Martinez v. Continental Enterprises

• Decision Date: 15 December 1986
• Docket Number: No. 84SC457,84SC457
• Parties: Jeanette MARTINEZ, Petitioner, v. CONTINENTAL ENTERPRISES, and Roy Myrick, d/b/a Continental Enterprises, Respondents.
• Court: Colorado Supreme Court

Page 308

730 P.2d 308

Jeanette MARTINEZ, Petitioner, v. CONTINENTAL ENTERPRISES, and Roy Myrick, d/b/a Continental Enterprises, Respondents.

No. 84SC457.

Supreme Court of Colorado En Banc.

Dec. 15, 1986.

Stitt, Wittenbrink and Nieman, P.C., R.J. Wittenbrink, Daniel F. Collopy, Westminster, for petitioner.

J.D. Pearson, Denver, for respondents.

KIRSHBAUM, Justice.

In Martinez v. Continental Enterprises, 697 P.2d 789 (Colo.App.1984), the Court of Appeals reversed the trial court's judgment granting the respondents, Continental Enterprises and Roy Myrick, d/b/a Continental Enterprises, a decree of foreclosure under a deed of trust on property owned by the petitioner, Jeanette Martinez. The Court of Appeals concluded that Myrick's foreclosure action was barred by a statute of limitation, but that he nevertheless was entitled to recover sums due on the promissory note underlying the deed of trust, subject to an accounting between the parties, under the doctrine of mortgagee in possession. The Court of Appeals also affirmed the trial court's award of attorney fees to Myrick. Having granted certiorari to review these determinations, we affirm in part, reverse in part, and remand the case to the trial court for further proceedings.

I

On July 9, 1967, Martinez and three of her relatives purchased a house on Sheridan Boulevard from the respondents. In connection with this transaction, the buyers paid a small down payment and executed a promissory note in favor of the respondents for the balance of the purchase price. As additional security for the note, Martinez executed a third deed of trust upon her home on Meade Street.

In February 1968, the payors defaulted on the note. However, Martinez' relatives did not vacate the Sheridan Boulevard house until early 1971, when they rescinded the contract. The respondents took possession of the property, which was later resold. After the net proceeds of the sale were credited against the indebtedness due on the promissory note, a deficiency remained. The respondents neither released the third deed of trust on Martinez' Meade Street property nor made demand on Martinez or her relatives to satisfy the deficiency.

In late 1971 or early 1972, Martinez vacated her Meade Street house because she was not able to bear the cost of repairing a faulty furnace. Shortly thereafter Martinez' mother gave Myrick the keys to that house, and Myrick assumed control of the property until October 1978. During those six years, Myrick made the monthly payments due on the notes secured by the two prior deeds of trust on the property and also paid certain utility bills. Myrick used the property primarily for storage purposes, although he intermittently permitted people to reside in the house.

In 1978, Martinez filed a quiet title action against the respondents to gain possession of the Meade Street property. A default judgment was entered, and in October 1978 Martinez evicted Myrick and regained occupancy. The default judgment was later vacated; however, Martinez continued to occupy the premises.

Martinez subsequently amended her original complaint to add claims of wrongful possession and unjust enrichment due to loss of rental income during Myrick's possession. ¹ The respondents answered and filed a counterclaim for the balance due on the 1967 promissory note and for foreclosure of the third deed of trust on the Meade Street property. ²

After a bench trial, the trial court concluded that although the respondents' promissory note claim was barred by section 13-80-110, 6 C.R.S. (1973), a six-year statute of limitation, their claim for foreclosure of the deed of trust was timely under section 38-40-105, 16A C.R.S. (1982), a fifteen-year statute of limitation. The trial court also concluded that the respondents were entitled to recover their attorney fees in connection with the foreclosure action.

The trial court dismissed Martinez' claims, but concluded that she was entitled to an offset against the sum recoverable by the respondents in an amount equal to the reasonable rental value of the Meade Street property from July 1, 1972, until October of 1978. This conclusion was based on the determination that the deed of trust granted the respondents the right to take possession of the Meade Street property upon default on the underlying note, but that they should have instituted their foreclosure proceedings within a reasonable time after taking possession of the property, which reasonable time expired on July 1, 1972. ³ The trial court also ruled that the respondents should be credited for the sums Myrick paid on the notes secured by the first and second deeds of trust and for certain of the utility bills he paid.

