Jahnke v. Palomar Financial Corp.

• Decision Date: 29 October 1974
• Docket Number: CA-CIV,No. 1,1
• Citation: 527 P.2d 771,22 Ariz.App. 369
• Parties: Curtis R. JAHNKE, Appellant, v. PALOMAR FINANCIAL CORPORATION, a California corporation, Appellee. 2470.
• Court: Arizona Court of Appeals

Page 771

527 P.2d 771

22 Ariz.App. 369

Curtis R. JAHNKE, Appellant, v. PALOMAR FINANCIAL CORPORATION, a California corporation, Appellee.

No. 1 CA-CIV 2470.

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

Oct. 29, 1974.

Rehearing Denied Nov. 25, 1974.

Review Denied Jan. 21, 1975.

Warner & Angle by Edward L. Roper, Phoenix, for appellant

Perry & Head by David A. Griffiths, Phoenix, for appellee.

OPINION.

FROEB, Judge.

Palomar Financial Corporation (Palomar) was the seller under a contract for the sale of the Flamingo Motor Hotel in the City of Yuma. This suit was commenced by Palomar against the original and successive purchasers of the property whose interests arose under and flow from the contract document referred to as the 'Master Contract.' In addition to these defendants, Curtis R. Jahnke (Jahnke) was also named as a defendant in view of his interest as the owner and holder of a note secured by a deed of trust from one of the purchasers in the chain of title. The purpose of the suit was to enforce a forfeiture by Palomar of all of the interests of the defendants and to quiet title in its name.

The interests of the various parties came about as follows. On October 7, 1971, Palomar, then owner of the Flamingo Motor Hotel, sold its interest to the E. L. Suttons, who, thereafter, on January 14, 1972, sold their interest to Henry Van Merryman, who, in turn, sold his interest on March 22, 1972, to Tahitian Village, a partnership. Tahitian Village assumed the buyers' obligations under the Master Contract, as did the previous purchasers, and, in addition, gave its note in the amount of $125,000.00 secured by a deed of trust to Merryman. Merryman then assigned all of his interest in the note and deed of trust to Jahnke. The assignment was recorded on May 1, 1972.

Upon the filing of this action and service of the complaint, each of the named parties except Jahnke failed to appear and their defaults were entered. Jahnke did appear and defend by filing a timely answer.

Payments had been made from March 1, 1972, through July 25, 1972. None of the payments were made in accordance with the payment schedule, with delays varying from 20 days to six weeks. The last installment received by Palomar was the June 1, 1972, payment which was made on July 25, 1972. Less than twenty percent of the total purchase price had been paid when these proceedings began.

The failure of Tahitian Village, or for that matter any other interested party, to make payments due under the Master Contract led Palomar to undertake legal steps to enforce the right of forfeiture provided for therein. There is no dispute that Palomar Although the notice provided that the 'time of the essence' clause of the Master Contract was to be reinstated on and after thirty days from the date of the notice, it is not clear from the wording of the notice whether the purchasers would be in default on December 11, 1972, or on January 1, 1973, the text regular due date for payment of an installment under the contract. Under one construction of the notice, all past due payments and obligations were to become immediately due and payable thirty days following the date of the notice which would be December 11, 1972, while under another construction no past due payments or obligations were to become due and payable until the next regular installment date which was January 1, 1973. As appears, however, from our decision and holding in this case, we need not decide which interpretation of the notice requiring strict performance is to be applied.

had accepted late payments and had failed to insist upon compliance with the 'time of the essence' clause of the contract. Recognizing this, Palomar, through its attorneys, prepared and attempted to serve upon all parties having an interest in the Flamingo Motor Hotel a 'notice requiring strict performance' ¹ dated November 10, 1972. Copies were mailed to each person appearing to have an interest in the hotel, including Jahnke. It is not clear, however, whether Jahnke received a copy of the notice which was mailed on November 10, 1972. He did, however, receive a copy on November 22, 1972, at the time the complaint in this case was served upon him.

