First Wisconsin Nat. Bank of Oshkosh v. KSW Investments, Inc.
Decision Date | 10 February 1976 |
Docket Number | No. 628,628 |
Citation | 238 N.W.2d 123,71 Wis.2d 359 |
Parties | FIRST WISCONSIN NATIONAL BANK OF OSHKOSH, Respondent, v. KSW INVESTMENTS, INC., a Wisconsin Corporation, Appellant, Gerald Kramer, a/k/a Jerry Kramer, et al., Defendants. (1974). |
Court | Wisconsin Supreme Court |
Brief by: Berk, Pressentin & Hoida, Green Bay, for appellant.
Brief by: Timothy M. Dempsey and Dempsey, Magnusen, Williamson & Lampe, Oshkosh, for respondent.
This is an appeal from an order conforming the price bid by the mortgagee, First Wisconsin National Bank of Oshkosh, at a foreclosure sale, and which also ordered a deficiency judgment against the appellant in the amount of $124,458.06. The issue raised is whether the price bid by the mortgagee was so inadequate as to result in an injustice to the owners of the property, if approved. Home Bank v. Becker (1970), 48 Wis.2d 1, 13, 179 N.W.2d 855. After reviewing the record, we reverse the order, not simply because the bid was very low, but more accurately because the trial court erred in finding the fair value of the property based on testimony establishing the fair market value of the building as an empty, vacant shell.
KSW Investments, Inc., purchased the property which is the subject of this appeal in 1969 for the sum of $63,000. At the time of the purchase, the building, which was located in downtown Oshkosh directly across the street from a new bank building and one or two blocks from a new shopping center, was being used as a printing facility. On or about May 16, 1969, appellant KSW Investments, Inc., (hereafter KSW), executed and delivered to the respondent, First Wisconsin National Bank of Oshkosh (hereafter bank), its promissory note and mortgage for purchase money and improvement funds in the sum of $100,000. At that same time, Gerald Kramer and Ben C. Stone, officers of KSW, delivered to the bank their guaranties each in the sum of $130,000.
Approximately one year later, on May 5, 1970, KSW executed and delivered to the bank another promissory note and mortgage upon the premises in the sum of $23,000. At this time, Kramer and Stone reissued their guaranties in the sum of $153,000.
The property was purchased for investment purposes and was completely remodeled by KSW as a 'Red Ram' restaurant, involving the expenditure of $160,000 to $170,000 for improvements, not including personal property, or the necessary equipment for operation as a restaurant. The property was leased to the management of the Red Rem restaurant.
Thereafter, the property underwent a number of management changes, and from 1970 to 1974, four different restaurant, bar or restaurant-bar businesses occupied the building. At the time of the foreclosure, the building was occupied by a bar known as the 'Paddock Club.'
KSW made no payments of principal or interest on the $100,000 note after February 16, 1971, or on the $23,000 note after January 16, 1971. In addition, real estate taxes and special assessments were left unpaid from 1969 throughout the foreclosure proceedings.
The foreclosure action was commended and KSW did not answer. Judgment of foreclosure was entered and the property was ordered sold at a sheriff's sale. The bank was the only party present at the sale and made the only bid in the amount of $23,000, subject to the delinquent real estate taxes, prorated real estate taxes, and interest due on the judgment--an additional amount of approximately $23,000.
Thereafter the bank moved for an order confirming the sale and for a deficiency judgment. A hearing was held at which the bank presented testimony of its appraiser, Gordon Kargus, who testified he appraised the property at its fair market value as a vacant building--a shell. According to Kargus, the property had a fair market value of $46,800.
KSW also presented the testimony of an appraiser who testified that in his opinion, the property had a market value of $155,000, including personal property, and a fair market value of $131,100 without the personal property.
Additionally, by stipulation documents were introduced in evidence indicating that the property had been assessed by the city of Oshkosh in 1969, the year of its purchase, at $26,900; for 1970 through 1972 at $62,600; and for 1973, the year of the foreclosure sale, at $45,500. Testimony established that this type of property was assessed by the city assessor at 40% of its market value, which translates into market values of $67,250 for 1969; $156,500 for 1970 through 1972; and $113,750 for 1973. It was not stipulated that those were in fact correct market values for this property.
