Farm Credit Bank of Spokane v. Tucker

• Decision Date: 01 August 1991
• Docket Number: No. 10604-7-III,10604-7-III
• Citation: 62 Wn.App. 196,813 P.2d 619
• Court: Washington Court of Appeals
• Parties: FARM CREDIT BANK OF SPOKANE, a corporation, successor by merger to The Federal Land Bank of Spokane, Appellant, v. Terry A. TUCKER and Ronnie L. Tucker, husband and wife; Donald M. Tucker, individually and as the Personal Representative of the Estate of R. Gail Tucker, deceased; Kelly Tucker and Ann Tucker, husband and wife; Tracy Tucker, unmarried; Jay Tucker and Jane Doe Tucker, husband and wife; Kathleen Tucker and John Doe, wife and husband, Respondents and Cross Appellants, State of Washington, acting through the Department of Transportation, Defendant.

Page 196

62 Wn.App. 196

813 P.2d 619

FARM CREDIT BANK OF SPOKANE, a corporation, successor by

merger to The Federal Land Bank of Spokane, Appellant, v. Terry A. TUCKER and Ronnie L. Tucker, husband and wife;

Donald M. Tucker, individually and as the Personal

Representative of the Estate of R. Gail Tucker, deceased;

Kelly Tucker and Ann Tucker, husband and wife; Tracy

Tucker, unmarried; Jay Tucker and Jane Doe Tucker, husband

and wife; Kathleen Tucker and John Doe, wife and husband,

Respondents and Cross Appellants,

State of Washington, acting through the Department of

Transportation, Defendant.

No. 10604-7-III.

Court of Appeals of Washington,

Division 3, Panel Two.

Aug. 1, 1991.

Review Denied Dec. 3, 1991.

Patrick F. Hussey, Velikanje, Moore & Shore, Yakima, for appellant

James Hayner, Minnick, Hayner & Zagelow, Walla Walla, for respondents and cross appellants.

THOMPSON, Judge.

Farm Credit Bank (FCB) appeals the Superior Court's order denying FCB interest on a summary judgment and decree of foreclosure of mortgaged property held by the Tucker family. The Tuckers cross-appeal, assigning error to the amount the court fixed as the upset price for the property. We reverse the court's denial of interest, but affirm the upset price.

In 1981, brothers Terry and Don Tucker and their spouses, with their four children and their spouses, purchased two dry-land wheat farms in Walla Walla County for $1,600,000. The farms were known as the Prescott and Rulo Farms and totaled approximately 2,300 acres. FCB appraised the parcels at $1,600,000 and loaned the Tuckers $1,120,000, evidenced by a promissory note The bank may, from time to time, establish a higher or lower rate of interest which shall then apply to the unmatured balance of the debt evidenced hereby ... Such different rates shall be established in accordance with the provisions of the Farm Credit Act of 1971 and the regulations of the Farm Credit Administration as then existing.

                secured by a mortgage.   Interest on the note was 11 percent per annum.   The note further provided
                

. . . . .

All installments not made when due shall bear interest thereafter until paid at a default rate which is the rate from time to time in effect for this loan, plus two per cent per annum. If any default be made in any such installments, ... then at the election of the holder of this note, without presentment or demand, the principal sum hereof and all accrued interest thereon shall become due and payable at once and the entire amount due and payable shall thereafter bear interest until paid at the default rate which was in effect at the time of acceleration.

The Tuckers made the annual payments on the note of $150,000 per year through 1986, but did not make their 1987 and 1988 payments.

In October 1988, FCB filed a complaint for judgment on the note and to foreclose the real estate mortgage. On March 27, 1989, FCB obtained an order of summary judgment. In April 1989, the parties stipulated to a summary judgment and decree of foreclosure. The judgment was for $1,418,915.05, together with interest at 14.25 percent per annum from August 16, 1988, "provided, however, that this amount shall be subject to such adjustments and set-offs as proven at the time of the sale confirmation hearing ...". The court ordered the sale of the mortgaged property. The Tuckers then moved the court for a hearing to fix an upset price.

The trial court conducted a hearing in August 1989. Terry Tucker testified concerning the Tuckers' dealings with FCB, and the court admitted into evidence FCB's records detailing the meetings between the parties from 1986 to 1988. Both sides also presented expert testimony regarding the value of the parcels.

In findings entered in December 1989, the court held the fair value of the property for establishing an upset price was $956,400. It further found:

8. In February 1987, the Tuckers contacted the FCB and told the principals that they would be unable to make the March 1987 payment under the terms of the loan. The Tuckers offered to deed the property back to the FCB in lieu of foreclosure and offered to cooperate with the FCB in any manner possible. The Tuckers asked the FCB for the right to negotiate as a distressed buyer under the terms of the Agricultural Credit Act of 1987. The Tuckers offered to make partial payments on the land. The offer to deed in lieu of foreclosure, the offer to make partial payments, and the offer to negotiate under the Agricultural Credit Act were all refused by the FCB.

