC could elect to sell the mortgaged property in portions, specifying that the leasehold interest, the fee simple interest, etc., were separate portions that could be sold separately. NBC foreclosed the mortgage under this power of sale on March 22, 1988. NBC, the mortgagee, was the purchaser at the foreclosure sale, on a bid of $5,000,000. The foreclosure deed conveyed the property by legal description to NBC, with no differentiation or distinction as to the separate interests owned by Birmingham One and Atrium in the mortgaged property.

After the foreclosure, NBC conveyed an interest in the property acquired through foreclosure to defendants Hibernia National Bank (hereinafter "HNB") and Deposit Guaranty National Bank (hereinafter "DGNB").

Birmingham One desires to redeem not the entire property, which consists of the land and improvements, but only the real property (the land exclusive of the improvements). In furtherance of its intention to redeem, on February 15, 1989, Birmingham One made written demand upon all of the defendants for a statement of charges for redemption, pursuant to Ala.Code 1975, § 6-5-234. In its demand, Birmingham One made it clear that it desired only to redeem the real property, which it owned, and not the improvements, which it did not own.

The defendants jointly replied to the demand for charges by a letter in which they denied that Birmingham One had a right to redeem, denied that it had a right to redeem only the land exclusive of improvements, and asserted that if Birmingham One was entitled to redeem then it must pay the entire $5,000,000 bid by NBC at the foreclosure sale, plus additional itemized expenses.

Birmingham One filed this action to determine its rights to redeem its property and the appropriate procedure for redemption.

II

We now consider the central legal question presented: whether the trial court correctly held that Birmingham One was not entitled to redeem only the real property it had mortgaged unless it paid the entire mortgage debt.

The basic positions of the parties can be summarized as follows: Birmingham One contends that under the mortgage instrument it transferred only its interest in the land located under the buildings and improvements; therefore, it says, it had no interest in the remainder of the property and could redeem the part that it owned. Birmingham One, in fact, contends that it has no statutory right to redeem property it did not have an interest in.

The bank disagrees. It contends that there can be no "piecemeal redemption," and that, even if there could be, because Birmingham One is the general partner of Atrium, which is the owner of the buildings and improvements and the principal debtor, the redemption statutes require that it pay the full amount of the mortgage debt.

III

Because the mortgage foreclosure occurred prior to January 1, 1989, the redemption rights of the appellant are governed by Ala.Code 1975, §§ 6-5-230 et seq., rather than by Act No. 88-441.

Birmingham One concedes that the decisions of this Court uniformly hold that improvements located on real property are prima facie part of the land and are owned by the owner of the land. Sullivan v. Lawler, 222 Ala. 628, 133 So. 911 (1931). However, Birmingham One argues that these decisions recognize that, by agreement, parties may sever the ownership of improvements from ownership of the land, and that this is what has occurred in this case.

IV

The right to redeem after a mortgage foreclosure is a statutory right. Wilkes v. Hood, 237 Ala. 72, 185 So. 748 (1939). The resolution of this case, therefore, requires a construction of the statutes that grant and regulate the right of redemption and also requires a consideration of the underlying purpose for allowing a person or entity to redeem. Because of the relationships of the parties and the separate ownership of the realty and improvements, this case also requires us to construe the redemption statutes as we think the legislature intended for them to apply in such business transactions.

The traditionally recognized purpose of the statutory right of redemption is to "prevent the sacrifice or loss" of a mortgagor's land. Memorial Shrines, Inc. v. McConnell, 270 Ala. 266, 117 So.2d 684 (1960). Stated another way, the purpose is the "rescue" from sacrifice of a debtor's property. Kelley v. Hurt, 217 Ala. 694, 117 So. 411 (1928).

If the purpose of the statute is rescue, then the next question is what property, or whose property, is to be rescued. This Court stated in the early case of Commercial Real Estate & Bldg. Ass'n v. Parker, 84 Ala. 298, 301-02, 4 So. 268, 269-70 (1888):

"The very idea of redemption necessarily involves the correlative idea of an interest in the thing sought to be redeemed. It is the rescuing from sacrifice of the debtor's property--not the property of another. We construe the statute to confer the statutory right of redemption upon debtors only for the purpose of redeeming their own property--property in which they have some interest at the time of sale. If the debtor has parted with this interest, he has abandoned the right to redeem, because the right can not exist except as an incident of ownership."

It is this "interest in the thing sought to be redeemed" that Birmingham One insists is controlling. It argues that a debtor (it makes no argument that it is not a "debtor") is entitled to redeem only his property, not the property of another,...