Tucker v. Pulaski Federal Sav. & Loan Ass'n, 5--5841

• Decision Date: 19 June 1972
• Docket Number: No. 5--5841,5--5841
• Citation: 481 S.W.2d 725,252 Ark. 849
• Court: Arkansas Supreme Court
• Parties: Dan T. TUCKER et al., Appellants, v. PULASKI FEDERAL SAVINGS & LOAN ASSOCIATION, Appellee.

Page 725

481 S.W.2d 725

252 Ark. 849

Dan T. TUCKER et al., Appellants, v. PULASKI FEDERAL SAVINGS & LOAN ASSOCIATION, Appellee.

No. 5--5841.

Supreme Court of Arkansas.

June 19, 1972.

Cooper Jacoway, Christopher C. Mercer, Jr., Little Rock, for appellants.

Edward L. Wright, Jr., Little Rock, for appellee.

HARRIS, Chief Justice.

This litigation concerns the validity of a certain clause contained in a mortgage which provides, inter alia, that the maturity of the indebtedness secured may be accelerated 'If the mortgagor sells or conveys (or contracts to sell or convey) all or any part of the Mortgaged Premises without the written consent of the holder of said note'. Dan Tucker, a white resident of Little Rock, purchased in late December of 1965, property located at 2010 West 17th Street in Little Rock. Tucker testified that the property was a three unit apartment, and he lived in one unit and rented two. According to the evidence, at that time, this property was located in an all white neighborhood. The neighborhood gradually became black and Tucker testified that he had trouble keeping renters. ¹ A rental agency was able to obtain but one renter, who stayed a few months and moved off, the property remaining vacant for a year. Consideration for the purchase was $25,000, $2,000 being paid down and a note being executed by Tucker and his father for $23,000 with Pulaski Federal Savings and Loan Association, hereinafter called Pulaski. Tucker also executed a mortgage on the purchased property to secure payment. Tucker endeavored to sell his interest in the property and eventually, through a realtor, found purchasers, Mr. and Mrs. Vassie Belcher, a black couple. Pulaski would not approve a transfer to the Belchers, but nonetheless, Tucker sold his interest for $1,500 and executed a deed to them subject to the mortgage. Thereafter, on April 14, 1970, Pulaski instituted suit against Tucker and his father and Belcher and wife, wherein the aforementioned clause was set out, Pulaski stating that because of the violation of this provision of the mortgage, the entire unpaid principal balance of the secured note was declared due and payable and it was prayed that the company have judgment in the sum of $20,243.18 with 10% interest, judgment for costs and attorney's fees, foreclosure of the mortgage and sale of the property, possession of the lands, and the extinguishment of the interest of the Belchers in the property. The Tuckers answered, asserting that the acceleration was capricious, oppressive, arbitrary, and an unconscionable restraint on the right of Tucker to freely convey the equity of redemption in the mortgaged property; that said provision was invalid and void. A counterclaim was also filed as a class action on behalf of similarly situated borrowers from Pulaski wherein it was asserted that Pulaski had attempted to assert a regulation by which it would charge the Belchers a sum of $100.00 as a transfer fee; that such charge is against public policy and was an inequitable effort to interfere with the power of an owner to sell his property freely and for adequate consideration. It was asserted that appellee should be enjoined from levying such charge. Also, as a part of the counterclaim, it was alleged that Pulaski requires that a borrower pay to it, as escrow agent, a sum of money each month, in addition to the payments on the note and mortgage, for the purpose of taking care of payments of taxes and insurance premiums; that said monies so paid in are trust funds and cannot be used for the profit and personal benefit of the association; that the escrow money is invested with the company which makes a profit from it, but retains the profit for itself, a practice that is in violation of its fiduciary relationship. The Belchers adopted the answer and counterclaim of the Tuckers and prayed for appropriate relief. On trial, and after the taking of testimony, the court made the following findings which are pertinent to the issues on appeal in this litigation:

'1. The provision in the mortgage set forth in paragraph 7 of the findings of fact above, which gives plaintiff the right to accelerate the payment of the mortgage secured debt upon a sale or transfer of the mortgaged property without plaintiff's consent, is valid, enforceable and is not against public policy.

2. Plaintiff validly exercised the right to declare the entire mortgage debt to be due and payable at once.

3. Plaintiff has no obligation to justify its refusal to consent to the sale of the mortgaged property to the Belchers.

4. Notwithstanding the absence of any such obligation, plaintiff had valid business reasons for withholding its consent to the sale of the mortgaged property to the Belchers.

