McGinnity v. Kirk

• Decision Date: 03 November 2015
• Docket Number: No. 110,212.,110,212.
• Citation: 362 P.3d 186
• Parties: Thomas L. McGINNITY and Claudia McGinnity, husband and wife, Plaintiffs/Counter–Defendants/Appellees, v. Peggy J. KIRK, a/k/a Peggy Jean Kirk, James Merle Kirk, and Mary Komonce, Defendants/Counter–Plaintiffs/Appellants and Mary Komonce, Defendant.
• Court: Oklahoma Supreme Court

362 P.3d 186

Thomas L. McGINNITY and Claudia McGinnity, husband and wife, Plaintiffs/Counter–Defendants/Appellees,

v. Peggy J. KIRK, a/k/a Peggy Jean Kirk, James Merle Kirk, and Mary Komonce, Defendants/Counter–Plaintiffs/AppellantsandMary Komonce, Defendant.

No. 110,212.

Supreme Court of Oklahoma.

Nov. 3, 2015.

Gertner F. Drummond, Harvey C. Grauberger, Drummond Law, PLLC, Tulsa, Oklahoma, for Plaintiffs/Counter–Defendants/Appellees.

Gregory G. Meier, Tulsa, Oklahoma, for Defendants/Counter–Plaintiffs/Appellants.

EDMONDSON, J.

¶ 1 This is an appeal from a judgment entered after a non-jury trial in a mortgage foreclosure proceeding. We hold the value of the property exceeded the amount due on the mortgage and no waste was present, but the district court's finding that the Kirks breached the contract for deed is not against the clear weight of the evidence on the McGinnitys' claims of failure to maintain insurance and failure to maintain the property. We affirm the trial court's judgment in favor of the McGinnitys on the Kirks' claim for abuse of process.

¶ 2 The Kirks purchased a house in Osage County from Buel and Peggy Neece in 1987. The house was built in 1883. This house was located on approximately one-half acre within a 145–acre area owned by the Neeces. The Kirks signed a Contract for Deed that required monthly payments of $400 to the Neeces. In 1998, the Neeces sold their property to Thomas and Claudia McGinnity and assigned the Contract for Deed to the McGinnitys.

¶ 3 The legal proceeding started as a forcible entry and detainer proceeding brought by the McGinnitys against the Kirks and a separate foreclosure proceeding. The two proceedings were consolidated in the trial court. A trial court decision was appealed and after a decision by the Court of Civil Appeals a non-jury trial was held on remand. The present proceeding is an appeal from the post-remand non-jury trial.

¶ 4 The McGinnitys brought claims against the Kirks based upon breach of contract and a foreclosure of the contract for deed. They asserted that the contract for deed was breached by the Kirks due to (1) failing to keep the property insured for full replacement value, (2) conveying an interest in the property to Mary Komonce¹ without express written consent, (3) committing and permitting waste of the real property, (4) failing to keep the buildings and improvements in good repair, and (5) failing to begin immediate restoration. The McGinnitys sought foreclosure as their remedy, with attorney's fees and costs, but did not seek damages. The Kirks asserted estoppel, waiver, duress, accord and satisfaction, laches and claims based upon breach of contract and abuse of process. The parties agreed that the unpaid amount required by the contract for deed was $27,406.27.

¶ 5 The trial court denied the McGinnitys' request for judgment at the conclusion of their case in chief. Ultimately, the trial court determined that the Kirks breached the terms of the contract for deed. The trial court granted foreclosure on the real property in rem, quieted title in and to the McGinnitys against any claim of the Kirks and Komonce. The trial court reserved the issue of attorney's fees and costs to be presented to the trial court by a separate motion. The trial court found in favor of the McGinnitys on all of the Kirks' defenses and counterclaims.

¶ 6 The Kirks appealed and the judgment of the trial court was affirmed by the Court of Civil Appeals. The Kirks petitioned this Court for certiorari. They argued on certiorari that (1) no waste of the property occurred and the evidence was insufficient to show that the value of the property was less than the amount owed on the contract for deed; (2) insurance coverage was maintained on the property; (3) the conveyance to Komonce was a legal nullity, no reason for foreclosure, and the McGinnitys' objection to the conveyance was barred by limitations;² and (4) the Court of Appeals erroneously agreed with the trial court that the Kirks' abuse of process claim was barred by limitations. We granted certiorari.

¶ 7 The Kirks appealed a judgment foreclosing a mortgage. By 16 O.S.2011 § 11A, contracts for deed "made for the purpose of establishing an immediate and continuing right of possession ... shall to that extent be deemed and held mortgages ... and shall be subject to the same rules of foreclosure and to the same regulations, restraints and forms as are prescribed in relation to mortgages."³

When the contract for deed was properly executed, equitable title to the real property passed to the Kirks as buyers, the Neeces as sellers retained only the bare legal title, and the interest retained by the Neeces was equivalent to a mortgage for the purpose of guaranteeing payment due under the contract.⁴ The effect of the assignment of the contract for deed to the McGinnitys was an assignment of a mortgage for the purpose of foreclosure proceedings.