9. The FCB conceded that had a foreclosure been conducted in 1987, it would have been appropriate for the court to establish an upset price because of the local, regional and national state of the agricultural economy and the effect that the depressed wheat prices had.

....

11. Had the FCB foreclosed in 1987, or had it accepted a deed in lieu of foreclosure, the deficiency owed by the Tuckers would have been minimal such that little or no interest would have accrued on the difference between the value of the land to be credited against the amount owed and the amount of the debt during the last thirty (30) months.

FCB does not assign error to the foregoing findings. Its assignments of error are to findings 21 and 23:

21. It is inequitable to require the Tuckers to pay prejudgment interest.

....

23. It is inequitable to allow the FCB to accrue interest on the full principal balance of $1,094,329.50 [the amount due as of the Tuckers' default on March 1, 1987] from and after the winter of 1987 when the financial difficulty of the Tuckers was brought to the attention of the FCB and at which time the Tuckers made various offers to minimize their potential deficiency and the FCB's loss.

On December 15, 1989, the sheriff sold the property to FCB for the amount of the upset price. On February 12, 1990, the court entered an order disallowing interest from May 17, 1987 until April 14, 1989, the date of the

                summary judgment and decree of foreclosure.   The court further ordered that the summary judgment would not accrue postjudgment interest.   Disallowing interest, the judgment was for $1,268,518.65.   The court entered a judgment for a deficiency over the upset price of $256,118.65, which sum the Tuckers paid to the registry of the court on February 16, 1990
                

FCB's APPEAL

FCB contends the interest provided for in the promissory note is recoverable as a matter of right. The Tuckers argue foreclosure is an equitable action. Thus, a court, acting in equity, can disallow interest on equitable grounds. Alternatively, the Tuckers argue the damages awarded in the summary judgment and decree of foreclosure were unliquidated; until the court fixed the upset price for the mortgaged property, the amount of the deficiency judgment was uncertain. Only liquidated claims, or those ascertainable by computation, accrue prejudgment interest, which is assessed as damages for the withholding of the amount due. Mall Tool Co. v. Far West Equip. Co., 45 Wash.2d 158, 169, 273 P.2d 652 (1954).

The Tuckers have confused FCB's contract right to interest with prejudgment interest which is claimed as damages. In the latter situation, no agreement to pay interest exists, but interest is awarded as damages to compensate the plaintiff for the loss of use of the money. Washington State Hop Producers, Inc. Liquidation Trust v. Goschie Farms, Inc., 112 Wash.2d 694, 773 P.2d 70 (1989); Hansen v. Rothaus, 107 Wash.2d 468, 473, 730 P.2d 662 (1986). The court has the authority to disallow interest on equitable grounds only if the interest claimed is prejudgment interest.

The rule is that

"[w]here interest is claimed as damages, and not by reason of any contract therefore, it will not be allowed if the delay in the payment of the principal debt is the result of the neglect of the creditor to demand and enforce such payment."

(Italics ours.) Safeco Ins. Co. of Am. v. Watertown, 538 F.Supp. 49, 52 (D.S.D.1982) (quoting State v. Platte Vy. Pub. Power & Irrig. Dist., 143 Neb. 661, 10 N.W.2d 631, 634 (1943)). Platte relied upon Redfield v. Ystalyfera Iron Co., 110 U.S. 174, 3 S.Ct. 570, 572, 28 L.Ed. 109 (1884), which stated:

Interest is given on money demands as damages for delay in payment, being just compensation to the plaintiff for a default on the part of his debtor. Where it is reserved expressly in the contract, or is implied by the nature of the promise, it becomes part of the debt, and is recoverable as of right; but when it is given as damages, it is often matter of discretion.... But where interest is recoverable, not as part of the contract, but by way of damages, if the plaintiff has been guilty of laches in unreasonably delaying the prosecution of his claim, it may be properly withheld.

(Citation omitted. Italics ours.) Here, FCB claims interest as a result of its contract with the Tuckers, as set forth in the promissory note. Thus, the court erred when it disallowed interest on equitable grounds.

In so holding, we reject the Tuckers' assertion that FCB's foreclosure action was wholly equitable in nature and unaffected by the provisions of the parties' promissory note. ¹ The Tuckers are not aided by their reliance upon RCW 61.12.120. That statute bars a plaintiff from foreclosing "while he is prosecuting any other action for the same debt or matter which is secured by the mortgage ...". RCW 61.12.120. It does not prevent a plaintiff from pleading the terms of a note in a foreclosure action. Hinchman v. Anderson, 32 Wash. 198, 206, 72 P. 1018 (1903). Such a plaintiff simply agrees to pursue recovery of the judgment from the sale of the foreclosed property before levying on any other property of the debtor to satisfy a deficiency. See RCW 61.12.070, which provides:

When there is an express agreement for the payment of the sum of money secured contained in the mortgage or any separate instrument, the court shall direct in the decree of foreclosure that the balance due on the...