Case ID: pr-fed_9/html/0569-01.html
Source: Caselaw Access Project
Author: {"author": "HaMiltoN, Judge,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

BANCO POPULAR Complainant, v. E. B. WILCOX, Dft.
    San Juan,
    Equity,
    No. 946.
    Re Deficiency Judgment after Mortgage Sale.
    Decree Pro Confesso — Parties-—Due Process of Law.
    1. A decree taken pro confesso against a party to a suit cannot affect one not a party to the suit and against whom it was not taken as at common law, and under the 14th Amendment every person is entitled to due process of law, and is not bound by any proceeding to which he is not a party.
    Foreclosure of Mortgage — Procedure.
    2. In addition to the mortgage procedure, a mortgage may be foreclosed in Porto Rico by the proceeding established by the Law of March 9, 1905, analogous to other judicial proceedings or by a foreclosure in equity.
    Mortgage — Third Party — Mortgage Law — Civil Code.
    3. A mortgage is primarily a security, and a third party, as purchaser, while liable for the obligation to the extent of the mortgaged property, is not liable further. Where the Civil Code conflicts with the Mortgage Law the Code prevails.
    Mortgage — Third Party — Express Liability — Novation—Equity.
    4. While a third party, as a purchaser, is ordinarily liable only . to the extent of the mortgaged property, this is not so where he expressly obligates himself further. An original mortgage debtor may be substituted by another, with the consent of the mortgagee, and this must be done by an instrument of equal dignity with the mortgage, but where this is not done but the parties act as if it had been done, equity will consider it as having been done.
    Mortgage — Foreclosure—Deficiency Decree.
    5. Under the general power of a court of equity to mold its procedure to meet the justice of the case, there may be a decree of foreclosure, and if the sale does not produce an amount sufficient to cover the debt there may be a subsequent decree for the deficiency.
    Opinion filed April 27, 1917.
    
      Messrs. D.am-ián Monserrat and Franh Antonsanti for plaintiff.
    
      Messrs. J. B. F. Savage and Ghas. Hartzell for defendant.
   HaMiltoN, Judge,

delivered tbe following opinion:

This case bas been severely litigated, and, after final decree of sale of tbe mortgaged property and confirmation of tbe report of sale, now comes up upon tbe motion of tbe plaintiff for a judgment over against defendant Wilcox for tbe difference between tbe proceeds of sale and tbe judgment debt as heretofore ascertained. Tbe defendant denies that a deficiency judgment can be bad against bim.

Tbe mortgage was originally made by Landron to tbe plaintiff bank, and defendant Wilcox comes into tbe matter through bis purchase from Landron and tbe agreement whereby be, as purchaser, “binds himself to tbe payment of principal and interest secured by said mortgages, as well as binds himself for tbe fulfilment of all tbe principal and accessory obligations.” It is contended on bis behalf, that, as be obtained a decree pro confesso in a suit against Landron alone whereby this conveyance was avoided, be is released also so far as tbe bank is concerned. It bas already been determined, however, in this case that no matter what tbe wording of tbe decree pro confesso as between Mm and Landron, tbe bank is not affected. If be and Landron bad personally agreed to anything, it could not affect tbe bank, provided of course that tbe bank bad acquired rights in tbe meantime. At common law and under tbe 14th Amendment every person is entitled to due process of law, and is not bound by any proceeding to which be is not a party.

It is claimed that tbe mortgage obligation is, for tbe purposes of this case, to be regarded as solely between Landron and tbe bank. Under Civil Code, § 1158, it is declared as tbe first ' essential requisite of a contract of mortgage that it is constituted to secure tbe fulfilment of a principal obligation, that is to say, that tbe mortgage is itself accessory. To this effect is Manresa Comentario, vol. 12, p. 382. There is no doubt that this is trae and remained true so long as tbe parties to tbe transaction were Landron and tbe bank'.

