Willis v. Nowata Land and Cattle Co., Inc.

• Decision Date: 31 October 1989
• Docket Number: No. 64719,64719
• Citation: 789 P.2d 1282,1989 OK 169
• Parties: Lloyd WILLIS and Charlotte Willis, Plaintiffs-Appellees, v. NOWATA LAND AND CATTLE COMPANY, INC., an Oklahoma Corporation, and John Gilmartin, an individual, Defendants-Appellants.
• Court: Oklahoma Supreme Court

Page 1282

789 P.2d 1282

1989 OK 169

Lloyd WILLIS and Charlotte Willis, Plaintiffs-Appellees, v. NOWATA LAND AND CATTLE COMPANY, INC., an Oklahoma

Corporation, and John Gilmartin, an individual,

Defendants-Appellants.

No. 64719.

Supreme Court of Oklahoma.

Oct. 31, 1989.

Rehearing Denied April 30, 1990.

On Appeal from the District Court, Tulsa County; Robert Scott, Judge.

In an earlier mortgage foreclosure suit, the trial court rendered judgment for the mortgage lender and ordered the land sold. A sheriff's sale to the mortgage lender stood confirmed but its effect was stayed pending borrower's appeal. The day after confirmation, while the stay was in effect, a fire destroyed the premises. Three appeals ensued. In Nowata I, the Court of Appeals affirmed the confirmation order. Later in Nowata II this court affirmed the order allowing lenders' claim to the insurance proceeds. In this appeal (Nowata III ) the trial court denied the borrower's motion for credit on the adjudicated mortgage debt in the amount of fire loss indemnity proceeds decreed to the lender in Nowata II.

TRIAL COURT'S POSTDECREE ORDER AFFIRMED.

Bill Ladd, and Kenn Bradley, Tulsa, for defendants-appellants.

Marion Dyer, Broken Arrow, for plaintiffs-appellees.

OPALA, Vice Chief Justice.

The dispositive issue for decision in this postconfirmation stage of foreclosure suit is whether there was error in denying mortgagor's (borrower's) quest for credit in the amount of insurance proceeds previously decreed to the lender (mortgagee). We answer in the negative and hold that the claimed indemnity payment for a fire loss is not available as credit on the judgment against borrower for the balance of its mortgage debt.

THE ANATOMY OF LITIGATION

In a foreclosure suit against Nowata Land and Cattle Company and John Gilmartin [collectively called borrower], in personam judgment for $166,051.75 was given to Lloyd Willis and Charlotte Willis [mortgage lenders called lenders]. Lenders then acquired the property at a sheriff's sale for $167,500.00, applying the amount of their judgment and paying $1,448.25 for the purchase. The sheriff's sale to the mortgage lender stood confirmed but its effect was stayed pending borrower's appeal. The day after confirmation, while the stay was in effect, the premises were destroyed by fire. The trial court ruled the insurance proceeds ($129,241.07), which had been deposited with the court clerk pending judicial determination of the rightful claimant, should be disbursed to the lenders. The trial court's postdecree orders confirming the sale and awarding the fire loss indemnity to the lender spawned two separate appeals [Nowata I and II ], both of which resulted in an affirmance. ¹ In this appeal

[Nowata III ], ² the trial court refused to give the borrower credit on the adjudicated mortgage debt for the amount of insurance proceeds.

I

PRECONFIRMATION LITIGATION

[NOWATA I AND II ]

In Nowata I the controversy was over the borrower's claim that it was erroneously denied the right to redeem prior to confirmation. The Court of Appeals held the borrower was afforded the maximum permissible time to exercise the right of redemption but failed to do it timely.

Nowata II was a declaratory judgment suit to determine a contest between the borrower and lenders for the insurer's fire loss deposit. We held that the trial court's stay of the confirmation order, in effect when the fire occurred, operated to (a) postpone the vesting in the purchaser of both title and possession beyond the point of the fire loss ³ and (b) extend, beyond the time of confirmation, the borrower's opportunity for redemption of its mortgaged property. ⁴ Because the fire had occurred before legal title and possession came to be severed from the borrower, the borrower retained an insurable interest in the mortgaged premises at the time of the loss. ⁵ So long as the borrower's insurable interest remained unextinguished the mortgage lender had an equitable charge on the fire indemnity proceeds. ⁶ The stay also operated to freeze the parties in their preconfirmation status--that of mortgagor/mortgagee. This is the posture in which they stood when the fire consumed the mortgaged premises. ⁷ In sum, Nowata II held that when mortgaged property is insured by a borrower in fulfillment of a contractual obligation, the proceeds of the loss are impressed with an equitable charge in favor of mortgage lender to the extent of its interest. ⁸

Nowata I and II addressed themselves solely to preconfirmation issues. In the present contest (Nowata III ) a litigable postconfirmation issue clearly appears to have been tendered--i.e., whether the borrower was entitled to a credit, on the mortgage debt judgment for the lenders, in the amount of fire loss proceeds.

