Destin Sav. Bank v. Summerhouse of FWB, Inc.

• Decision Date: 29 April 1991
• Docket Number: No. 90-1966,90-1966
• Citation: 16 Fla. L. Weekly 1203,579 So.2d 232
• Parties: DESTIN SAVINGS BANK, a Florida banking corporation, Appellant, v. SUMMERHOUSE OF FWB, INC., a Florida corporation, Summerhouse, Inc., a Florida corporation, M. Victor Anderson, and John H. Hobbs, Appellees. 579 So.2d 232, 16 Fla. L. Week. 1203
• Court: Florida District Court of Appeals

Page 232

579 So.2d 232

DESTIN SAVINGS BANK, a Florida banking corporation, Appellant, v. SUMMERHOUSE OF FWB, INC., a Florida corporation Summerhouse, Inc., a Florida corporation, M Victor Anderson, and John H. Hobbs Appellees.

No. 90-1966.

579 So.2d 232, 16 Fla. L. Week. 1203

District Court of Appeal of Florida First District.

April 29, 1991.

Douglas L. Stowell and Gary J. Anton, Stowell, Anton & Kraemer, Tallahassee, for appellant.

Robert E. Lee, Fort Walton Beach, for appellees.

ZEHMER, Judge.

Destin Savings Bank appeals a final judgment in this declaratory judgment action brought by the appellees. In that judgment, the court ruled that: (1) Destin Savings had waived its right to accelerate the balance due on a promissory note and mortgage on which M. Victor Anderson and Summerhouse of Fort Walton Beach, Inc., were mortgagors; (2) one of the terms under which Destin Savings agreed to approve transfer of the mortgaged property and assumption of the loan by John Hobbs and Summerhouse, Inc., was unreasonable; and (3) Hobbs and Summerhouse, Inc., would be permitted to assume the mortgage indebtedness of Anderson and Summerhouse of FWB, Inc., under the original mortgage and note. We hold that the circuit court erred in applying a reasonableness standard in disapproving the conditions Destin Savings imposed for the assumption of the mortgage and note, and reverse.

The material facts are somewhat complex. Anderson was planning to construct and operate a restaurant and lounge business to be known as the Summerhouse Restaurant and Lounge in Fort Walton Beach. On June 8, 1987, Anderson, as president of Summerhouse of FWB, executed and delivered a promissory note, together with a Mortgage and Security Agreement, to Destin Savings pursuant to a loan to facilitate Anderson's development of the restaurant. Paragraph 20 of the Mortgage and Security Agreement provides:

20. No Transfer. It is understood and agreed by the Mortgagor that as part of the inducement to Mortgagee to make the loan evidenced by the Note, Mortgagee has considered and relied on the creditworthiness and reliability of Mortgagor. Mortgagor covenants and agrees not to sell, convey, transfer, lease or further encumber any interest in or part of the Mortgaged Property without prior written consent of Mortgagee, and any such sale, conveyance, transfer, lease or encumbrance made without Mortgagee's prior written consent shall be void. If any person should obtain an interest in all or any part of the Mortgaged Property pursuant to the execution or enforcement of any lien, security interest or other right, whether superior, equal or subordinate to this Mortgage or the lien hereof, such event shall be deemed to be a transfer by Mortgagor and an event of default hereunder.

Paragraph 11 of that agreement provides that:

11. Acceleration. If an event of default shall have occurred, Mortgagee may declare the outstanding principal amount of the Note and the interest accrued thereon, and all other sums secured hereby, to be due and payable immediately. Upon such declaration such principal and interest and all other sums shall immediately be due and payable without demand or notice.

In April of 1989, a realtor representing Hobbs approached Anderson about the possibility of selling the restaurant. When Anderson contacted Destin Savings regarding the potential sale and the possibility of Hobbs assuming the mortgage, June Biggs, vice president of Destin Savings, informed Anderson that the financial condition and strength of the purchaser would have to be verified before Destin's board of directors could approve an assumption of the loan. On May 2, 1989, without obtaining the consent of Destin Savings, Anderson and Hobbs entered into a contract for the sale of the restaurant to Hobbs. When Anderson and Hobbs delivered the contract and Hobbs's financial statement to Destin, Biggs indicated that "on the surface, assuming that everything was basically true ... there will be no problem"; but she explained that she could not personally approve the assumption and that there would have to be approval by the Board. During a meeting on the morning of May 21, 1989, Hobbs mentioned to Biggs that he dealt with another bank regarding the purchase of a house, and Biggs inquired as to why he did not deal with Destin Savings. That afternoon or the next morning, Anderson informed Hobbs that Destin Savings had contacted him and told him that they wanted either a second mortgage on Hobbs's home or a hundred thousand dollar certificate of deposit before they would approve the assumption. A few days later, Biggs wrote to Hobbs, stating that:

Destin Savings Bank has approved your request to assume the above referenced loan subject to the terms and conditions outlined below.

