Patton v. First Federal Sav. and Loan Ass'n of Phoenix

• Decision Date: 13 March 1978
• Docket Number: No. 13558,13558
• Citation: 578 P.2d 152,118 Ariz. 473
• Parties: Valerie PATTON and John Philip Patton, Appellants, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF PHOENIX, a corporation, FirstService Corporation, a corporation, Phil Kable, M. L. Rubin and G. E. Fink,Appellees.
• Court: Arizona Supreme Court

Page 152

578 P.2d 152

118 Ariz. 473

Valerie PATTON and John Philip Patton, Appellants, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF PHOENIX, a corporation, FirstService Corporation, a corporation, Phil Kable, M. L. Rubin and G. E. Fink,Appellees.

No. 13558.

Supreme Court of Arizona, In Banc.

March 13, 1978.

Rehearing Denied April 18, 1978.

Thur & Preston by Calvin C. Thur, Scottsdale, for appellants.

Jennings, Strouss & Salmon by Roxana C. Bacon, Phoenix, for appellees.

HAYS, Justice.

Appellants appeal from the trial court's granting of a summary judgment motion. The Supreme Court has jurisdiction pursuant to 17A A.R.S. Supreme Court Rules, rule 47(e).

Many allegations and claims for relief were presented to the trial court. Rather than attempting to meet the seven issues raised by the appellants in rather broad and ambiguous terms, we have refined those issues into four, as follows:

1. Was appellees' conduct an intentional infliction of emotional distress?

2. Did appellee, First Service Corporation, breach its fiduciary duties as trustee under the deed of trust?

3. Is the "due on sale" clause in the deed of trust an unlawful restraint on alienation?

4. Did appellee First Federal convert the funds in Mrs. Patton's $2,000 savings account?

Viewing, as we must, the record in the light most favorable to the party opposing the summary judgment, Hall v. Motorists Insurance Corp., 109 Ariz. 334, 509 P.2d 604 (1973), the following facts are established. In December, 1972, plaintiff/appellant Valerie Patton (then Valerie Faulkner) applied for a loan from First Federal Savings and Loan Association (First Federal). Mrs. Patton was told by an employee of First Federal that First Federal would not give her a loan unless she pledged a $2,000 savings account to First Federal for two years. At the end of two years, if Mrs. Patton had not defaulted on the loan, the pledge was to terminate. Mrs. Patton pledged the savings account as required. First Federal lent her a sum necessary to purchase a home for herself and her children and required her to sign a Trust Deed naming First Federal as beneficiary.

About 18 months later, Mrs. Patton entered into an agreement of sale with a Mr. Toy. The agreement stated that the First Federal loan was to remain Mrs. Patton's obligation and that she would pay off this loan before Toy had made the last payment due under the agreement. The property would not be deeded to Toy until he had paid the entire balance due under the agreement. Shortly after this transaction with Toy, First Federal informed Mrs. Patton that unless First Federal received a transfer fee of $181.33 and a 1/2% interest rate increase on the loan, First Federal would force Mrs. Patton to pay off the entire balance of the loan under the "due on sale" provision of the Trust Deed. In September, 1974, First Federal instructed First Service Corporation, the trustee of the Trust Deed, to issue a Notice of Trustee's Sale on Mrs. Patton's property even though Mrs. Patton had never been in default on the loan until First Federal refused to accept payments. Mrs. Patton put the refused payments in an escrow account available to First Federal. The Notice of Trustee's Sale which Mrs. Patton received and which was recorded in the Maricopa County real estate records indicated that the sale was to be held January 3, 1974 (about nine months before Mrs. Patton received the notice). The Notice of Trustee's Sale posted on the property stated that the sale would be January 3, 1975. First Service Corporation never sent Mrs. Patton a notice with the correct sales date as required by the statutes. A.R.S. § 33-801 et seq.

At the end of the two-year pledge period, First Federal refused to return Mrs. Patton's savings account to her. First Federal eventually did pay Mrs. Patton the interest on the account, but only after several delays and disagreements.

Just a few days before the scheduled trustee's sale, Mrs. Patton filed a lawsuit from which this appeal arose. Mrs. Patton's husband was later joined in the suit as an indispensable party. The trial court granted summary judgment for the defendants, and plaintiffs/appellants appealed the summary judgment.

1. INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS

Appellants claim that appellees' conduct during the original loan transaction and in the course of events leading up to the scheduled trustee's sale constituted the intentional infliction of emotional distress. While some of appellees' behavior may have been harsh and may have upset Mrs. Patton, it is still within the realm of acceptable business practice. We do not find appellees' acts outrageous enough to justify submitting to the jury the question of intentional infliction of emotional distress. It is the duty of the court as society's conscience to determine whether the acts complained of can be considered sufficiently extreme and outrageous to state a claim for relief. Cluff v. Farmers Insurance Exchange, 10 Ariz.App. 560, 460 P.2d 666 (1969). One may recover for intentional infliction of emotional distress only where the defendant's acts are "so outrageous in character and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious and utterly intolerable in a civilized community." Cluff, supra, 10 Ariz.App. at 562, 460 P.2d at 668. Since we do not believe that appellees' acts would be viewed as this unacceptable in our community, we hold that the trial court's granting of summary judgment on the intentional infliction of emotional distress claim was proper. See also Restatement (Second) Torts § 46 and Comments (1965).

2. THE CLAIM FOR BREACH OF THE TRUSTEE'S FIDUCIARY DUTIES

Appellants argue that First Service Corporation breached its fiduciary duties as trustees under the Deed of Trust by failing to give Mrs. Patton the proper notice of the trustee's sale. The evidence indicates that First Service Corporation did not mail Mrs. Patton a Notice of Trustee's Sale with the correct date of sale as required by A.R.S. §§ 33-808, 809, and the Corporation did not give Mrs. Patton the additional notice of breach required by A.R.S. § 33-809(C).

The Deed of Trust statutes (A.R.S. § 33-801 et seq.) specify the notice which must be given prior to a trustee's sale. If a sale is held without complying with the statutory notice requirements, such a sale would be void, for the statutes set forth the only procedure for a valid trustee's sale. However, appellees state in their brief that the trustee's sale was never held. Since the subject property has not been sold, it would appear that appellants have not been damaged by the trustee's breach of fiduciary duties. The Deed of Trust statutes neither state nor imply that appellants could obtain any relief other than a voiding of the sale and possibly an award of damages resulting from the void sale, and appellants have offered no authority to support a claim for damages when the Deed of Trust statutes have been violated but the trustee's sale was not held. Therefore, we hold that the trial judge acted properly in ordering summary judgment for defendants on the breach of fiduciary duties issue.

3. IS THE "DUE ON SALE" CLAUSE AN UNLAWFUL RESTRAINT ON ALIENATION?

Appellants urge that the following clause in the Deed of Trust constitutes an unlawful restraint on alienation:

"4. CONSENT TO TRANSFER: In the event that Trustor, or any successor in interest of Trustor, shall sell, convey, transfer, contract to sell, lease for more than five (5) years or lease with option to purchase the secured property, or any part thereof, or any interest therein, or if any of said parties shall be divested of any part thereof or interest therein, either voluntarily or involuntarily, or if title to said property is further encumbered or subjected to any lien or charge, contractual, statutory, by operation of law or otherwise, or if any of said parties shall change or permit the character or use of said property to be changed, or to allow digging for gas, oil, or other minerals, or if any of said parties are a partnership and the interest of a general partner or if a corporation and more than 25% of the corporate stock is sold, transferred, or assigned in any one calendar year, without the written consent of Beneficiary, all indebtedness secured by this Deed of Trust, irrespective of the maturity date of said indebtedness, and without regard to the adequacy or inadequacy of the security, or solvency or insolvency of Trustor, shall, at the option of the Beneficiary, become immediately due and payable without demand or notice. Beneficiary shall have the contractual right to withhold its consent to a transfer under the provisions of this paragraph in any instance where the security upon reevaluation, the financial responsibility of the purchaser, or the physical condition of the premises does not warrant that consent, or the existing interest rate of this loan is less than the current interest rate being charged on loans to purchasers of properties similar in value to the secured property."

Compared to mortgage requirements, the Deed of Trust procedures authorized by statute make it far easier for lenders to forfeit the borrower's interest in the real estate securing a loan, and also abrogate the right of redemption after sale guaranteed under a mortgage foreclosure. See A.R.S. § 33-726 and A.R.S. § 12-1281 et seq. A mortgage generally may be foreclosed only by filing a civil action while, under a Deed of Trust, the trustee holds a power of sale permitting him to sell the property out of court with no necessity of judicial action. The Deed of Trust statutes thus strip borrowers of many of the protections available under a mortgage. Therefore, lenders must strictly comply with the Deed of Trust statutes, and the statutes and Deeds of Trust must be strictly construed in favor of the borrower.

Mortgages and Deeds of Trust are sufficiently analogous that we may look to mortgage...