Knight Props., Inc. v. State Bank & Trust Co.

• Decision Date: 10 January 2012
• Docket Number: No. 2009–CA–01429–COA.,2009–CA–01429–COA.
• Citation: 77 So.3d 491
• Court: Mississippi Court of Appeals
• Parties: KNIGHT PROPERTIES, INCORPORATED and Chad Knight, Appellants v. STATE BANK & TRUST COMPANY, Appellee.

77 So.3d 491

KNIGHT PROPERTIES, INCORPORATED and Chad Knight, Appellants

v.STATE BANK & TRUST COMPANY, Appellee.

No. 2009–CA–01429–COA.

Court of Appeals of Mississippi.

Feb. 22, 2011.Rehearing Denied Jan. 10, 2012.

Drew McLemore Martin, Melissa Selman Martin, Jackson, attorneys for appellants.

Ronald Keith Foreman, Annette Elise Bulger Mathis, attorneys for appellee.

EN BANC.

KING, C.J., for the Court:

¶ 1 Knight Properties, Inc. (KPI) and Chad Knight entered into a contract with State Bank & Trust Co. for a loan and offered six tracts of land as security. KPI and Knight defaulted on the loan, and State Bank pursued a monetary judgment. The Circuit Court of Madison County granted summary judgment to State Bank. KPI and Knight filed a post-trial motion to reconsider and to vacate the judgment, which was denied. KPI and Knight have appealed raising the following issues: (1) whether the doctrine of election of remedies prevents State Bank from seeking a monetary judgment instead of foreclosure; (2) whether equitable estoppel prevents State Bank from foregoing foreclosure, after notice was provided, and seeking monetary judgment; and (3) whether KPI or Knight waived the defenses of election of remedies or equitable estoppel by agreement. Finding no reversible error, we affirm.

FACTS

¶ 2 Knight is the principal owner of both North Place Seven Development, LLC (North Place) and KPI. On December 31, 2006, Knight purchased six tracts of land on behalf of North Place; and on February 7, 2006, the City of Madison (City) approved the final plat for development subject to specific restrictions. Those restrictions required Knight to replace the overhead power lines with underground facilities. The cost of compliance was approximately $130,024.62. Knight requested that the City waive the non-conforming restrictions on the specified tracts of land. On November 21, 2006, the City denied his request.

¶ 3 On November 30, 2006, North Place sold the six tracts of land to KPI for $300,000. On December 1, 2006, Knight appealed the denial of his request for a waiver to the circuit court alleging that the restrictions rendered the land “unmarketable.”

¶ 4 On January 16, 2007, KPI and Knight entered into a contract with State Bank for a loan and offered the six tracts of land as security. KPI was named as the promisor on the promissory notes, and Knight was named as a guarantor within the commercial guarantee. Knight represented to State Bank that the collateral property was valued at $300,000, but he failed to inform State Bank of the restrictions imposed on the land and that the cost of conforming to the imposed restrictions would decrease the value of the properties by nearly half. KPI and Knight defaulted on the promissory notes; as a result, on October 22, 2007, State Bank sent a notice of foreclosure. The foreclosure sale was to occur on November 26, 2007. State Bank procured an appraisal of the land in anticipation of the pending foreclosure, and only then, it was informed of the discrepancy in value.

¶ 5 Due to the discrepancy, State Bank opted to forego foreclosure and pursue a monetary judgment against KPI and Knight. On January 18, 2008, State Bank filed its complaint. On January 25, 2008, the appeal that Knight filed on behalf of North Place against the City was dismissed by the circuit court for failure to file timely a brief.

¶ 6 On November 7, 2008, after a period of discovery, State Bank filed a motion for summary judgment arguing that as a matter of undisputed fact, KPI and Knight were jointly and severally liable to State Bank on their promissory notes and guarantees. KPI and Knight filed a cross-motion for summary judgment claiming that State Bank was barred from enforcing the guarantees and notes based on the doctrine of equitable estoppel. Specifically, KPI and Knight alleged that reliance on the notice of foreclosure resulted in the dismissal of the appeal against the City. State Bank responded asserting that the elements of equitable estoppel were not met and that the contracts specifically waived the right to claim defenses against State Bank's right to forego foreclosure and pursue a monetary judgment. On March 23, 2009, the circuit court granted summary judgment in favor of State Bank.

¶ 7 KPI and Knight subsequently filed a motion for reconsideration and to vacate the judgment arguing that State Bank's election of the remedy of foreclosure barred it from changing that election and that KPI had detrimentally relied on State Bank's notice of foreclosure. After a hearing on the merits, the circuit court denied the motion. On November 2, 2009, KPI and Knight timely filed a notice of appeal.

