Huntington Nat. Bank v. Sproul

• Decision Date: 13 September 1993
• Docket Number: No. 19965,19965
• Citation: 116 N.M. 254,861 P.2d 935,1993 NMSC 51
• Parties: The HUNTINGTON NATIONAL BANK, a National Banking Association, Plaintiff-Appellee, v. Lesley G. SPROUL, Defendant-Appellant.
• Court: New Mexico Supreme Court

Page 935

861 P.2d 935

116 N.M. 254

The HUNTINGTON NATIONAL BANK, a National Banking

Association, Plaintiff-Appellee, v. Lesley G. SPROUL, Defendant-Appellant.

No. 19965.

Supreme Court of New Mexico.

Sept. 13, 1993.

Rehearing Denied Oct. 14, 1993.

[116 N.M. 255] Calvin J. Hyer, Jr., Albuquerque, for plaintiff-appellee.

Atkinson & Kelsey, P.A., Thomas C. Montoya, Albuquerque, for defendant-appellant.

OPINION

BACA, Justice.

Defendant-appellant Lesley Sproul ("Mrs. Sproul") appeals the district court's determination that an Ohio judgment domesticated in New Mexico, entered in favor of Plaintiff-appellee Huntington National Bank (the "Bank") against Sproul's husband, Elmer Sproul ("Mr. Sproul"), constituted a community debt under NMSA 1978, Section 40-3-9 (Repl.Pamp.1989). Mrs. Sproul also appeals from the district court's order subjecting the Sprouls' residence, owned as community real property, to foreclosure and judicial sale pursuant to NMSA 1978, Section 40-3-11 (Repl.Pamp.1989), to satisfy the Bank's judgment against Mr. Sproul. We address the following issues on appeal: (1) Whether the district court erred by applying New Mexico law to determine whether the judgment on the Bank's note constituted a community debt of Mr. and Mrs. Sproul; (2) whether the district court erred when it concluded that the judgment against Mr. Sproul was the community debt of the Sprouls under Section 40-3-9; (3) whether NMSA 1978, Section 40-3-13(A) (Repl.Pamp.1989), requires joinder of both spouses when the creation of a community debt ultimately renders community real property liable for satisfaction of the debt; (4) whether the failure of a creditor to join both spouses in an underlying action on a marital debt precludes the creditor from later foreclosing upon community real property to satisfy the debt; and (5) whether the district court misapplied principles of full faith and credit when it ordered the judicial sale of the Sprouls' residence. We note jurisdiction under SCRA 1986, 12-102(A)(1) (Repl.Pamp.1992), and affirm.

I

Mr. and Mrs. Sproul, residents of Bernalillo County, New Mexico, were married on August 27, 1949. Thirty-eight years later, on July 20, 1987, Mr. Sproul signed a commercial loan note with the Bank, a banking association located in Columbus, Ohio, for the amount of $112,700. The note contained a choice-of-law provision, which stated that the note would be governed by and construed under Ohio law. Mrs. Sproul did not sign the note and was not otherwise a party to the transaction between the Bank and her husband.

Mr. Sproul used the funds obtained from the Bank loan to purchase 70,658 shares of stock in a company named Blandford Park Limited and pledged these shares as security for the loan. Mr. Sproul sustained losses from his investment when the stock depreciated and he subsequently defaulted on the note. Following his default, the Bank brought suit against Mr. Sproul and Garth Guy, the guarantor of Mr. Sproul's loan, in the Court of Common Pleas of Franklin County, Ohio. On February 1, 1989, the Court of Common Pleas entered default judgment against Mr. Sproul for the loan amount of $112,700, accrued interest of $15,431.04, future interest on the note, late charges totalling $25, and costs.

On March 7, 1989, the Bank filed a complaint against Mr. Sproul in the Bernalillo County District Court, requesting domestication of the Ohio judgment. On May 8, 1989, the district court domesticated the Ohio judgment in New Mexico by entering a default judgment against Mr. Sproul for the amounts specified in the Ohio judgment, attorney's fees of $3,500, and costs totalling $75. The Bank filed a transcript of judgment with the Bernalillo County Clerk on May 26, 1989.

On February 2, 1990, the Bank filed an additional complaint against both Mr. and Mrs. Sproul, seeking to foreclose its judgment lien on the couple's New Mexico residence. The Bank requested that the district court find that the judgment against Mr. Sproul was the community debt of the Sprouls. Following a nonjury trial on October 19, 1990, the district court determined that the judgment constituted a community debt of both Mr. Sproul and Mrs. Sproul under Section 40-3-9. The district court subsequently subjected the Sprouls' residence to foreclosure and to judicial sale pursuant to the priorities for satisfaction of community debts found in Section 40-3-11. Mrs. Sproul moved for a stay of foreclosure proceedings pending appeal. The district court granted Mrs. Sproul's motion for stay, and she appealed the district court's decision to this Court.