After hearing the testimony, the trial court rendered its decision, stating:
'The question before the court for determination is as to the fair value at a sheriff's sale, recognizing that a sheriff's sale is a distress sale and that the full fair market value is not necessarily received, and under Wisconsin decisions, it is not required.
'. . .
'Recognizing that this is a distress sale, and recognizing further that the defendant KSW Investments and Mr. Stone had notice of this sale and chose not to attend and not to bid, all in all, the court finds that the bid price bid by the First Wisconsin National Bank of Oshkosh of $23,000, assuming taxes which then amounted to.$23,500 or more, and they would be more at this time, was a fair value for the premises, and the court will therefore enter an order at this time and does order that the report of the sheriff be confirmed . . .'
It is well settled that the decision to conform a judicial sale following a foreclosure is vested in the broad discretion of the trial court, but such confirmation may be refused if there is an apparent inadequacy in the price which was caused by mistake, misapprehension or inadvertence on the part of the interested parties or possible bidders. See Gumz v. Chickering (1963), 19 Wis.2d 625, 121 N.W.2d 279. Additionally, such confirmation may be denied in the discretion of the trial court if the bid price was so inadequate so as to shock the conscience of the court. Gumz v. Chickering, Id.; Citizens Bank of Sheboygan v. Rose (1973), 59 Wis.2d 385, 388, 208 N.W.2d 110, and cases cited therein.
Sec. 816.165(2), Stats., (formerly sec. 278.105, Stats.), provides:
'Application for confirmation of sale and for deficiency judgment:
'(2) In case the mortgaged premises sell for less than the amount due and to become due on the mortgage debt and costs of sale, there shall be no presumption that such premises sold for their fair value and no sale shall be confirmed and judgment for deficiency rendered, until the court is satisfied that the fair value of the premises sold has been credited on the mortgage debt, interest and costs.'
There is no claim in the instant case that the alleged inadequate bid price was the result of mistake, misapprehension or inadvertence; rather, the argument is that the price of $23,000 bid by the bank was so inadequate as to shock the conscience of the court.
By finding the $23,000 bid made by the bank to be the 'fair value' of the property, the trial court implicitly found that the bid was not so inadequate as to shock its conscience. Such determination if made in the exercise of the trial court's discretion ordinarily will be affirmed by this court. However, we have held that the trial court, when acting on matters resting within its discretion, must exercise a legal discretion. If that discretion is abused or if the court proceeds upon a mistaken view of the law, this court will reverse. Churchill v. Welsh (1879), 47 Wis. 39, 54, 55, 1 N.W. 398. See also Beberfall v. Beberfall (1969), 44 Wis.2d 450, 171 N.W.2d 390.
This court has stated:
State v. Hutnik (1968), 39 Wis.2d 754, 763, 159 N.W.2d 733, 737.
Also in State ex rel. Schulter v. Roraff (1968), 39 Wis.2d 342, 349, 350, 159 N.W.2d 25, 29, cert. den. 393 U.S. 1066, 89 S.Ct. 716, 21 L.Ed.2d 709, this court stated:
'. . . a discretionary order made by a trial court as a result of an erroneous view of the law may be reversed without establishing an abuse of discretion on the part of the trial judge . . .' (citations omitted)
We conclude the order confirming the sale must be reversed because the trial court erred as a matter of law in the criteria it used to establish the fair value of the property.
In Citizens Bank of Sheboygan v. Rose, supra, this court noted 'shocking the conscience of the court is another way of saying that the price is inadequate as a matter of law.' Id. 59 Wis.2d at p. 389, 208 N.W.2d at p. 112. In the instant case, both sides presented testimony from their respective appraisers relating to the value of the property. The trial court accepted and adopted the appraisal made by Kargus for the bank. Kargus appraised the property at $46,800. This appraisal was based on the property as a vacant, empty shell and from Kargus' own testimony, the figure given represented his opinion of the fair market value of the building as a vacant shell even though both he and the bank's vice-president recognized that the highest and best use of the property was as a bar-restaurant facility. 1
This fair market value of the building as a shell was followed by the trial court in determining the statutorily mandated 'fair value' of the property. This court has previously stated with respect to the 'fair value' of the foreclosed property as that term is used in the statutes that "Fair value' obviously does not mean 'market value' as that term is generally understood, or that value which the property may probably have in the future under more favorable economic conditions or that value which it may have if the property be remodeled and put to...
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