¶ 8 In a trial adjudicating a claim to foreclose a mortgage, the trial court acted as a court of equity as to the foreclosure.⁵ We have stated that: "In a case of equitable cognizance, a judgment will be sustained on appeal unless it is found to be against the clear weight of the evidence or is contrary to law or established principles of equity. In making such determination on appeal, this Court must examine the record and weigh the evidence."⁶

I. No Breach Based Upon Waste

¶ 9 Generally, "waste" occurs when a lawful possessor of real property causes an unreasonable injury to the estates held by others in that property.⁷ Historically, and depending on the jurisdiction where the property was located, a mortgagor committing waste of the mortgaged property was subject to a mortgagee seeking the equitable remedy of injunction⁸ as well as an action in tort for damages.⁹ In the present proceeding, the contract expressly prohibited "waste," and made waste a contract-specified ground for breach of the agreement and a reason for transferring possession to the Neeces and their assigns. In the district court, the McGinnitys alleged breach of contract due to waste and sought foreclosure.

¶ 10 The Kirks rely upon our opinion in Phillips v. Hill for the proposition in their appellate brief that waste does not occur, as a matter of law, when the party committing the waste will become the owner of the property.¹⁰ They state that because of their willingness to continue the monthly payments and become owners of the property, waste did not occur as a matter of law. They state that "the Phillips case ... is outcome determinative as a matter of law in this appeal."¹¹ Their reading of Phillips is incorrect.

¶ 11 In Phillips v. Hill, a distinction was drawn between lessees who purchase property and lessees who do not, and we stated that "the contract of the parties, the facts and circumstances surrounding the breach of the lease and the exercise of the option to purchase are controlling."¹² We explained that the lessors/sellers of the property suffered no economic damage because the buyer was "ready, willing and able to exercise his option to purchase" at any time most advantageous to plaintiffs [sellers-lessors], and the sellers would receive "the entire purchase price as specified in the option and all rentals" and sellers "will receive all sums due under the contract."¹³ In Phillips the lessee/buyer pled that the sellers "could accelerate the provisions of the option to purchase," and the lessee "tendered the balance of the rental payments owing for the remainder of the lease term and the full agreed purchase price."¹⁴ The appellate adjudication in Phillips did not turn on the mere status of a lessee as a potential owner of the property, but on a lessee seeking to become an owner by tendering the whole sum due on the contract and making the lessor economically whole, as defined by their agreement, at the time the lessor sought legal relief.

¶ 12 Our reading of Phillips where tendering payment of the complete contractual debt acts to prevent foreclosure is consistent with (1) opinions recognizing the doctrine prohibiting clogs on a mortgagor's equitable right of redemption,¹⁵ (2) opinions explaining a right of redemption, a mortgagor's right to save an estate from foreclosure by payment of the full mortgage debt¹⁶ after default for any reason and prior to confirmation of the foreclosure sale,¹⁷ (3) the statutory ( 16 O.S. § 11A ) classification of a contract for deed as a mortgage for the purpose of foreclosure, and (4) public policy recognizing the contractual rights of mortgagees such as that expressed in Federal Land Bank of Wichita v. Story.¹⁸

¶ 13 On the other hand, the Kirks' understanding of Phillips v. Hill, and the legal rule they champion, is inconsistent with public policy recognized by this Court in Federal Land Bank of Wichita v. Story. In that case, we affirmed a district court's adjudication that the Oklahoma Mortgage Foreclosure Moratorium Act (62 O.S.Supp.1986 §§ 492, 493 ) violated the Federal and State Constitutional Contracts Clauses,¹⁹ and Okla. Const. Art. 2 § 6.²⁰ We stated that the Act was a debtor relief law that prohibited and delayed certain foreclosures involving pre-existing mortgages, and also failed to grant trial courts the power to prevent waste and protect a mortgagee's contractual rights during the period of statute-required delay in the foreclosure process.²¹

¶ 14 A mortgagee's right to prevent waste causing detriment to the security has long been recognized by courts.²² The Kirks' reading of Phillips would have us read contracts for deed of real property as preventing enforcement of an express clause in a contract stating that a buyer must prevent waste. We decline to adopt their reading of Phillips. The Kirks' contractual status to become owners and their desire to continue the required monthly payments are not sufficient to relieve them from their contract-specified duty to prevent waste.

¶ 15 Application of Phillips v. Hill, supra, is dependent upon the record showing...