Sanson v. Gonzales
| Decision Date | 19 January 1984 |
| Docket Number | CA-CIV,No. 1,1 |
| Citation | 142 Ariz. 30,688 P.2d 676 |
| Parties | Joseph F. SANSON and John K. Skomp, Plaintiffs-Appellees, v. Bennie M. GONZALES and Lupe Gonzales, husband and wife; Jerry Tokoph, Jr., and Gudrun Carmen Tokoph, husband and wife; Jeri-Co Contracting, an Arizona corporation; Stewart Mazure and Rosemary Mazure, husband and wife, Defendants- Appellants. 6720. |
| Court | Arizona Court of Appeals |
Joseph Sanson conveyed, in December, 1979, an office building in Phoenix to Bennie and Lupe Gonzales. The buyers executed a promissory note and a deed of trust. The note specifies that installment payments must be made by the 15th of each month and that default will result in an acceleration of the debt. The deed of trust provides that upon default the loan may be accelerated, that if payment is not made the trustee may sell the property, and that upon such a sale the trustee shall apply the proceeds of the sale to payment of the sums secured by the deed of trust with the remainder, if any, to go to the person legally entitled thereto as provided in A.R.S. § 33-812. The deed of trust contains a nonwaiver provision which provides that an acceptance of late payments will not constitute a waiver of the right to declare a default for failure to pay.
About a month after acquiring the property the Gonzaleses conveyed it to the Tokophs and Mazures subject to the note and the deed of trust. The Tokophs and Mazures, who were to make the payments on the property to the original seller, failed to do so in timely fashion. On March 7, 1980, Sanson's attorney wrote the Gonzaleses stating that late payments would not be accepted. Sanson, nevertheless, continued to accept late payments. In October, 1980, he caused a notice of a trustee's sale to be served when payments for August and September, 1980, were not timely received. This sale was canceled in January, 1981, and thereafter the seller accepted six successive late payments. Finally, after receiving and accepting a total of 18 late payments and after allegedly giving notice of his intent to accelerate the loan if further late payments were received, Sanson accelerated payment of the note. The Gonzaleses, Tokophs and Mazures objected to the acceleration on the grounds that Sanson never notified them of his intent to enforce prompt payment on the note. They refused to pay the entire balance due on an accelerated basis. Sanson disputes that he did not give notice of his insistence that payments be timely and says that the appellants evaded his attempts to communicate with them. The trial court considered this dispute of fact to be immaterial and granted summary judgment to Sanson for the unpaid balance.
There are three issues for decision.
First: Whether acceptance of late payments constitutes a waiver of the right to accelerate without notice that future payments must be timely;
Second: If so, whether the nonwaiver clause is effective to permit acceleration without giving notice that late payments will not be accepted in the future; and Third: Whether Sanson's commencement of an action to foreclose the deed of trust could have constituted a tort.
It is the general rule that an obligee who accepts late payments waives his right to accelerate the note and foreclose on his security without first clearly advising the obligor that he will, in the future, insist that payments be made on time. Ashback v. Wenzel, 141 Colo. 35, 346 P.2d 295 (1959); Barday v. Steinbaugh, 130 Colo. 10, 272 P.2d 657 (1954); Smith v. Landy, 402 So.2d 441 (Fla.App.1981); Smith v. Gholstin, 45 Ga.App. 287, 164 S.E. 217 (1932); Edwards v. Smith, 322 S.W.2d 770 (Mo.1959); Salishan Hills, Inc. v. Krieger, 62 Or.App. 84, 660 P.2d 160 (1983); Lively v. Drake, 629 S.W.2d 900 (Tenn.1982).
Arizona cases dealing with the right to declare a forfeiture under land sales contracts are in accord with the general rule. Kammert Brothers Enterprises, Inc. v. Tanque Verde Plaza Co., 102 Ariz. 301, 428 P.2d 678 (1967); Arizona Title Guarantee & Trust Co. v. Modern Homes, 84 Ariz. 399, 330 P.2d 113 (1958); Onekama Realty Co. v. Carothers, 59 Ariz. 416, 129 P.2d 918 (1942); Freedman v. Continental Service Corp., 127 Ariz. 540, 622 P.2d 487 (App.1980); Eyman v. Sowa, 23 Ariz.App. 588, 534 P.2d 1087 (1975); Jahnke v. Palomar Financial Corp., 22 Ariz.App. 369, 527 P.2d 771 (1974).
