Atlantic Oceanic Kampgrounds, Inc. v. Camden National Bank

WATHEN, Justice.

Plaintiff Atlantic Oceanic Kampgrounds, Inc., appeals from an order of the Superior Court (Knox County) dismissing its complaint for failure to state a claim. Plaintiff contends that the complaint stated a claim against defendant, as mortgagee, seeking an accounting for the proceeds from a sale of mortgaged real estate following strict mortgage foreclosure and the recovery of any surplus resulting from that sale. We conclude that the Superior Court did not err in holding that plaintiff did not state a cause of action and we deny the appeal.

The allegations in plaintiff’s complaint may be summarized as follows: On October 13, 1972, plaintiff executed a promissory note in the amount of $60,000.00 in favor of the defendant bank, securing the note by a mortgage on property located in Camden. On December 27, 1979 defendant commenced a strict foreclosure by serving plaintiff with notice of foreclosure pursuant to 14 M.R.S.A. § 6203(2) (1980). On August 5,1981, after the expiration of the one year period of redemption provided in 14 M.R. S.A. § 6204 (1980), defendant sold the formerly mortgaged property to a third party and retained all proceeds from the sale. Defendant concedes that it received proceeds in excess of the amount secured and the costs of foreclosure.

On September 16, 1982 plaintiff brought this action seeking an accounting of the proceeds of the sale and recovery of the surplus. Plaintiff relies on 14 M.R.S.A. § 6204-A (1980),1 enacted in 1975, as au*886thority for the maintenance of its claim. Defendant moved to dismiss the complaint and the Superior Court ruled that plaintiff had failed to state a cause of action and entered judgment for the defendant. The court found that section 6204-A does not apply to strict foreclosure under section 6203(2). Alternatively, the court ruled that even if section 6204-A does apply, its retroactive application in this case would result in an unconstitutional impairment of the obligation of a contract. The parties focused on the constitutional issue in the briefs submitted to this Court but we hold that section 6204-A does not apply to strict foreclosure under section 6203(2) and therefore we have no occasion to address the constitutional issue.

The relevant portion of section 6204-A provides that the holder of a mortgage shall be entitled to retain the sum secured by the mortgage including costs “out of the money arising from a completed sale after the period of redemption has expired pursuant to a foreclosure under this subchapter,” and shall render any surplus to the mortgagor. Subchapter III of c. 713 contains three methods of foreclosure that could be the object of the statutory reference: strict foreclosure by possession (14 M.R.S.A. § 6201 (1980 and Supp.1982-1983)), strict foreclosure without possession (14 M.R.S.A. § 6203 (1980)), and in the context of corporate mortgages only, foreclosure by exercise of the power of sale (14 M.R.S.A. § 6203-A (1980)).2 Because the two forms of strict foreclosure do not involve a sale of the mortgaged premises as part of the procedure leading to extinguishment of the mortgagor’s interest, an ambiguity arises as to the meaning of the statute. If the phrase “pursuant to a foreclosure under this subchapter” modifies “the period of redemption” it could be argued that the legislature intended to include the sale of property subsequent to a strict foreclosure as well as foreclosure accomplished by sale. If, however, the qualifying phrase modifies “completed sale” it is beyond dispute that a sale following strict foreclosure is not a sale “pursuant to a foreclosure under this subchapter.” We adopt this latter construction of the statute. Although the legislature is free to abrogate a longstanding rule of common law, such an intent is not to be presumed in the absence of clear and explicit language. See authorities cited in Palmer v. Inhabitants of Town of Sumner, 133 Me. 337, 340, 177 A. 711, 712-13 (1935). Under the circumstances presented in this case we cannot presume that the legislature intended to impose an obligation to account for surplus, without temporal limitation, from any sale of property acquired by strict foreclosure. Such a result would seriously impair the marketability of a substantial number of real estate titles and would be totally at odds with the common law.

Our view is supported by our decision in Pierce v. Northeast Bank of Westbrook, 381 A.2d 667 (Me.1978). In Pierce this Court sustained an appeal from an order granting summary judgment in favor of the defendant bank. Plaintiff’s complaint alleged that after the defendant strictly foreclosed on her property, the bank used a portion of the “surplus” to pay off the debt of a third party. Plaintiff sought an accounting, a recovery of the surplus and punitive damages. We found the complaint to be ambiguous, necessitating an evidentiary hearing and precluding the granting of summary judgment. The ambiguity resulted from plaintiff’s allegation that a “surplus” could arise from the mortgagee’s sale of property acquired by strict foreclosure. We held *887that once strict foreclosure was effected there was no “surplus” for which the mortgagee would be obliged to account:

Had the bank effectively completed its foreclosure by virtue of the expiration of one year without redemption of the mortgaged property, under the strict foreclosure law of Maine which was then in effect defendant bank would have acquired title to the real estate; any subsequent sale would be a sale of property which had become absolutely owned by the bank. Martel v. Bearce, Me., 311 A.2d 540 (1973); Smith v. Varney, Me., 309 A.2d 229 (1973). ... Had defendant bank effected a strict foreclosure, there was no need of a sale to produce “proceeds” to be applied in payment of plaintiff's indebtedness; hence, there would be no “surplus” for which the bank would be obliged to account to plaintiff. See: City of Auburn v. Mandarelli, Me., 320 A.2d 22 (1974).

381 A.2d at 669. We concluded, however, that plaintiff’s complaint could be construed to allege a “waiver” of strict foreclosure by the bank and the assumption of a duty to turn over a “surplus” to the plaintiff. We thus sustained the plaintiff’s appeal in Pierce.

On this appeal we are compelled by the reasoning of Pierce and the authority cited therein to hold that this defendant acquired title to the property on December 27,1980 when its foreclosure was completed by the expiration of the one year period of redemption. Defendant was under no duty to generate proceeds by offering the property for sale. The defendant’s subsequent sale of the property to a third party on August 5,1981 was not a sale pursuant to a foreclosure and did not give rise to any “surplus” contemplated by section 6204-A. We recognize that Pierce did not squarely raise the issue whether section 6204-A applies to strict foreclosure proceedings initiated after the effective date of the statute. We are persuaded, however, that the statute does not create a cause of action for an accounting and recovery of surplus when foreclosure is completed pursuant to section 6203(2).

The entry must be:

Judgment affirmed.

McKUSICK, C.J., SCOLNIK, J., and DU-FRESNE, A.R.J., concurring.

. Section 6204-A provides as follows:

Disposition of proceeds of foreclosure sale The holder of a mortgage of real estate, or his representative, out of the money arising from a completed sale after the period of redemption has expired pursuant to a foreclosure under this subchapter, shall be entitled to retain all sums which were secured by the mortgage, whether then or thereafter payable, including all costs, charges or expenses incurred or sustained by him or them by reason of any default in the performance or observance of the condition of the mortgage or of any prior or subsequent mortgage, rendering the surplus, if any, to the mortgagor or his heirs, successors or assignes. (sic) The mortgagee shall also be entitled to deduct from the proceeds of the sale all costs incurred and interest at the rate provided in the note which was secured by the mortgage from the expiration of the redemption period to the date of sale. No person other than the *886holder of the mortgage shall be bound to see to the application of the money arising from such sale nor submit an account relating to same and in the absence of fraud the consideration received by the mortgagee or his representative shall be deemed to be adequate consideration and the mortgagor shall have no claim that the sale price was inadequate.

. Compare foreclosure through civil action under subchapter IV of c. 713 which anticipates a public sale of the mortgaged property and requires that any surplus be paid to the mortgagor. 14 M.R.S.A. §§ 6323, 6324 (Supp.1982-1983).