* * * * * *

3.) Second mortgage on property located at 157 Beal Street (first mortgage balance not to exceed $200,000) OR pledge of $100,000 certificate of deposit to be opened with Destin Savings Bank.

Hobbs responded in writing that he considered all the requirements for assumption acceptable, "except your requirement for either a second mortgage on the Hobbs' residence or pledge of a $100,000.00 certificate of deposit," and that "the circumstances of the seller and buyer have compelled closing of the sale notwithstanding the lack of a proper understanding with your bank." Thereafter, Anderson and Hobbs closed the sale of the business without receiving the prior written consent of Destin Savings. At the same time, Anderson and Hobbs executed an agreement concerning the assumption of the Destin Savings mortgage which acknowledged that the transfer was taking place notwithstanding the lack of Destin Savings' prior written consent. Negotiations continued between Hobbs, Anderson and Destin Savings without reaching a satisfactory resolution of the mortgage assumption on acceptable terms.

Accordingly, Hobbs, Summerhouse, Inc., Anderson, and Summerhouse of FWB, Inc., filed a complaint for declaratory judgment against Destin Savings, in which they requested the court to determine: "(a) Whether or not the defendant can require additional collateral as a requirement to the assumption of the described loan; (b) Whether or not the security of the defendant has been impaired; (c) Whether or not the defendant can accelerate the balance of the loan; and (d) Whether or not the defendant should be enjoined from foreclosing its Mortgage and Security Agreement during the pendency of this action." Destin Savings answered and filed a counterclaim for foreclosure under the note and mortgage and other damages. After a nonjury trial, the circuit court entered a final judgment ruling in part that:

(1) pursuant to paragraph 20 of the Mortgage and Security Agreement, Destin "had the right to accelerate the balance due and owing in the event of transfer of ownership without its prior written consent but by its conduct and course of business dealings with the Plaintiffs has waived such right";

(2) all terms, conditions, and contingencies for assumption contained in Destin's May 25, 1989 letter were reasonable and just, except that the letter "unreasonably requires at the heading, SECURITY, paragraph 3.), as additional collateral security a second mortgage on the residence of the Plaintiff, JOHN H. HOBBS, or the pledge of a $100,000.00 certificate of deposit to be opened with DESTIN SAVINGS BANK";

(3) Hobbs and Summerhouse, Inc., are permitted to assume Summerhouse of FWB's mortgage indebtedness to Destin upon a written acceptance of the terms in the commitment letter, except for the provisions requiring additional collateral, "upon notice acceptable to this court confirming such acceptance, the Defendant's [Destin] Counterclaim of Foreclosure shall then be dismissed with prejudice ..."; ¹ and

(4) "Jurisdiction of this action is retained to enter further orders that are proper, including without limitation, such orders as shall be appropriate to the award of attorney [sic] fees and court costs based upon further conduct of the parties in accordance with this Final Judgment."

On appeal, Destin Savings contends that the circuit court erred in imposing the "reasonableness standard" on the terms and conditions that Destin Savings had required of Hobbs prior to giving consent to the transfer of the mortgaged property and the assumption of the loan. Destin Savings argues that since the Mortgage and Security Agreement between it and Anderson contains a due-on-sale clause that gives Destin Savings the absolute right to refuse to consent to a transfer of the property and contains no provision stating that Destin Savings will not unreasonably withhold its consent to any proposed transfer, according to the Garn-St. Germain Depository Institutions Act, 12 U.S.C. Sec. 1701j-3, the circuit court could not impose a "reasonableness" standard on any condition Destin Savings required to be satisfied before it would consent to the transfer and assumption. Appellees contend that, rather than determining whether the circuit court erred in imposing a reasonableness standard on the conditions Destin Savings required for consent, this court should affirm the final judgment on the ground that Destin Savings, by its conduct and course of business dealings with Hobbs and Anderson, waived its right to accelerate the balance due and owing on the mortgagee and note as a result of the transfer of ownership.

Before discussing the applicability of the Garn-St. Germain Act to this case, we consider appellees' contention that this case should be resolved on the waiver issue only. There is no evidence in the record to support their contention that Destin Savings, by its course of conduct and course of business dealings with Hobbs and Anderson, waived its right to accelerate the balance due as a result of the transfer of ownership of the mortgaged property without its consent. Waiver...