Davidson-Chudacoff/Kol-Pak of Arizona, Inc. v. Pioneer Hotel Co.

• Decision Date: 28 April 1981
• Docket Number: Nos. 1,DAVIDSON-CHUDACOFF,CA-CIV,KOL-PAK,s. 1
• Citation: 129 Ariz. 254,630 P.2d 550
• Parties: /OF ARIZONA, INC., a Delaware Corporation, Plaintiff-Appellant, v. PIONEER HOTEL COMPANY, an Arizona Corporation, Defendant-Appellee, Monsanto Company, Garnishee-Defendant-Appellee. 4757, 1 4814.
• Court: Arizona Court of Appeals

Page 550

630 P.2d 550

129 Ariz. 254

DAVIDSON-CHUDACOFF/KOL-PAK OF ARIZONA, INC., a Delaware Corporation, Plaintiff-Appellant, v. PIONEER HOTEL COMPANY, an Arizona Corporation, Defendant-Appellee Monsanto Company, Garnishee-Defendant-Appellee.

Nos. 1 CA-CIV 4757, 1 CA-CIV 4814.

Court of Appeals of Arizona, Division 1.

April 28, 1981.

Rehearing Denied June 11, 1981.

Review Denied June 30, 1981.

Andrews, Merenda & Moseley, P. A., by M. B. Moseley, Phoenix, for plaintiff-appellant.

Jennings, Strouss & Salmon, by Gary G. Keltner, Phoenix, for defendant-appellee.

Chandler, Tullar, Udall & Redhair, by Robert E. Lundquist, Tucson, for garnishee-defendant-appellee.

OPINION

JACOBSON, Judge.

This appeal presents two issues: (1) whether an order of sale foreclosing an attachment lien must contain a "deficiency judgment provision" and (2) whether a tort judgment which is being appealed constitutes a "debt" subject to garnishment.

The procedural posture of this litigation is somewhat involved. On September 23, 1975, the plaintiff-appellant Davidson-Chudacoff/Kol-Pak of Arizona, Inc., (D/C) obtained a judgment in the approximate amount of $30,000.00 against defendant/appellee, Pioneer Hotel Company (Pioneer). Prior to this judgment being entered, D/C had caused a writ of attachment to issue, attaching a Series No. 6 liquor license issued by the state of Arizona to Pioneer. The September 23, 1975 judgment ordered foreclosure of this attachment lien and provided:

(T)hat special execution issue herein to the Sheriff of Maricopa County, Arizona, directing him to seize and sell the above described spirituous liquor license as under execution, according to law and the practices of this Court; that out of the proceeds of said sale there first be paid costs and expenses of said sale, and the balance of the proceeds be paid to plaintiff to apply upon the amounts adjudged to it; that the plaintiff may purchase said property at Sheriff's Sale by applying all or any portion of said indebtedness towards the purchase price.

On October 30, 1975, the sheriff sold the liquor license to D/C for $2,000.00 and D/C credited this amount to its judgment, thereby reducing the balance owed under the judgment to $29,000.00. Because of third party creditors' claims against the license, the Department of Liquor Licenses and Control did not honor the sheriff's certificate of sale and continued to renew the license annually in the name of Pioneer. Eventually these third party claims were resolved and on January 25, 1977, D/C had another general execution issue against whatever interest Pioneer held in the 1977 version of the liquor license. At the sale on this execution, D/C was again the purchaser for $500 and this sum was credited against the balance owing under the judgment.

During this period of time, Pioneer, as plaintiff, had sued Monsanto Company in United States District Court in Tucson as the result of a fire which seriously damaged the hotel owned by Pioneer. In November, 1974, Pioneer recovered a judgment against Monsanto in the sum of approximately $750,000.00. Monsanto appealed that judgment to the United States Circuit Court of Appeals. As part of that appeal, counsel for Pioneer and Monsanto entered into an agreement that the Pioneer judgment would be deemed stayed pending the appeal. This agreement took the form of a letter from Monsanto's counsel to Pioneer's counsel which provided in part:

This will confirm our conversation by telephone in which we agreed that the judgment in favor of Pioneer Hotel against Monsanto could be treated as stayed without the necessity of filing a supersedeas bond.

