Southwest Sav. and Loan Ass'n v. Ludi

• Decision Date: 05 April 1979
• Docket Number: No. 13948,13948
• Citation: Southwest Sav. and Loan Ass'n v. Ludi, 594 P.2d 92, 122 Ariz. 226 (Ariz. 1979)
• Parties: SOUTHWEST SAVINGS AND LOAN ASSOCIATION, an Arizona Corporation, Appellant, v. Ralph J. LUDI and Loretta L. Ludi, husband and wife, Appellees.
• Court: Arizona Supreme Court

Page 92

594 P.2d 92

122 Ariz. 226

SOUTHWEST SAVINGS AND LOAN ASSOCIATION, an Arizona Corporation, Appellant, v. Ralph J. LUDI and Loretta L. Ludi, husband and wife, Appellees.

No. 13948.

Supreme Court of Arizona, In Division.

April 5, 1979.

Cahill, Hanson, Phillips & Mahowald by Gregory E. Hinkel, Phoenix, for appellant.

Kenneth P. Clancy, Phoenix, for appellees.

HAYS, Justice.

This is an appeal by Southwest Savings and Loan Association (Southwest) from a summary judgment in favor of Ralph and Loretta Ludi (Ludis). We have jurisdiction pursuant to 17A A.R.S. Supreme Court Rules, rule 47(e)(5). We reverse.

The parties have stipulated to the following facts. In 1972, purchaser A borrowed money from Southwest to purchase certain real property and in exchange gave Southwest a promissory note secured by a purchase money mortgage on the property. A few months later purchaser A sold the property to purchaser B who assumed the note and mortgage without releasing purchaser A. In 1974, purchaser B executed a second promissory note secured by a second mortgage to Southwest in consideration for a property improvement loan. The next year, purchaser B sold the property to the Ludis. In two separate but simultaneously executed assumption agreements, the Ludis agreed to assume both promissory notes and mortgages without releasing either purchaser B or A. The next year the Ludis defaulted on the first note and Southwest brought a mortgage foreclosure action that ended in summary judgment for Southwest. It was not appealed.

In the interim, the Ludis defaulted on the second note and Southwest instituted an action at law on the note, waiving its security. This action terminated in summary judgment for the Ludis. The trial court found that Southwest had elected its remedy by bringing the first action to foreclose the mortgage, thus barring any action on the second note. The court also ruled that A.R.S. § 33-729 forbade the second action since it was an action in the nature of a deficiency judgment. Southwest challenges both grounds as error.

We must first decide whether Southwest has elected its remedy by foreclosing the first mortgage, thus precluding an action at law on the second note. We recognize at the outset that the purchase agreement contained no provision expressly or impliedly controlling this issue as did the contract in Nemec v. Rollo, 114 Ariz. 589, 562 P.2d 1087 (App.1977). Thus, we find Nemec inapposite.

There is no question, and the Ludis admit on appeal, that purchaser B (the Ludis' grantor) was bound by both notes and that as to him Southwest had two separate causes. In the event purchaser B had defaulted, Southwest could have sued on both notes, or, as it did here, foreclosed the mortgage on the first note and sued at law on the second. The Ludis argue, nonetheless, that their assumption of both notes as part of the purchase agreement had the effect of merging the remedies available to Southwest. The question that we must face, therefore, is whether the Ludis' assumption of both notes as part of a purchase agreement improves their rights and automatically limits the remedy of Southwest by forcing it to elect its remedy. We think not.

It is well settled that the purchaser of property from the mortgagor who assumes the mortgage thereon is bound by the terms of the mortgage. Ellickson v. Dull, 34 Colo.App. 25, 521 P.2d 1282 (1974); HEP Development Corp. v. Mouton, 256 So.2d 744 (La.App.1971); Brice v. Griffin, 269 Md. 558, 307 A.2d 660 (1973). He becomes the principal obligor or mortgagor on the debt being personally liable thereon while the grantor becomes a surety. Ellickson v. Dull, supra; Everts v. Matteson, 21 Cal.2d 437, 132 P.2d 476 (1942); Stalcup v. Easterly, 351 P.2d 735 (Okl.1960). In other words, he takes the place of the previous mortgagor assuming all the liabilities and duties imposed by the note and mortgage.

The Ludis admit that their grantor, purchaser B, would have been liable on both notes, whether sued for one or...