While the borrower's postconfirmation motion now under review is titled "motion to vacate sheriff's sale for failure of consideration or order to require payment of purchase price", we find it, as the trial court did, utterly devoid of any tenable legal or equitable ground for either vacation or modification of the terms of the sheriff's sale. Viewing the language of the borrower's motion in a light most favorable to the pleader, we can only conclude from its language that it presents a We find nothing in the earlier two Nowata appeals that operates to settle the precise issue raised by the borrower's demand now before us. ¹⁰ The tendered issue did not even arise until after the lenders had emerged victorious in Nowata II. In short, neither of the two prior appeals bars borrower from claiming credit on the judgment for the mortgage debt in the amount of insurance proceeds decreed to the lenders in Nowata II.

postconfirmation quest for credit in the amount of fire loss proceeds previously decreed to the lenders in Nowata II. ⁹

II

POSTCONFIRMATION LITIGATION

[NOWATA III ]

Postconfirmation litigation may not extend beyond issues that arose after the sale and confirmation. These issues generally fall into three categories: (1) amount of deficiency, if any, that may be due the lender ¹¹ (2) claim to postsale surplus in the hands of the court clerk ¹² or (3) any other credit the borrower may seek on the amount of lender's judgment for the unpaid balance of the borrower's mortgage debt.

Had the lenders pressed for a deficiency judgment, the borrower clearly would not have been barred from counterclaiming for surplus or any other credit. ¹³ Similarly, here, the borrower raises a genuine postconfirmation issue by its quest for the fire loss indemnity; if allowed to reduce the amount due lender on the judgment There are two types of insurance policy clauses which protect the mortgage lender against hazards of loss or damage to mortgaged premises: (1) the loss payable clause and (2) the standard mortgage clause.

the insurance proceeds would not so much alter the terms of the now confirmed judicial sale as they would create postconfirmation credit in borrower's favor. ¹⁴

Under the loss payable clause the mortgage lender has a derivative right to recover the insurance proceeds, which is completely dependent upon the validity of mortgagor's (borrower's) claim against the insurer. ¹⁵ The mortgage lender's interest in the funds is treated as a security for his debt and ceases when the debt is extinguished. ¹⁶

The standard mortgage clause, on the other hand, operates to create an independent contract between the insurer and the mortgage lender so as to protect the latter from the borrower's misconduct ¹⁷ and to shield the lender's own interest in the property. ¹⁸ This clause is similar in effect to the general indemnity principles; both treat insurance proceeds as replacement for the destroyed property, rather than as payment toward mortgage debt's satisfaction. Because the policy itself was not included in this appellate record, we must assume the insurance contract provisions in force when fire occurred contained the standard mortgage clause. ¹⁹

CONCLUSION

In summary, the trial court correctly refused to grant the relief sought by the borrower. A judgment must be affirmed even when it was given for incorrect reasons if it is sustainable on any legal or equitable theory. ²⁰

We accordingly hold that borrower pressed no legally tenable ground for either vacation or modification of the terms of the sheriff's sale or of the order confirming it. Insofar as we construe and treat borrower's overbroad demand as its postconfirmation plea for credit, the claim must also fail (a) for want of a showing that lenders were bound--either by the terms of a policy clause or otherwise--to apply the insurance proceeds toward the satisfaction of mortgage debt, and (b) because in law, insurance proceeds under standard mortgage clause represent indemnity for loss or harm to lenders' own interest. We need not decide today and hence save for another day the question whether the insurer's indemnity for fire loss would have been available as credit to the borrower on its mortgage obligation if borrower had timely exercised its right to redeem the premises. ²¹

The trial court's postdecree order denying relief is affirmed.

HARGRAVE, C.J., and HODGES, LAVENDER and WILSON, JJ., concur.

SIMMS, J., concurs in judgment.

SUMMERS, J., concurs in result.

KAUGER, J., concurs in part and dissents in part.

1 Lloyd Willis and Charlotte Willis v. Nowata Land and Cattle Company, Inc. and John Gilmartin, No. 59, 130 (November 29, 1983, unpublished opinion) [Nowata I ].

Nowata Land and Cattle Company, Inc. and John Gilmartin v. Lloyd Willis and Charlotte Louise Willis, No. 60,509 (March 28, 1984, unpublished order) [Nowata II ].

2 The present ancillary postdecree proceeding was concluded when the trial judge denied the borrower's December 26, 1984 motion--entitled Motion to Vacate Sheriffs Sale For Failure Of Consideration or Order to Require Payment of Purchase Price. The decision now on review followed a June 7, 1985 hearing. The June 7 hearing stood...