ANALYSIS

¶ 8 This Court will review issues of contract construction as well as a trial court's grant of summary judgment de novo. Leitch v. Miss. Ins. Guar. Ass'n., 27 So.3d 396, 398 (¶ 6) (Miss.2010); Limbert v. Miss. Univ. For Women Alumnae, Ass'n., 998 So.2d 993, 998 (¶ 10) (Miss.2008).

I. Election of Remedies

¶ 9 KPI and Knight argue that the doctrine of election of remedies applies to bar State Bank from pursuing a monetary judgment against them after State Bank provided notice of foreclosure. The defense of election of remedies is not properly before this Court; therefore, this claim is procedurally barred.

¶ 10 Election of remedies is an affirmative defense. O'Briant v. Hull, 208 So.2d 784, 785–86 (Miss.1968). Mississippi Rule of Civil Procedure 8(c), specifically requires that, in pleading to a preceding pleading, a party shall set forth affirmatively certain listed defenses and any other matter constituting an affirmative defense. M.R.C.P. 8(c). Generally, if the defense is not specifically pleaded in the original answer, the defense is deemed waived. Hutzel v. City of Jackson, 33 So.3d 1116, 1119 (¶ 12) (Miss.2010) (citation omitted).

¶ 11 KPI and Knight did not specifically plead election of remedies as a defense in their original answer. In fact, the first reference to the doctrine of election of remedies was within the supplemental memorandum in support of defendant's motion for reconsideration and to vacate the judgment. The supplemental memorandum was filed more than one year after the filing of the original complaint and more than three months after the entry of the final judgment in favor of State Bank.

¶ 12 This Court has held that: “[A] defendant's failure to timely and reasonably raise and pursue the enforcement of any affirmative defense or other affirmative matter or right which would terminate or stay the litigation, coupled with active participation in the litigation process, will ordinarily serve as a waiver.” Knox v. BancorpSouth Bank, 37 So.3d 1257, 1261 (¶ 11) (Miss.Ct.App.2010) (quoting Daughtrey v. Allred, 22 So.3d 1253, 1264 (¶ 26) (Miss.Ct.App.2009)). KPI and Knight failed to raise the affirmative defense of election of remedies in a timely and reasonable manner. Furthermore, KPI and Knight participated throughout the litigation process, including discovery and appearing for a hearing before the circuit court. The affirmative defense was only pleaded after the final judgment was entered. These facts are sufficient to find a waiver of the defense of election of remedies.

¶ 13 Procedural bar aside, in order for State Bank to be barred from pursuing a monetary judgment instead of foreclosure, Knight and KPI must satisfy the three necessary elements of the doctrine of election of remedies: (A) existence of two or more remedies, (B) inconsistency between such remedies, and (C) a choice of one of the remedies. O'Briant, 208 So.2d at 786.

A. Two or More Remedies

¶ 14 As for the first element, there is no dispute that there are two or more remedies in existence. State Bank could (1) foreclose on the secured property and pursue a legal judgment for deficiency or (2) seek a monetary judgment in total satisfaction of the debt. This element is satisfied.

B. Inconsistency Between Remedies

¶ 15 The Mississippi Supreme Court has specifically held that there is no inconsistency in a mortgagee's legal and equitable rights, stating:

There is no inconsistency in the two remedies here available to [W.O.] Rea, receiver. He could pursue the foreclosure to conclusion, or, if he deemed it advantageous to himself, he could forego the foreclosure and proceed at law to collect his debt in the law forum.... There is no inconsistency between the legal and equitable remedial rights possessed by a mortgagee in case of a breach, and he may exercise them all at the same time, and resort to one is not a waiver of the other.

Rea v. O'Bannon, 171 Miss. 824, 832, 158 So. 916, 918 (1935). See also West Point Corp. v. New N. Miss. Fed. Sav. & Loan Ass'n., 506 So.2d 241, 243 (Miss.1986); Cooper v. Miss. Land Co., 220 So.2d 302, 308 (Miss.1969). This element is not satisfied.

C. Choice of Remedy

¶ 16 KPI and Knight argue that State Bank initiated foreclosure proceedings and, thus, elected their choice of remedy. The Mississippi Supreme Court has expressed its disfavor for the doctrine of election of remedies and held that the doctrine of election of remedies only applies once a cause of action is pursued to satisfaction. O'Briant, 208 So.2d at 786. A claim must be litigated to its conclusion in order to warrant the defense of election of remedies to bar a subsequent cause of action. Aetna Cas. and Surety Co. v. Berry, 669 So.2d 56, 72 (Miss.1996) (overruled on other grounds). State Bank did provide notice of foreclosure to KPI and Knight, but the cause of action was not pursued to satisfaction, and a foreclosure sale never occurred. See 25 Am.Jur.2d Election of Remedies § 15 (2004). Notification of a contemplated action, such as the filing of a notice of a claim, does not constitute an election that precludes the subsequent prosecution of an action or suit based upon an inconsistent remedial right. Id. Because notification or other such actions required by state law are generally not considered an election, this...