5. The Tuckers are indebted to Plaintiff in the sum of $20,327.44 plus interest at the rate of 6% per annum from February 1, 1970, until April 24, 1970, and plus interest at the rate of 10% per annum from April 24, 1970.

6. The Tuckers are also indebted to Plaintiff for an attorney's fee of $2,000.00 and costs.

7. Plaintiff is entitled to foreclosure of its mortgage and judicial sale of the said lands.

8. The counterclaim of defendants for monetary and injunctive relief as to earnings made by plaintiff on escrow accounts and transfer fees is not a valid class action.

9. The earnings, if any, made by plaintiff on escrow accounts are not payable to defendants either individually or as members of a class.'

In accordance with these findings, judgment was rendered and the property ordered sold if said judgment was not paid within 10 days, and the Tuckers were given judgment against the Belchers for any portion of plaintiff's judgment against the Tuckers remaining unpaid after crediting the Pulaski judgment with amounts received from the sale of the property. From the decree so entered the Tuckers and Belchers bring this appeal. For reversal four points are relied upon, viz,

'I

The Chancellor erred in permitting the Savings & Loan Association to accelerate the mortgage debt and to foreclose the mortgage, because the acceleration provision is against public policy and void.

II

The escrow funds are held by the Savings & Loan Association as a fiduciary, and the Chancellor erred in permitting the Association to retain for its own the profits realized from investing the fiduciary funds.

III

The amount of the transfer fee is not related to costs or services performed by the Association, and the Chancellor erred in permitting the Association to charge it.

IV

The Chancellor erred in rejecting the testimony that the loan closing agent, while acting within the apparent scope of his authority, at the closing of the Association's loan to Dan Tucker assured the Tuckers that the property would stand for the loan.'

I

In passing upon this litigation, ² we very quickly state that we agree with appellants that appellee cannot, simply on the basis of the quoted clause, accelerate the note, declare the indebtedness due and payable, and foreclose upon the property. This procedure cannot be countenanced in a court of equity. There is no Arkansas decision governing the circumstances at issue, but we have said that equity will grant relief against an attempted acceleration for inequitable conduct. See Crone v. Johnson, 240 Ark. 1029, 403 S.W.2d 738. We like the reasoning of the Court of Appeals of Arizona, Division 1, Department A, in the case of Baltimore Life Insurance Company v. Harn et al., 15 Ariz.App. 78, 486 P.2d 190. This case was decided on June 30, 1971, amended July 8, 1971, and rehearing denied September 10, 1971. There, the Harns borrowed money and executed a note and mortgage, the note containing the following provision:

'All sums due and payable under this Note and the mortgage or mortgages securing the same, * * * shall become due and payable without notice forthwith upon the conveyance of title to all or any portion of the mortgaged premises or property, or the vesting thereof in any other manner in, one other than to Mortgagor named therein. ³'

The mortgage contained this language:

'This mortgage and all sums hereby secured, * * * shall become due and payable at the option of Mortgagee and without notice to Mortgagor forthwith upon the conveyance of Mortgagor's title to all or any portion of said mortgaged property and premises, or upon the vesting of such title in any manner in persons or entities other than, or with, Mortgagor.'

Subsequently the Harns conveyed the mortgaged property to other persons. The appellant asserted that these conveyances were in direct violation of the contractual agreement, and thus gave appellant the right to accelerate and foreclose. The trial court held contrary to this view and on appeal, the appellant urged that the violation of the quoted clause entitled it to acceleration and foreclosure. In holding adversely to appellant, the court said:

'The underlying reason for an acceleration clause of the type before us is to insure that a responsible party is in possession, thus protecting the mortgagee from unanticipated risks.

(3) The acceleration clause in this case is clearly a restraint on the mortgagors' ability to dispose of their property. We believe that so long as an acceleration clause does not purport to restrict absolutely the mortgagors' ability to dispose of their property there is not the type of restraint on alienation that would render the clause void. It follows that the invocation of the clause must be based on grounds that are reasonable on their face.

(4) An action to accelerate and foreclose a mortgage being an equitable proceeding, (citing case), it is not enough to allege merely that the acceleration clause has been violated. Absent an allegation that the purpose of the clause is in some respect being circumvented or that the mortgagee's security is jeopardized, a plaintiff cannot be entitled to equitable relief. Otherwise the equitable powers of the trial court would be invoked to impose an extreme penalty...