Sylvania Sav. Bank Co. of Sylvania, Ohio v. Turner
| Decision Date | 30 October 1970 |
| Docket Number | Docket No. 8506,No. 2,2 |
| Citation | 27 Mich.App. 640,183 N.W.2d 894 |
| Parties | THE SYLVANIA SAVINGS BANK COMPANY OF SYLVANIA, OHIO, an Ohio corporation, and The Community Savings and Loan Association of Sylvania, Ohio, an Ohio corporation, Plaintiff-Appellee, v. William J. TURNER, a/k/a William J. Turner, J., and Constance M. Turner, jointly and severally, Defendants-Appellants |
| Court | Court of Appeal of Michigan — District of US |
William E. Winson, Lambertville, for defendants-appellants; Thomas W. Pruden, Lambertville, of counsel.
Ready, Braunlich & Ready, Monroe, for plaintiff-appellee.
Before J. H. GILLIS, P.J., and LEVIN and BORRADAILE, * JJ.
The defendants appeal an order of the trial court denying their motion filed under GCR 1963, 528 for relief from a default judgment. We affirm.
The defendants mortgaged two parcels of real estate, a restaurant and their home, to plaintiff Community Savings and Loan Association to secure repayment of a $40,000 indebtedness. They defaulted in paying required installments of principal and interest.
Community Savings acquired the fee to the restaurant by purchase at a mechanic's lien foreclosure sale, subject to a right of the defendants to redeem from the sale. 1 Thereafter, but before expiration of such redemption right, the plaintiffs commenced this action on May 16, 1966, to foreclose the mortgage on both parcels.
The defendants were personally served on May 18, 1966. Their default for failure to answer was filed on September 9, 1966, and a default judgment was entered on July 7, 1967, determining that the amount of the defendants' indebtedness to Community Savings was $44,370.89.
At a mortgage foreclosure sale on August 31, 1967, the defendants' home was sold for $8,000 to plaintiff, Sylvania Savings Bank Company, Successor by merger to Community Savings. 2 The defendants were notified of the filing of the circuit court commissioners' report of sale, which determined that there was a deficiency of $36,902.45, 3 and that they could file objections within 10 days; they made no response. The sale was confirmed September 18, 1967.
The defendants did not redeem from the mechanic's lien foreclosure sale of the restaurant, and the bank did not proceed with the foreclosure of its mortgage on the restaurant. The bank expended, after acquiring the restaurant, over $5,000 on improvements, maintenance, taxes, and insurance. On November 3, 1967, I.e., after the confirmation of the mortgage foreclosure sale of the defendant's home, the bank sold the restaurant to a third person for an amount not disclosed on the record.
Shortly before the expiration of the defendants' equity of redemption in their home they filed, on February 13, 1968, a motion for relief from the July 7, 1967 default judgment.
The motion alleged that on June 26, 1966, the date that Community Savings acquired fee title to the restaurant (see footnote 1), its value exceeded the sum of (1) the amount of defendants' indebtedness secured by the mortgage and (2) the cost incurred by Community Savings in acquiring the fee through the mechanic's lien foreclosure sale. This allegation is not supported either by affidavit or by evidence.
During oral argument in our Court we were advised by Community Savings' attorney that it sold the restaurant for a price between $40,000 and $50,000. If the sales price was, say, $45,000, and one adds to that figure the $8,000 bid at the mortgage foreclosure sale of the defendants' home, the total amount realized by the bank was $53,000. The defendants' indebtedness to the bank, as determined by the default judgment, was $44,307.89; the sum of that amount and the amount for which the mechanic's lien foreclosure sale was confirmed to the bank, $4,904.73, and the $5,000 expended for improvements, maintenance, taxes, and insurance before the sale of the restaurant in November, 1967, is $54,215.62--$1,215.62 more than the $53,000 postulated as realized by the bank from the sale of the restaurant and the mortgage foreclosure sale of the home. 4
The defendants contend that their indebtedness to Community Savings was discharged by merger of the fee interest and the mortgagee's interest in the restaurant. They claim the merger occurred either when Community Savings acquired the fee upon expiration of the mechanic's lien foreclosure redemption period or when, after confirmation of the mortgage foreclosure sale of the home, the restaurant was sold free of the mortgage. They assert that it was, therefore, a fraud to have taken a default mortgage foreclosure judgment against them for the entire indebtedness or to sell the home pursuant to that judgment, and that it all events it was a fraud not to credit against the indebtedness the excess of the value or sales price of the restaurant over the cost of acquiring the fee.