II

A threshold issue presented by this appeal is whether the district court erred when it concluded that New Mexico law applied to determine whether the judgment on the Bank's note was the community debt of Mr. and Mrs. Sproul. Mrs. Sproul contends that the district court erred by applying New Mexico law because the commercial loan note between Mr. Sproul and the Bank contained a choice-of-law provision stating that the note would "be governed by and construed in accordance with the law of the State of Ohio." Mrs. Sproul asserts that this choice-of-law clause required the district court to apply Ohio law when enforcing the Bank's judgment and that under Ohio law the Bank would be precluded from foreclosing on her interest in the Sprouls' residence in order to satisfy its judgment against Mr. Sproul.¹

To support her argument, Mrs. Sproul asserts that the parties to a contract may select the law to govern the performance and enforcement of a contract between them and that this Court will give effect to the parties' choice-of-law provision in a contract controlled by New Mexico's Uniform Commercial Code, NMSA 1978, Sections 55-1-101 to -12-108 (Orig.Pamp., Repl.Pamp. & Cum.Supp.1992) (the "UCC"), when the law chosen bears a relationship to the contract.² Nez v. Forney, 109 N.M. 161, 163, 783 P.2d 471, 473 (1989); United Wholesale Liquor Co. v. Brown-Forman Distillers Corp., 108 N.M. 467, 470, 775 P.2d 233, 236 (1989); Jim v. CIT Fin. Servs. Corp., 87 N.M. 362, 364, 533 P.2d 751, 753 (1975). Mrs. Sproul's argument, however, fails to recognize that a cause of action on a judgment is different from the cause of action upon which the judgment was based. See City of Philadelphia v. Bauer, 97 N.J. 372, 478 A.2d 773, 776 (1984) (citing Milwaukee County v. M.E. White Co., 296 U.S. 268, 275, 56 S.Ct. 229, 233, 80 L.Ed. 220 (1935)). In this case, the Ohio judgment rendered on the Bank's note constitutes an obligation that is separate and distinct from the underlying note itself. The Ohio court's rendition of the final money judgment extinguished the Bank's note and replaced the claim based on the note with a new cause of action on the judgment. See Bassett v. Eagle Telecommunications, Inc., 750 P.2d 73, 76 (Colo.Ct.App.1987) (upon entry of judgment, defendant's liability under preceding claims ceases to exist and is replaced by new liability under the judgment); Neel v. First Fed.Sav. & Loan Ass'n, 207 Mont. 376, 675 P.2d 96, 101 (1984) ("[W]hen a claim on a contract is reduced to judgment, '[t]he contract between the parties is voluntarily surrendered and canceled by merger in the judgment and ceases to exist.' ") (citation omitted); Woodcraft Constr., Inc. v. Hamilton, 56 Wash.App. 885, 786 P.2d 307, 308 (1990) (a valid final money judgment extinguishes the underlying claim and gives rise to a new cause of action on the judgment). While the note itself was controlled by its choice-of-law clause, the note's contractual obligations were superseded by new rights and obligations upon rendition of judgment. No contractual basis existed following judgment that required application of the choice-of-law clause to enforcement of the judgment. See id. at 308. Accordingly, we hold that the note's choice-of-law clause did not require the district court to apply Ohio law when enforcing the judgment rendered on the note.

Absent the applicability of the note's choice-of-law clause to the judgment, we address whether the district court was correct in applying New Mexico law to the enforcement of the judgment. In this case the Bank instituted an action in New Mexico district court to domesticate the Ohio judgment. Pursuant to the Bank's complaint and following notice to Mr. Sproul, the district court granted the Bank personal judgment against Mr. Sproul in the State of New Mexico. Once the New Mexico judgment was entered, the judgment obtained in Ohio lost its original identity as an Ohio judgment and became a money judgment of the state of New Mexico. See City of Philadelphia, 478 A.2d at 776 (noting that under the doctrine of merger, a foreign judgment loses its separate identity and becomes a simple money judgment once a judgment on the foreign judgment is obtained in the enforcing state); cf. C & J Travel, Inc. v. Shumway, 161 Ariz. 33, 775 P.2d 1097, 1099 (Ct.App.1989) (finding that New Hampshire judgments were transformed into valid Arizona judgments when creditors chose to file New Hampshire judgments in Arizona pursuant to Arizona's Uniform Enforcement of Foreign Judgments Act). Because the Ohio judgment was converted into a New Mexico judgment, New Mexico law was applicable to its enforcement. 46 Am.Jur.2d Judgments § 897, at 1031 (1969) ("Matters relating to the enforcement of judgments are governed by the law of the forum."); cf. NMSA 1978, § 39-4A-3 (Repl.Pamp.1991) (requiring that foreign judgments filed pursuant to New Mexico's Foreign Judgments Act be treated "in the same manner as a judgment of the district court of this state" and permitting foreign judgments to be enforced or satisfied in the same manner as New Mexico judgments). Accordingly, we hold that the district court correctly applied New Mexico law to determine whether the New Mexico judgment against Mr. Sproul constituted a community debt of Mr. and Mrs. Sproul.

III

We next address whether the district court erred when it concluded, under ...