Eisele v. Kowal

• Decision Date: 24 February 1970
• Docket Number: CA-CIV,No. 1,1
• Citation: 11 Ariz.App. 468,465 P.2d 605
• Parties: Vern C. EISELE and Patricia J. Eisele, Appellants, v. Wolodymyr J. KOWAL and Orysia Kowal, his wife; John F. Swartz, as Trustee; Richard W. Neuman and Lucy Neuman, his wife, Appellees. 730.
• Court: Arizona Court of Appeals

Page 605

465 P.2d 605

11 Ariz.App. 468

Vern C. EISELE and Patricia J. Eisele, Appellants, v. Wolodymyr J. KOWAL and Orysia Kowal, his wife; John F. Swartz, as Trustee; Richard W. Neuman and Lucy Neuman, his wife, Appellees.

No. 1 CA-CIV 730.

Court of Appeals of Arizona, Division 1, Department B.

Feb. 24, 1970.

Fenton J. McDonough, Scottsdale, for appellants.

Harold Goldman, Phoenix, for appellees.

EUBANK, Presiding Judge.

The appellants are mortgagors, appealing from a decree of foreclosure and denial of their counterclaim seeking cancellation of the note and mortgage here in issue. Their main contention is that the mortgagees, in failing to discharge a prior encumbrance by a certain date, breached a 'condition subsequent' in the mortgage, which caused it to lose all legal effect. We must determine whether the trial court was correct in holding that the mortgagees' subsequent discharge of the prior encumbrance amounted to a 'substantial compliance' sufficient to prevent nullification of the mortgage, an event which by appellants' own description would amount to a forfeiture.

The appellees Kowal were the owners of a sizeable tract of land in Paradise Valley. In September, 1962, when there were six mortgages outstanding on various parts of the land and the Kowals were having some financial difficulties, they sold and deeded the land to the appellants Eisele for an agreed purchase price of $160,000. Appellants were credited with making an $18,000 cash down payment, and they agreed to pay $40,041.45 more by assuming and paying off three of the six existing mortgages. They executed a note to the Kowals for the $101,958.55 balance, and gave a mortgage back to the Kowals on the whole property as security. The mortgage was drawn up by the attorney who represented appellants in the transaction (not their present attorney), and is in the main the usual lengthy document contemplating the debtor-secured creditor relationship and setting forth in detail the various rights and liabilities incident thereto. Its critical provisions for our purposes, however, are those concerning discharge of the three mortgages, hereinafter referred to as the 'Scholl' mortgage, 'Sunnyslope' mortgage, and 'First National' mortgage, which were Not assumed by appellants. These provisions read as follows:

'The MORTGAGOR (Eisele-appellants) and MORTGAGEE (Kowal-appellees) further agree that MORTGAGEE shall comply with the following:

1. Pay in full and cause to be released of record that certain (Scholl) mortgage * * * prior to the due date of February 20, 1963.

2. Prior to September 15, 1963, pay in full and cause to be released of record that certain (Sunnyslope) mortgage * * *

3. Prior to September 15, 1963, pay in full and cause to be released of record that certain (First National) mortgage * * *

4. * * *

'It is expressly agreed that if any one of the above requirements are not complied with as agreed, then this mortgage and these presents shall be null and void, otherwise to remain in full force and effect. It is agreed however, that if the MORTGAGEE complies with the foregoing requirements, then in that event, the consideration for this mortgage shall be increased to the sum of * * * $114,408.55 * * * instead of the recited amount of * * * $101,985.55 * * *'

The note secured by the mortgage contained corresponding provisions, which read as follows:

'This note shall not be negotiated, sold or transferred to any person, firm or corporation until Wolodymyr J. Kowal and Orysia Kowal, his wife, have complied with the following:

1. Paid in full and caused to be released of record that certain (Scholl) mortgage * * * prior to the due date of February 20, 1963.

2. (See quoted subparagraph 2 of mortgage.) * * *

3. (See quoted subparagraph 3 of mortgage.) * * *

4. * * *

'PROVIDED, however, that if the said Wolodymyr J. Kowal and Orysia Kowal, his wife, shall comply with the foregoing, then and in that event, the face amount of this note shall be increased to the sum of * * * $114,408.55 * * *

'It is expressly agreed between the parties hereto that should Wolodymyr J. Kowal and Orysia Kowal, his wife, fail to comply with any one of the terms hereof, then this note shall be void and of no effect * * *'

The Kowals or persons acting in their behalf did not succeed in discharging the first Scholl mortgage referred to in the quoted instruments on its due date, February 20, 1963. There was testimony that the reason for this failure was that one of the two Scholl mortgagees was in Wisconsin on and just before the due date and was consequently unable to accept a tender made in Arizona at that time. In any event, the Scholl mortgage was satisfied by persons acting in behalf of the Kowals for $5,750 and discharged of record on March 12, 1963.

Apparently taking the position that failure to discharge the Scholl mortgage by its due date operated as a nullification of the note and mortgage executed by them, appellants, with the financial assistance of a relative, either purchased or satisfied the remaining Sunnyslope and First National mortgages which were the Kowals' obligation, for something over $8,000, on March 22 and April 4 of 1963. Appellants did not advise the Kowals of these transactions. These circumstances resulted in a confrontation between the parties and an attempted tender by appellees to appellants of the amount necessary to satisfy both the Sunnyslope and First National mortgages. Appellees ultimately tendered the necessary amount into court and there is no present contention by appellants that the Kowals did not do all that they could have been required to do with respect to discharging these latter two mortgages.

At the same time that appellees made their tender into court, they commenced suit to foreclose the mortgage executed by appellants. The complaint seeking foreclosure alleges default by appellants in making payments due on the mortgages assumed by them. It is now undisputed that appellants did fail to make payment on the mortgages assumed by them; that these failures were defaults under the terms of the mortgage if it was still in effect; and that the appellants have never made any payments required by the note and mortgage to be made to the Kowals. We will later refer to certain additional facts.

Stated simply, appellants take the position that after February 20, 1963, their note and mortgage ceased to have any legal existence or effect. They urge application of the rule that courts will enforce a 'condition subsequent', the breach of which results in a forfeiture, where the parties have clearly provided for that result. They further contend that the trial court's holding that satisfaction of the Scholl mortgage some 20 days after the February 20, 1963 due date constituted a substantial compliance, amounted to a rewriting of the contract agreed to by the parties.

We are convinced that the trial judge correctly construed the contract in accordance with the applicable law and with the intent of the parties.

Where it clearly appears that the parties have agreed to a contract that will result in a forfeiture, the courts will enforce it. Branker v. Bowman, 62 Ariz. 214, 220, 156 P.2d 898, 901 (1945). But the disfavor with which courts view forfeiture finds strong expression in the maxim that 'the law abhors a forfeiture.' See e.g., Mason v....