Frazier v. Neilsen & Co.

THE PREVIOUS OPINION ISSUED AUGUST 17, 1988, IS HEREBY WITHDRAWN AND THIS OPINION IS SUBSTITUTED THEREFOR.

McQUADE, Justice, Pro Tem.

The issue presented in this case is whether the holders of a promissory note secured by a deed of trust encumbering Idaho real property may sue for a money judgment on the note without first exhausting their security by judicial foreclosure or by exercise of the power of sale. We hold that they may.

The facts may be summarized as follows: plaintiffs-respondents, the Fraziers, sold *740certain real property to the defendants-appellants, Neilsen & Company. The buyers gave sellers a promissory note secured by a deed of trust of the property. Buyers defaulted on the note, and the sellers, instead of exercising the power of sale under their deed of trust, elected to file suit for a money judgment on the note. Count I sought recovery of a money judgment on the note without first foreclosing on the security property. Count II sought judicial foreclosure of the deed of trust and entry of a deficiency judgment. The complaint made clear that the preferred form of relief was a money judgment for the full amount due under the promissory note. The district court granted sellers’ motion for summary judgment for the amount due on the promissory note. The trial court did not determine the fair market value of the real property or take into account such value in computing the amount of the judgment.

Buyers appeal, arguing that sellers were required to foreclose upon the real property before seeking judgment against buyers personally.

Idaho’s so-called single action statute, I.C. § 6-101, provides in pertinent part: “There can be one action for the recovery of any debt, or the enforcement of any rights secured by mortgage upon real estate which action must be in accordance with the provisions of this chapter.” The amount of any deficiency judgment is also restricted by statute:

6-108. Deficiency Judgments— Amount Restricted. — No court in the state of Idaho shall have jurisdiction to enter a deficiency judgment in any case involving a foreclosure of a mortgage on real property in any amount greater than the difference between the mortgage indebtedness, as determined by the decree, plus costs of foreclosure and sale, and the reasonable value of the mortgaged property, to be determined by the court in the decree upon the taking of evidence of such value.

A long and unbroken line of Idaho cases has construed the single action statute as prohibiting a mortgagee from maintaining an action at law without first foreclosing on the security, unless of course, the security has become worthless. See, e.g., Barnes v. Buffalo Pitts Co., 6 Idaho 519, 57 P. 267 (1899); Berry v. Scott, 43 Idaho 789, 255 P. 305 (1927); Eastern Idaho Production Credit Assoc. v. Placerton, Inc., 100 Idaho 863, 606 P.2d 967 (1980).

The policy behind the single-action statute was explained in Jeppesen v. Rexburg State Bank, 57 Idaho 94, 99, 62 P.2d 1369, 1371 (1936):

When a debtor gives a mortgage to secure his debt, he gives his creditor a lien on his property and thereby authorizes him, at maturity of the debt, to proceed in rem against the property for the amount of the debt. This necessarily impairs the debtor’s credit to that extent; and it was the evident intention of the legislature, by enacting sec. 9-101 [the predecessor of I.C. § 6-101], to require . the creditor to proceed for collection of the debt (if not paid in due course) against the property, and to exhaust the security before being allowed to acquire any personal judgment against the debt- or. (Clark v. Paddock, 24 Ida. 142, at 152, 132 Pac. 795, 46 L.R.A., N.S., 475.) In other words, it was intended not to allow the creditor to hold an incumbrance on his debtor’s property, and at the same time proceed against him for a personal judgment, either with or without attachment (sec. 6-502, subd. 1, I.C.A.), for to allow the creditor to do so might, in any case, result in impairing the debtor’s credit in at least double the amount of his debt; that is, both in rem and in personam. This statute avoids a multiplicity of suits against the same debtor.

Although by its terms section 6-101 applies only to “right[s] secured by mortgage^],” appellants argue that the statute should be construed to apply to deeds of trust as well. They reason that since a deed of trust is the functional equivalent of a mortgage, it follows that the procedure for judicial foreclosure of the two instruments should be the same. At the end of the last century, this Court refused to enforce a power of sale clause, holding that an instrument termed as a deed of trust *741must be treated as a mortgage under the then-existing statutes. Brown v. Bryan, 6 Idaho 1, 9-21, 51 P. 995, 997-1002 (1898). And California’s Supreme Court in a landmark decision has construed its single-action statute, which is the model for Idaho’s, as applying to deeds of trust. Bank of Italy National Trust & Savings Assoc, v. Bentley, 217 Cal. 644, 20 P.2d 940 (1933), cert, denied, 290 U.S. 659, 54 S.Ct. 74, 78 L.Ed. 571 (1933). Other states with similar statutes have followed California. See McMillan v. United Mortgage Co., 82 Nev. 117, 412 P.2d 604 (1966); and Utah Mortgage and Loan Co. v. Black, 618 P.2d 43 (Utah 1980). Nevertheless, after examining the present day Idaho legislative scheme in pari materia, we are compelled to hold that Idaho’s single-action statute, I.C. § 6-101, does not apply to deeds of trust.

The case of Brown v. Bryan, is distinguishable. The then-existing legislative enactments did not include the Idaho Trust Deeds Act, I.C. §§ 45-1502 et seq. This act sets forth in detail the procedures which must be followed in foreclosures of deeds of trust, and effectively overruled Brown v. Bryan. When the legislature first enacted these laws in 1957, and in its subsequent amendments, it made the act applicable only to deeds of trust. Because the legislature has created a separate scheme for deeds of trust, the rationale for Brown v. Bryan, that mortgages and deeds of trust are functional equivalents, is undercut. The legislature obviously intended separate treatment; therefore, they are not functionally the same.