Division 2 of this court has, however, recently held that where acceleration and foreclosure are involved the obligee who has accepted late payments may accelerate without reinstating time is of the essence. See First Federal Savings & Loan Ass'n v. Ram, 135 Ariz. 178, 659 P.2d 1323 (1982). Division 2 was dealing with a mortgage while we are concerned with a deed of trust. We see no distinction between the two that would have ramifications for the issue before us. Division 2 concluded that the Arizona cases holding that once late payments are accepted there can be no forfeiture unless the obligor is notified that future payments must be timely are inapposite to foreclosure actions. It based this conclusion on the distinction between contracts calling for forfeiture (on default the obligee takes back the property sold and keeps the amount already paid as liquidated damages) and contracts allowing acceleration (a declaration that all amounts still owing are immediately due). We certainly agree that an acceleration is not a forfeiture but we do not believe the inquiry can end there. The fact is that on many occasions acceleration of the obligation and foreclosure of a deed of trust will have much the same effect as an outright forfeiture. If the property is sold on foreclosure for less than is required to extinguish the underlying debt the obligor has lost his property and still owes the balance of the debt. Even where the property is sold for a sufficient amount to extinguish the debt or there is a surplus, the results of acceleration and foreclosure are often harsh. In any event the similarities between forfeiture and acceleration/foreclosure are close enough, the policy of the Arizona forfeiture cases clear enough, and the rationale of the authorities from other jurisdictions is sufficiently convincing to persuade us that the best and simplest rule is that once an obligee has repeatedly accepted late payments he must give clear notice of his intent to reinstate time is of the essence. We note in passing that a single acceptance of late payments will not constitute a waiver. Tolmachoff v. Eshbaugh, 41 Ariz. 318, 18 P.2d 256 (1933). We do not need to determine here how many accepted late payments it takes to constitute a waiver. Eighteen is enough.
A more difficult question is whether the need to reinstate time is of the essence should be predicated on a theory of implied waiver or, instead, upon a theory of estoppel. The cases discussing this issue are not consistent as to upon which of the two theories the need to reinstate time is of the essence is based. Compare Barday v. Steinbaugh, supra, with Edwards v. Smith, supra, and see Tolmachoff v. Eshbaugh, supra, and see Arizona Appellate Decisions--Installment Contracts for the Sale of Land: Waiver of Time of the Essence Clause, 18 Ariz.L.Rev. 799 (1977). We adopt the rule that repeated acceptance of late payments constitutes a waiver as a matter of law. This rule is fair, consistent with the rule applied in the forfeiture cases, and will avoid litigation over whether the elements of estoppel have been met.
Sanson argues that even if he would normally be required to reinstate time is of the essence, the presence of a nonwaiver clause in the agreement relieves him of this duty. The clause reads:
That time is of the essence of this Deed of Trust and that by accepting payment of any sum secured hereby after its due date, beneficiary does not waive his right either to require prompt payment when due of all other sums so secured or to declare default for failure so to pay.
To support his argument Sanson cites one Arizona case, Cottonwood Plaza Associates v. Nordale, 132 Ariz. 228, 644 P.2d 1314 (1982), and two cases from other jurisdictions, Stephens v. State, 501 P.2d 759 (Alaska 1972) and Lundberg v. Switzer, 146 Wash. 416, 263 P. 178 (1928). We accept his argument generally and at the same time recognize that there are some points of distinction in the authorities cited for it. The Cottonwood Plaza case is readily distinguishable because it relies heavily on the fact that the obligee had specifically given notice reinstating time is of the essence. The Stephens case appears to rely on Lundberg v. Switzer, supra, without much comment. While Lundberg is difficult...
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