The reason for this agreement was the recognition by counsel that Monsanto could in fact post such a supersedeas bond, but if required to do so "the supersedeas bond cost would simply be an additional cost on appeal which somebody ultimately would have to bear. Thus, we agree to do away with an unnecessary cost on this appeal."

Following the second sale of Pioneer's liquor license, D/C learned of the Pioneer/Monsanto judgment and caused a writ of garnishment to be served on Monsanto on March 9, 1977. At this time, the Pioneer/Monsanto appeal was still pending and Monsanto's counsel requested and obtained an open extension to answer the writ of garnishment pending disposition of that appeal.

On April 26, 1977, the Pioneer judgment against Monsanto was affirmed (d'Hedouville v. Pioneer Hotel Co., 552 F.2d 886 (9th Cir. 1977)). Apparently, D/C was not informed of this affirmance. Monsanto satisfied the Pioneer judgment by payment. Some 14 months later, after D/C learned of the affirmance and that the Pioneer judgment was paid and satisfied, it withdrew the open extension and required Monsanto to answer its writ of garnishment.

On May 12, 1978, Monsanto answered the writ, denying any sums were owed Pioneer on the date the writ was served. The basis of this denial, set forth in a subsequent answer to tender of issues, was that because of the agreement to stay execution of the Pioneer/Monsanto judgment pending appeal and the appeal itself, no "debt" was owed at the time the writ was served on March 9, 1977.

D/C controverted Monsanto's answer by a tender of issues filed May 16, 1978. On May 25, 1978, Pioneer moved to dismiss the tender issues. The basis of the motion to dismiss was Pioneer's contention that because the original judgment against it entered on September 23, 1975, ordered the foreclosure of an attachment lien and did not specifically provide for a deficiency in the event the proceeds from the foreclosure sale did not satisfy the judgment in full, by operation of law no deficiency judgment existed upon which garnishment could issue.

Prior to the ruling on Pioneer's motion to dismiss, Monsanto moved to quash the writ of garnishment basically on the same grounds it advanced in its answer to the tender of issues.

Following a hearing on all motions, the trial court granted Pioneer's motion to dismiss tender of issues on December 15, 1978, and granted Monsanto's motion to quash the writ of garnishment on February 26, 1979. Timely appeal was taken by D/C from both of these orders.

We turn first to a determination of whether Pioneer's assertion that no deficiency judgment existed is correct, for if so, obviously the trial court's ruling dismissing the writ of garnishment against Monsanto can be sustained on that basis.

Pioneer's contention that no deficiency judgment exists is premised upon A.R.S. § 33-725 ¹ and the case of Greater Arizona Savings & Loan Ass'n v. Gleeson, 5 Ariz.App. 577, 429 P.2d 464 (1967).

In particular, Pioneer relies upon the following language from Gleeson:

It therefore appears to us and we hold that before a deficiency can be established on a mortgage or lien foreclosure, the judgment must specifically provide therein contingently for establishment of deficiency in the event the proceeds of the foreclosure sale are not sufficient to satisfy the judgment. (Emphasis added).

5 Ariz.App. at 579, 429 P.2d at 466.

While we may entertain some doubts as to the rationale utilized by the Gleeson court in reaching this conclusion, we need not base our conclusions on these doubts. Rather, we are of the opinion that Gleeson, if correct, and A.R.S. § 33-725 are applicable only to contractually incurred security interests and have no bearing on noncontractual liens (e. g. attachments).

A.R.S. § 33-725 appears in Title 33, Ch. 6, Art. 2, entitled "Foreclosure of Mortgages." Mortgages themselves are required to be in writing, "executed with the formalities required of a grant of real property." A.R.S. § 33-701. This type of formality requires that the instrument creating the encumbrance be "subscribed and delivered by the party disposing of the estate," and "signed by the grantor." A.R.S. § 33-401.

It is these types of contractually incurred liens to which A.R.S. § 33-725 applies. Although subsection B of that statute refers to "mortgages and other liens," these "other liens" must refer to the liens set forth in subsection A of that statute which consists of "mortgage or deed of trust." In short, we do not construe A.R.S. § 33-725 and Gleeson's interpretation of that statute to embrace noncontractual liens such as writs of attachment. We find support for this conclusion in Title 12, Ch. 9, Article 2 of the Arizona Revised Statutes which provides for the issuance of writs of attachment and their foreclosure. In particular, A.R.S. § 12-1532(B) provides:

If plaintiff...