Western Bank, Santa Fe v. Fluid Assets Development Corp.

• Decision Date: 28 February 1991
• Docket Number: No. 17767,17767
• Citation: 1991 NMSC 20,806 P.2d 1048,111 N.M. 458
• Parties: WESTERN BANK, SANTA FE, Plaintiff-Appellee, v. FLUID ASSETS DEVELOPMENT CORPORATION, Defendant, v. PHC INDUSTRIAL SUPPLY CO., INC., Defendant-Appellant.
• Court: New Mexico Supreme Court

Page 1048

806 P.2d 1048

111 N.M. 458

WESTERN BANK, SANTA FE, Plaintiff-Appellee, v. FLUID ASSETS DEVELOPMENT CORPORATION, Defendant, v. PHC INDUSTRIAL SUPPLY CO., INC., Defendant-Appellant.

No. 17767.

Supreme Court of New Mexico.

Feb. 28, 1991.

[111 NM 458] Thomas F. McKenna, Albuquerque, for defendant-appellant.

Sommer, Udall & Hardwick, P.A., Jack N. Hardwick, Santa Fe, for plaintiff-appellee.

OPINION

BACA, Justice.

On motion for rehearing, the opinion previously filed is hereby withdrawn and the opinion filed this date is substituted therefor.

In this appeal we consider whether a mortgagee first lienholder can use the judicial system to enforce its rights in a foreclosure proceeding after deliberately failing to serve notice upon junior lienholders of record of its intention to hold the foreclosure sale, even though the junior lienholders were parties to a lawsuit brought by the mortgagee and were entitled to actual notice of the sale. We hold such deliberate abuse of judicial procedure constitutes inequitable behavior and the trial court abused its discretion by granting the first lienholder foreclosure against a secondary lienholder, whom it deliberately denied a chance to participate in the foreclosure sale.

FACTS AND PROCEDURAL HISTORY

In May of 1986, plaintiff-appellee Western Bank, which held a first mortgage on a condominium property of four units owned by the mortgage debtor, Fluid Assets Development Corporation (Fluid Assets), filed a complaint seeking to collect on a promissory note and to foreclose. Western Bank named Fluid Assets and seventeen other parties, including defendant-appellant PHC Industrial Supply Company (PHC), a junior lienholder. On June 6, 1986, PHC appeared generally in the action, answered Western Bank's complaint and cross-claimed against Fluid Assets.

On November 6, 1986, Western Bank filed a motion for default judgment against Fluid Assets and six other defendants. Partial default was entered against Fluid Assets and three other defendants on November 24, 1986. On November 25, 1986, the court entered a partial default and final judgment on the complaint, an order of foreclosure, and an order requiring appointment of a special master. Western Bank did not notify PHC of the order of foreclosure before or after its entry.

Western Bank published a notice of sale stating that the sale would be held in accordance with its judgment against Fluid Assets and three other defaulted defendants, but the notice said nothing about PHC and the remaining defendants, nor was PHC served with a copy of the notice. The foreclosure sale was held on January 6, 1987, with Western Bank bidding its judgment plus the costs of the sale for a total of $244,283.94. Western Bank was the only bidder and the only party at the sale. The special master's sale was confirmed by an order entered January 7, 1987, again without any indication that notice was given to PHC of the special master's report or of Western Bank's request that it be confirmed.

On June 22, 1987, Western Bank requested a trial on the merits to foreclose on the remaining defendants. The trial was held on July 24, 1987, and the trial court issued a letter opinion on August 7, 1987. On August 20th, the court entered its findings and conclusions. The court found Western Bank entitled to foreclosure and gave all subsequent lienholders ten months in which to exercise their rights of redemption. Thereafter, on motion of PHC, the trial court set aside its judgment with respect to PHC only and re-entered judgment against PHC on April 13, 1988.

On appeal PHC maintains that the trial court's letter opinion recited findings in PHC's favor, but that the court granted an incorrect remedy. An extended period for redemption would not compensate PHC for being shut out of the foreclosure sale. Instead, PHC argues Western Bank's interest as mortgagee should have merged with its interest as owner when it purchased the Fluid Assets property at the foreclosure sale. PHC should now hold a first lien on the property. Western Bank responds first that the court rejected PHC's requested finding on the issue of notice, and second, that PHC suffered no loss.

NOTICE

This case forces us as a threshold matter to confront a procedural conundrum: whether, in the absence of an express finding of fact by the district court, when it is apparent that the court intended to find a certain fact, and, in fact, the evidence would not allow a contrary finding, this court, in the interest of judicial economy, can adopt the finding of fact. We rule that, under certain circumstances, we can.