Both Martinez and the respondents appealed portions of the trial court's judgment. ⁴ The Court of Appeals reversed the trial court's foreclosure order and remanded the case with directions to conduct a new accounting. The Court of Appeals held that the respondents' claim under their third deed of trust was barred by section 38-40-112, 16A C.R.S. (1982), which provides that a lien is extinguished when the right to recover on the underlying debt is barred by a statute of limitation. The Court of Appeals also held that under the doctrine of mortgagee in possession Martinez' right of possession was contingent upon her satisfaction of the debt underlying the deed of trust. The Court of Appeals apparently affirmed the trial court's award of attorney fees. ⁵

II

The respondents contend that, as mortgagees, they have a fifteen-year period in which to foreclose a deed of trust following default on the underlying promissory note, regardless of whether an action may be maintained on the note itself. We disagree.

The period of limitation established by the General Assembly for any action on a promissory note in default is six years from the date of default. § 13-80-110, 6 C.R.S. (1973) (repealed and reenacted 1986) (current version at § 13-80-103.5, 6 C.R.S. (1986 Supp.)). Although Martinez and her relatives defaulted on the promissory note in 1968, no action was filed on the note until 1979. Martinez having properly raised the statute of limitation as an affirmative defense, see C.R.C.P. 8(c), the respondents' action on the note is barred. ⁶

The respondents urge that even if the claim on the note is barred, this case is best resolved by application of the doctrine that the bar of an action for debt does not bar other remedies for the same obligation. This argument fails to take into account section 38-40-112, 16A C.R.S. (1982), which states as follows:

The lien created by any instrument shall be extinguished, regardless of any other provision in this article to the contrary, at the same time that the right to commence a suit to enforce payment of the indebtedness secured by the lien is barred by any statute of limitation of this state.

Under this statute, when an action to recover on a promissory note is barred, any lien securing such note is extinguished. At the time the respondents filed their foreclosure claim, the lien on the Meade Street property was already extinguished. Section 38-40-112 precludes the respondents from foreclosing on property upon which they hold no encumbrance. See generally 3 R. Powell, The Law of Real Property p 461 (1986) (foreclosure action cannot be maintained where statutory provisions extinguish the lien); see, e.g., Cal.Civ.Code § 2911 (West 1974); Mont.Code Ann. § 71-3-122 (1985).

The respondents argue that their foreclosure action was not barred by section 38-40-112 because section 38-40-105, 16A C.R.S. (1982), which establishes a fifteen-year period within which to foreclose a deed of trust after default on the underlying note, is applicable. As we have indicated, section 38-40-112 provides that any lien created by default on a promissory note is extinguished when an action to recover on the underlying note is barred. Any action to recover on the 1967 note was barred by the terms of section 13-80-110 when the respondents filed their foreclosure claim.

The legislative purpose in providing a longer time period within which to bring a foreclosure action in some cases is suggested by the fact that section 38-40-105 is included within a marketable title act. Section 38-40-105 originally appeared within an act entitled: "An act concerning real property and to render titles to real property and to interests and estates therein, more safe, secure and marketable." Act of Mar. 28, 1927, ch. 150, 1927 Colo.Sess.Laws 585. Although the title of a statute is not dispositive of legislative intent, it may be used as an aid in construing a statute. U.M. v. District Court, 631 P.2d 165 (Colo.1981); Conrad v. City of Thornton, 191 Colo. 444, 553 P.2d 822 (1976).

Section 44 of the 1927 statute articulated that the act's purpose was to render titles more secure and marketable and, to further that purpose, stated that the act should be construed to enable purchasers to rely on record titles. Act of Mar. 28, 1927, ch. 150, § 44, 1927 Colo. Sess. Laws 585, 605. The statute is thus a curative measure, designed to promote certainty in transactions involving titles of record. The limitation period for foreclosure furthers the goal of simplifying land title transactions by freeing titles from the cloud of potential encumbrances after a specified period of time. ⁷ See Morris, Curative Statutes of Colorado Respecting Titles to Real Estate, 26 Dicta 281 (1949). Under this statutory scheme, a lien is extinguished in six years if recovery on the underlying note is barred by the six-year statute of limitation. However, if the six-year statute is for some reason tolled, such as where the plaintiff lacks capacity to sue or where the defendant is absent from the state, the ultimate marketability of title is assured by placing an outer limit of fifteen years on the time period during which the lien is deemed viable. F. Storke & D. Sears, Colorado Security Law § 83 (1955). Where, as...