When a mortgagee acquires fee title to the mortgaged property he frequently has no further reason to keep alive the lien of the mortgage. In such event the lien may merge into the fee and extinguish the debt. But whether this occurs depends fundamentally on the mortgagee's intention. If it is in his interest to preserve his lien separately from the fee, it will ordinarily be concluded that he did not intend to merge the lien into the fee. 5
In this case, when Community Savings acquired the fee to the restaurant in 1966 it was encumbered by a second mortgage for $11,000. 6 If the lien of the first mortgage in favor of Community Savings merged into the fee then the second mortgage would have become a first lien. It was, therefore, contrary to the interest of Community Savings to eliminate the priority of its first mortgage by merger; and it may safely be concluded that Community Savings did not intend to merge its fee and security interest. 7 It is not claimed that there are other relevant facts which would support a finding that in 1966 Community Savings intended to merge its mortgage and fee interests. No doubt, when it sold the restaurant to a third person in November, 1967 it conveyed the property free of the lien of the mortgage executed by the defendants; 8 but by then the mortgage on the defendants' home had been foreclosed and the sale confirmed.
At the time the default judgment was entered, the price that would be realized upon a sale of the restaurant was unknown, and it did not become known until the restaurant was sold, which occurred after the confirmation of the mortgage foreclosure sale of the home. The defendants' argument, therefore, of necessity narrows down to a claim that the fraud was in failing to credit the value, as distinguished from the sale price, of the restaurant.
Even if the bank should have allowed the claimed credit, 9 there is no concrete evidence of the value of the restaurant at the time the default judgment was entered. The only evidence is such as we can extrapolate from the facts that a $40,000 mortgage loan was given by a bank, the subsequent failure of the restaurant business, our knowledge that creditors, particularly banks, do not ordinarily retain property such as this for a longer time than needed to effect disposition, and the sales price which we were told was realized when the property was sold in November, 1967. Based on the foregoing, we have no reason to conclude that the value of the restaurant at the time the default judgment was entered was large enough so that, if the defendants were entitled to a credit based on that value, the default judgment would have been reduced to an amount less than the $8,000 bid for the defendants' home.
Paragraph 7 of the motion for relief from judgment asserts that the plaintiffs' agents represented that they would cooperate with the defendants in their efforts to sell the restaurant and that is why they did not answer or appear. This allegation is not supported by an affidavit or by evidence, nor was a hearing sought at which evidence in support of this allegation could be introduced. The trial judge found that the defendants did not claim that the bank committed 'a deliberate fraud upon the court.' We were advised during oral argument that no such claim is now made.
GCR 1963, 528.3 provides that a motion for relief from judgment on the ground of 'fraud (whether heretofore denominated intrinsic or extrinsic)' 10 shall be filed 'within a reasonable time, and * * * not more than I year after the judgment * * * was entered.'
The motion in this case was filed within one year of the entry of the default judgment. Putting aside the questions whether it was filed 'within a reasonable time' and whether the conduct of the bank complained of constituted fraud, we note, as did the trial judge, the failure of the defendants to demonstrate either good cause or that they have a meritorious defense. GCR 1963, 520.4 provides:
The requirements that a defendant who asks that a default judgment be set aside demonstrate both good cause and that he has a meritorious defense have been deemed applicable in cases where relief was sought on grounds set forth in rule 528.3. 11 We have recently observed that good cause has been thought to include (1) a substantial defect or irregularity in the proceedings upon which the default was based, (2) a reasonable excuse for failure to comply with the requirements which created the default, or (3) some other reason showing that manifest injustice would result from permitting the default to stand. 12
No claim is made that there was a substantial defect or irregularity in these proceedings or that there was...
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