The trial court did not make an official finding of fact regarding the notice issue. It did, however, in its letter opinion to the parties dated August 7, 1987, indicate that it believed that Western Bank had intentionally failed to give PHC notice. Apparently, the failure to make the requested finding of fact was inadvertent.

The rules of civil procedure for the district courts are clear that the trial court's formal findings represent the court's official decision. SCRA 1986, 1-052(B)(1)(g); see Ulibarri v. Gee, 106 N.M. 637, 748 P.2d 10 (1987). Those are the findings and conclusions to which our review is to be directed. Springer Corp. v. Kirkeby-Natus, 80 N.M. 206, 208, 453 P.2d 376, 378 (1969). Accordingly, any conflict between the trial court's letter of August 7, 1987, and its findings, conclusions, and judgment of August 20 must be resolved in favor of the latter. Moreover, it is a well-settled principle of appellate procedure that an appellate court will not reweigh evidence or determine facts anew, Duke City Lumber Co. v. Terrel, 88 N.M. 299, 540 P.2d 229 (1975); Watson Land Co. v. Lucero, 85 N.M. 776, 517 P.2d 1302 (1974), although, under certain circumstances, an appellate court may be in a position to evaluate the weight of the evidence. See Corley v. Corley, 92 N.M. 716, 594 P.2d 1172 (1979) (evidence on disputed issue in form of uncontradicted figures). ¹

Our review of the record compels us to hold that the district court erred when it failed to adopt PHC's requested finding that it had no notice of the foreclosure sale. The documents in the court file and Western Bank's own testimony at the June 24th hearing amply support the conclusion that the bank intentionally failed to serve notice of the foreclosure action. When asked why the bank failed to give PHC notice, Western Bank's officer responded that it may have been trying to foreclose hastily because a principal shareholder of Fluid Assets had recently declared bankruptcy, and the bank was concerned that Fluid Assets might also seek similar protection. This appears to be an admission of deliberate behavior. Furthermore, at the hearing the bank presented no evidence of mistake or clerical error. Instead, there is only the evidence that Western Bank formally notified some defendants and not others of the foreclosure hearing. Finally, when Western Bank published notice of the foreclosure sale to fulfill the constructive notice requirements of NMSA 1978, Section 39-5-1, it again evidenced its intention to foreclose only upon selected defendants. In reciting the rights affected, Western made no mention of a number of defendant lienholders, including PHC. The district court erred when it failed to find that Western Bank deliberately failed to serve notice on PHC of an impending foreclosure sale. As in Corley, error is predicated on failure to make a requested "finding of fact which is abundantly supported by uncontradicted testimony." 92 N.M. at 720, 594 P.2d at 1176. In the interests of judicial economy, we find on appeal that Western Bank failed to serve PHC with the appropriate notice and that this omission was deliberate. ²

Relying on Production Credit Association v. Williamson, 107 N.M. 212, 755 P.2d 56 (1988), Western Bank intimates that even if it failed to serve notice on PHC, the notice by publication satisfies the statutory scheme. In Williamson, this court found a mortgagee's failure to serve notice on a mortgagor of the date of a foreclosure sale was not improper, although it did violate Supreme Court Rule 1-005 that requires all motions be served on parties to a lawsuit. The court determined there had been correct notice by publication according to NMSA 1978, Section 39-5-1, and the specific statute for notice of a foreclosure sale must prevail over the more general requirements of procedural notice in a lawsuit. Williamson, 107 N.M. at 213, 755 P.2d at 57. In Williamson, however, the mortgagor had approved the trial court's judgment and decree of foreclosure. In this case, PHC was served notice of neither the actual sale nor the order of foreclosure. While Williamson endorses notice by publication of the actual sale, it does not address the issue here--a separate and prior violation of Rule 1-005 for failure to serve notice of the judgment and order for foreclosure. The consequences of a failure to abide by Rule 1-005's requirement that motions be served on all parties to a lawsuit depend upon the nature of the paper involved. 4A C. Wright & A. Miller, Federal Practice and Procedure 2d Sec. 1143 (1987). Courts have considered whether a failure to serve a particular motion is material in affecting the unnoticed party's rights. See Securities & Exchange Comm'n v. Arkansas Loan & Thrift Corp., 297 F.Supp. 73, 77 (W.D.Ark.1969), aff'd on other grounds, 427 F.2d 1171 (8th Cir.1970). Here, Western Bank's failure to serve PHC its motion for default and foreclosure within a lawsuit to which PHC was a party caused PHC to lose the opportunity to attend or prepare for the foreclosure sale. See Quinn Plumbing Co. v. New Miami Shores Corp., 100 Fla. 413, 419, 129 So. 690, 693 (1930) (distinguishing the opportunity to bid as one of several rights which, while not absolute, are nevertheless recognized in the junior lienholder and are necessarily lost when the lienholder is excluded from a foreclosure sale); see...