Tbe Mortgage Law is older than tbe Civil Code, having been adopted in 1863 for peninsular Spain, and after modifications extended to Porto Eico in 1893. Its object was to provide a system of registration of titles and to protect third parties against claims which have not been registered in accordance with its terms. Under tbe Mortgage Law, articles 127-129, the theory was that if there was no bidder at tbe public mortgage sale tbe mortgagee could demand that tbe property be awarded to him. To this end a prior appraisement was made, and a summary judicial proceeding provided, from which there could be no redemption. Another form of proceeding has been created in Porto Eico by tbe Law of March 9, 1905, tending towards making tbe proceeding analogous to other judicial proceedings. Compilation of 1911, p. 859, Montes de Oca v. Baez, 23 P. R. R. 656. To this must also be added, as formally different at least, a foreclosure in equity, as in tbe case at bar.

Prior to tbe Civil Code and tbe Mortgage Law, tbe mortgagee must, in case of alienation of tbe property, exhaust bis remedy against tbe original debtor before be could follow tbe property into tbe bands of a third party. Manresa supra, 517. ■This did not seem to create any liability on tbe part of tbe purchaser under any circumstances beyond the value of tbe mortgaged property itself. Tbe Mortgage Law gives special rights to a purchaser. "While tbe mortgagor under article 115 may compel tbe debtor to capitalize unpaid interest for three years and increase tbe mortgage to that extent, article 116 provides that, if tbe property has changed bands, tbe mortgage creditor cannot demand from this third party this addition to tbe obligation. He is relegated to other lands of tbe mortgagor. Similarly under articles 112 and 113 tbe purchaser has greater rights in tbe way of removal or remuneration for bis machinery and improvements than is given to the mortgagor himself. It is true that under articles 147 and 148 a creditor can claim back interest, but it is only for two years instead of tbe three which could have been claimed against the mortgagor himself.

Tbe theory of tbe Spanish Civil Law, therefore, not only is that a mortgage is primarily a security, but that third persons, such as purchasers, while liable for tbe obligation to tbe extent of tbe mortgaged property, are not liable further. Where the Civil Code conflicts with tbe Mortgage Law tbe Code prevails. Civil Code, § 1781: “Tbe form, extension, and effects of tbe mortgage, as well as all that relating to its creation, modification, and extinction, and all that which may not have been included in tbis chapter, shall be subject to the provisions of the mortgage law, which continues in force.”

As to purchaser of mortgaged property, § 1780 of the Civil Code provides as follows: “A creditor may demand from the third possessor of the property mortgaged the payment of the part of the credit secured with what the latter may possess, in the terms and with the formalities established by law.”

This also should he construed as limiting the liability of the purchaser to the property in his hands under mortgage, and does not in itself render him liable for the debt beyond the value of the property so possessed. So far as relates to the liability of a purchaser of mortgaged property, the Act of March 9, 1905, makes no difference in the law. It somewhat changes the method of collection of the mortgaged debt, but makes no change so far as relates to the liability of a third person in possession.

In the case at bar, however, a different situation is presented, due to the fact that the defendant has made an express agreement to put himself in the place of the original mortgagor by binding himself to the payment of principal and interest and to the fulfilment of the principal and accessory obligations. This was the agreement between Landron and Wilcox, and to it the bank was not a party. It is doubtless true that a third- person cannot substitute himself in the place of the original debtor without the consent of the creditor, and that there cannot be two such principal debtors at the same time under the Spanish law. Under the Civil Code, § 1124, obligations are extinguished, amongst other things, by novation, and under § 1171 an obligation may be modified by substitution of a new debtor. This cannot be done without the consent of the original creditor according to the terms of § 1173, which is as follows: “Novation, consisting in tbe substitution of a debtor in tbe place of tbe original, may be made without tbe knowledge of tbe latter, but not without tbe consent of tbe creditor.”

Tbe original creditor, however, tbe bank, has sued defendant Wilcox for tbe debt, and has not pursued Landron in this respect. While it was not a party to tbe Wilcox-Landron arrangement, it has accepted tbe substitution, received interest from defendant Wilcox, given him extension of time, and- by this suit looks to him alone for payment of tbe obligation. If it is possible to accept a substitution of debtors, it would seem that tbe plaintiff has done so. It is doubtless true that at law, under Civil Code, § 1247, consent to a change of an old contract must appear in a document of equal dignity with the old one.