A mortgage and a deed of trust are also separately defined. Compare I.C. § 45-901 with I.C. § 45-1502(3). Further, in I.C. § 45-1502(5), the use of deeds of trust is limited inter alia to real property not exceeding twenty acres. If the legislature intended deeds of trust to operate as mortgages under I.C. §§ 6-101 et seq., then the bulk of the Trust Deeds Act, and in particular I.C. §§ 45-1502(3) and (5), are mere verbiage without meaning.

Appellants urge that I.C. § 45-15031 provides only two remedies upon default where the obligation is secured by a deed of trust: the exercise of power of sale and foreclosure. We disagree. The section, which is quoted in full in the footnote below, “may be foreclosed by advertisement and sale ... or, at the option of beneficiary, by foreclosure as provided by law for the foreclosure of mortgages on real property.” Id. If the statute was intended to provide exclusive remedies, it would have used mandatory “shall” language, rather than the permissive “may.”

Given that deeds of trust may only be used where the real property is not in excess of twenty acres, etc., and given the legislature’s clear intention to treat deeds of trust and mortgages as separate and distinct instruments, we decline appellants’ invitation to expand the scope of I.C. § 6-101.

The mortgage foreclosure statutes, I.C. § 6-101 et seq., are distinct from I.C. § 45-1502 et seq. Of particular interest to the case at hand is:

45-1505. Foreclosure of trust deed, when. — The trustee may foreclose a trust deed by advertisement and sale under this act if:
(1) The trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee are recorded in mortgage records in the counties in which the property described in the deed is situated; and
(2) There is a default by the grantor or other person owing an obligation the per*742formance of which is secured by the trust deed or by their successors in interest with respect to any provision in the deed which authorizes sale in the event of default of such provision; and
(3) The trustee or beneficiary shall have filed for record in the office of the recorder in each county wherein the trust property, or some part or parcel, is situated, a notice of default identifying the deed of trust by stating the name or names of the trustor or trustors and giving the book and page where the same is recorded, or a description of the trust property, and containing a statement that a breach of the obligation for which the transfer in trust is security has occurred, and setting forth the nature of such breach and his election to sell or cause to be sold such property to satisfy such obligation; and a copy of such notice by registered or certified mail to any person requesting such notice of record a hereinafter provided.
(4) No action, suit or proceeding has been instituted to recover the debt then remaining secured by the trust deed, or any part thereof, or if such action or proceeding has been instituted, the action or proceeding has been dismissed.

An action to recover the debt without resorting to foreclosure of the deed of trust was contemplated by the legislature, but there is the caveat that statutory foreclosure is not permitted if there is an action then pending to recover the debt. This language does not permit a notice of sale foreclosure of the trust deed as security and simultaneously recovery of the debt by judicial action.

By enacting the trust deed legislation the legislature created a method outside of the judiciary for the foreclosure of debt security. Foreclosure of trust deeds is by advertisement and sale. However, in I.C. § 45-1505(4) it is provided that the summary foreclosure procedure cannot be utilized if the judicial process is being used to recover the debt. Such language does not prohibit the collection of a debt without foreclosure of the trust deed, but does prohibit foreclosure if there is an action on the debt pending. Subsection (4) of I.C. § 45-1505 anticipates an action for the debt without recourse to the security. Pursuing the dual course of two remedies, one statutory and one judicial, is clearly prohibited. In the trust deed statute, I.C. § 45-1505(4) the legislature contemplated a suit on the debt independent of the foreclosure provisions. Only one action is contemplated and the creditor may seek judicial recovery on the debt or may statutorily foreclose the security. If the creditor files suit to recover on the debt without first foreclosing on the security as provided by statute, the security, as a matter of law, is waived at the time the action on the debt is filed. However, I.C. § 45-1505(4) provides that if the suit upon the debt is dismissed, foreclosure may again be made of the trust deed. If, during the suit on the debt, the property covered by the trust deed has been conveyed or encumbered by the debt- or, any revival of the security of the trust deed upon dismissal of the suit on the debt as provided in I.C. § 45-1505(4) shall be subject to any such conveyance or encumbrance.

By pursuing dual remedies, the statute precludes the plaintiffs from prevailing upon their complaint which asked for judgment upon the debt and judgment to foreclose the deed of trust. The judgment is reversed and the case is remanded to the trial court to proceed in accordance with the views expressed herein.

Costs to appellants.

No attorney fees on appeal.

BAKES and HUNTLEY, JJ., concur. SHEPARD, C.J., concurs in the result.

. 45-1503. Transfers in trust to secure obligation — Foreclosure.—Transfers in trust of any estate in real property as defined in section 45-1502(5) may hereafter be made to secure the performance of an obligation of the grantor or any other person named in the deed to a beneficiary. Where any transfer in trust of any estate in real property is hereafter made to secure the performance of such an obligation, a power of sale is hereby conferred upon the trustee to be exercised after a breach of the obligation for which such transfer is security, and a deed of trust executed in conformity with this act may be foreclosed by advertisement and sale in the manner hereinafter provided, or, at the option of beneficiary, by foreclosure as provided by law for the foreclosure of mortgages on real property.