The facts which are determinative of this lawsuit then follow. Having sent forth its thirty day insistence notice dated November 10th, Palomar then filed its complaint in the Superior Court on November 20, 1972. In two separate counts, it sought to enforce a forfeiture of the interest of all parties named above in the Flamingo Motor Hotel and to quiet title to itself. A copy of the complaint together with a copy of the insistence notice was served upon Jahnke on November 22, 1972, which, for the purpose of this case, is considered to be the date upon which Jahnke received notice of Palomar's demand for strict compliance with the obligations of the purchaser under the contract. In his answer filed on December 28, 1972, Jahnke entered a general denial, and, in addition Jahnke contends that Palomar waived its right to rely upon the time of the essence clause of the Master Contract by accepting late payments; that the complaint in the action was prematurely filed insofar as the time of the essence clause had not been reinstated when the complaint was filed; that no default had then occurred entitling Palomar to forfeiture; that no declaration of election to forfeit was ever made by Palomar after default, and that the judgment constitutes a taking of his property without due process of law.

alleged that the complaint failed to state a claim for relief against him. He further alleged that the defendant purchasers were not in default of their obligations under the contract and that the time of the essence clause had been waived by Palomar in accepting late payments from the various purchasers under the contract. In addition, Jahnke alleged that the claims of Palomar were premature and that the court lacked jurisdiction over the subject matter.

Palomar argues that Jahnke has no standing as a mere subsequent lienholder to raise the defense of waiver or to insist upon a declaration of forfeiture; that the time of the essence clause was reinstated and forfeiture was completed prior to the filing of the motion for summary judgment, though subsequent to the filing of the complaint; and that, in any event, Jahnke made no tender of funds to cure the default and was required to do so upon equitable principles.

Thereafter, on February 1, 1973, Palomar filed a motion for summary judgment, followed on February 26, 1973, by Jahnke's motion for judgment on the pleadings. The trial court, on March 5, 1973, granted the motion of Palomar, denied the motion of Jahnke, and entered judgment declaring the contract forfeited and Jahnke's interest terminated. From this judgment, Jahnke appeals.

DEFECTIVENESS OF COMPLAINT

We find that Palomar lacked the right to enforce a forfeiture of the interests of the purchasers and their assignees at the time it filed the complaint in this case.

There is no factual dispute that Palomar had previously and without objection received overdue installments. The last installment was due on June 1, 1972, and was paid on July 25, 1972. In addition, there appear to have been past due insurance premiums and taxes which Palomar paid on behalf of the purchasers, entitling it to add those amounts to accruing contract installments. While Palomar does not concede that the time of the essence condition of the contract was thereby waived, we cannot do otherwise than to treat it as such in view of the notice requiring strict performance prepared and sent out by it.

The notice stated specifically that the time of the essence provision would be considered reinstated thirty days thereafter, which at the earliest would have been December 11, 1972. Whether the buyers were in default on December 12, 1972, or whether under the notice they could not be considered in default until January 1, 1973, the due date of the next installment, is not material. The critical fact is that until at least December 12, 1972, the buyers could not be held in default as they had at least that period within which to bring their obligations up to date. Onekama Realty Co. v. Carothers, 59 Ariz. 416, 129 P.2d 918 (1942); Arizona Title Guarantee & Trust Co. v. Modern Homes, Inc., 84 Ariz. 399, 330 P.2d 113 (1958). Where prior defaults are waived, none of them can be used as a foundation for forfeiture. Arizona Title Guarantee & Trust Co. v. Modern Homes, Inc., supra. The purchaser is not in default until after it fails to comply with the required notice. Kannert Bros. Enterprises, Inc. v. Tanque Verde Plaza Co., 102 Ariz. 301, 428 P.2d 678 (1967).

We turn then to Palomar's complaint in this case, filed a mere ten days after the notice of November 10, 1972. It alleged that Palomar was owner of the property and entitled to possession and prayed for orders to this effect. However, since no default had yet occurred, under no theory A cause of action must exist and be complete prior to the commencement of the lawsuit and if it is not it is defective as premature. Fulton v. Woodford, 17 Ariz.App. 490, 498 P.2d 564 (1972). This is true where a necessary element of the cause of action does not occur until after the commencement of the action. Investment Service Co. v. Martin Bros. Container & Timber Products Corp., 255 Or. 192, 465 P.2d 868 (1970). The rights and liabilities of the parties depend upon the facts as they existed at the time of the commencement of the action and not later at the time of filing of a motion for summary judgment.

was Palomar at this point in time entitled to either ownership or possession. The complaint therefore failed to state a claim upon which relief could be granted, and since neither an amended nor supplemental complaint was ever filed, it should have been dismissed by the trial court upon Jahnke's motion for judgment on the pleadings. Rule 12(b)(6) and Rule 12(c), ...