Sec. 1247. Tbe following must appear in a public instrument : “1. Acts and contracts tbe object of which is tbe creation, transmission, modification, or extinction of property rights on real property. ... 6. Tbe assignment of actions or rights arising from an act contained in a public instrument.”

If this be a defect it would be one which could, after defendant Wilcox bad received extension of time from tbe bank, be cured by a proceeding to compel him to execute tbe proper obligation to tbe bank. It would be inequitable for this defendant to be permitted to set up' such a defect under tbe circumstances. There must therefore, for tbe purposes of this case, be held to be a novation by which Wilcox was substituted, instead of Land-ron, as to payment of principal and other obligations created by tbe original Landron mortgage.

It is argued that tbe decree foreclosing tbe mortgage must be complete in itself, and must require that a deficiency be entered against tbe defendant. Section 1 of tbe Act of March 9, 1905, requires that tbe judgment of foreclosure shall be that tbe plaintiff recover tbe debt, with foreclosure of tbe lien, and that an order of sale shall issue, and if tbe proceeds of such sale be insufficient to satisfy tbe judgment then that tbe balance shall be satisfied out of any other property of tbe defendant. Tbe defendant under article 129 of tbe Mortgage Law would, in a case similar to tbe one at bar, be a third party, tbe party in possession. It is not clear from tbe reading of tbe law that tbe matter of execution for deficiency must be embraced in tbe original judgment. In tbe California case of Leviston v. Swan, 33 Cal. 480, 482, it was held that all the judgment need contain is a statement of tbe amount due tbe plaintiff, that tbe defendants were personally liable, and directing that tbe mortgaged property be sold and tbe proceeds applied to tbe debt and expenses. Everything else being regulated by statute, tbe provisions of tbe statute control without being copied into tbe judgment. Moreover, proceedings in equity are regulated by their own rules. Under new equity rule No. 10, prescribed by tbe Supreme Court, it is said: “In suits for tbe foreclosure of mortgages, or tbe enforcement of other liens, a decree may be rendered for any balance that may be found due to tbe plaintiff over and above tbe proceeds of tbe sale or sales, and execution may issue for tbe collection of tbe same.” [226 U. S. 652, 51 L. ed. 1636, 33 Sup. Ct. Rep. XXL] Judgment may be entered for such deficiency under tbe prayer for general relief. Seattle, L. S. & E. R. Co. v. Union Trust Co. 24 C. C. A. 512, 48 U. S. App. 255, 79 Fed. 179, 188. It is not required that this be a clause in tbe original decree, for it cannot at that time be certain that tbe property will not produce tbe amount of tbe debt. It is useless to provide for a deficiency when it is not at all clear that there will be a deficiency. TJnder tbe general power of a court of equity to mold its procedure to meet tbe justice of tbe case, there may be a decree of foreclosure, and after tbe sale is found not to produce tbe whole amount of tbe debt there may be a subsequent decree for tbe deficiency. Tbe decree should state tbe amount due, and it would be impossible to state tbe amount of tbe deficiency until tbe subsequent proceedings have ascertained tbe deficiency. This, indeed, is taken as a ground for claiming that, because of a proposed appeal which may lead to a new sale, there can now be no such ascertainment. This court cannot, however, take an appeal into account. There certainly can be no presumption of reversal. The-only thing before tbe court is its own decree, and the proceedings upon that show a deficiency.

There does not appear any reason why deficiency judgment should not be entered under tbe facts of tbe case. It is true that ordinarily a purchaser would not be liable for tbe amount of tbe debt above tbe value of tbe property, but in tbe case at bar tbe defendant expressly assumed such liability. If tbe rents bad been applied to tbe debt as they accrued, it may well be that there would now be no deficiency. If tbe defendant preferred to use tbe rents as they accrued, tbe result would be that tbe debt was not reduced and that tbe amount now is correspondingly larger.

It follows that tbe deficiency-decree must be entered as prayed. It is so ordered.