Case Title: Fairfax Portfolio LLC v. Carojoto LLC

Citation: 

Docket Number: 118712

State: kansas

Court: Kansas Supreme Court

Date: 2020-09-11T00:00:00Z

Document:
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IN THE SUPREME COURT OF THE STATE OF KANSAS 
 
No. 118,712 
 
FAIRFAX PORTFOLIO LLC,  
Appellant, 
 
v. 
 
CAROJOTO LLC, ROSANA PRIVITERA BIONDO,  
ANTHONY L. PRIVITERA II, and CARL PRIVITERA, 
Appellees. 
 
 
SYLLABUS BY THE COURT 
 
1. 
Generally, the mortgagor of real property may retain the possession thereof.  
 
2. 
 
A holder of a real estate mortgage cannot, even after condition broken, take 
possession of the mortgaged property, except by post-default consent of all the parties, 
acquiescence, or court action. 
 
3.  
The mortgage instrument alone is unable to provide authority for a lender to take 
possession of real estate upon the event of potential future default. 
 
Review of the judgment of the Court of Appeals in an unpublished opinion filed March 1, 2019. 
Appeal from Wyandotte District Court; CONSTANCE M. ALVEY, judge. Opinion filed September 11, 
2020. Judgment of the Court of Appeals reversing the district court is affirmed. Judgment of the district 
court is reversed, and the case is remanded with directions.  
 
Douglas J. Patterson, of Property Law Firm, LLC, of Leawood, was on the brief for appellant.  
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Christopher J. Sherman and Jon W. Gilchrist, of Payne & Jones, Chartered, of Overland Park, 
were on the brief for appellees. 
 
The opinion of the court was delivered by 
 
WILSON, J.:  This case is about the enforceability of a mortgage clause that grants 
to mortgagee/lender the right to immediate and exclusive possession of the mortgaged 
property upon the event of the mortgagor/borrower's future default. In reliance on such a 
clause, the current mortgagee took possession of the property to the exclusion of the 
mortgagor. The mortgagor objected to the takeover, but the mortgagee did not relinquish 
the property. While in possession, the mortgagee filed a foreclosure action and was 
granted judgment in its favor. The mortgagor—Fairfax Portfolio LLC (Fairfax)—then 
filed the suit now before us against the mortgagee—Carojoto LLC, Rosana Biondo, 
Anthony Privitera II, and Carl Privitera (collectively Carojoto)—claiming that Carojoto's 
possession of the property, before a court order authorized it, was wrongful and caused 
recoverable damages. 
 
FACTS AND PROCEDURAL HISTORY 
 
Fairfax was the owner of about 300,000 square feet of commercial real estate in 
Wyandotte County which included industrial warehouse space, offices, and loading 
docks. This ownership was subject to debt evidenced by a promissory note secured by a 
mortgage on the real estate. Through a series of transactions, Carojoto acquired the note, 
mortgage, and other related loan documents. It is undisputed that when Carojoto acquired 
ownership over the debt, Fairfax was in default under the terms of the note. 
 
Without warning to Fairfax, Carojoto took possession of the property in June 
2012. Upon learning of the takeover, Fairfax objected and demanded the property's return 
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so Fairfax could continue its efforts to rent it and pay off the debt. Carojoto refused to 
budge. Instead, Carojoto launched its own marketing efforts to lease the property. 
 
While Carojoto was still in possession, they filed a mortgage foreclosure action in 
Wyandotte County District Court, and in February 2013, the court entered a judgment 
and order allowing Carojoto to commence a sheriff's foreclosure sale on the property. 
Carojoto made a credit bid of just over $4 million, thereby acquiring ownership of the 
property for itself.  
 
Just over a year later, Fairfax filed this action against Carojoto, claiming that 
Carojoto improperly took possession of the property prior to the foreclosure action and 
caused Fairfax damages. Carojoto filed a motion to dismiss, arguing it had the right to 
take possession of the property in the event of default, because the remedies portion of 
the mortgage (Paragraph 10.1) reads in pertinent part:   
 
"Upon the occurrence of any Event of Default, Borrower agrees that Lender may 
take such action, without notice or demand, as it deems advisable to protect and enforce 
its rights against Borrower and in and to the Property, including, but not limited to, the 
following actions, each of which may be pursued concurrently or otherwise, at such time 
and in such order as Lender may determine, in its sole discretion, without impairing or 
otherwise affecting the other rights and remedies of Lender: . . . (g) enter into or upon the 
Property, either personally or by its agents, nominees or attorneys and dispossess 
Borrower and its agents and servants therefrom, without liability for trespass, damages or 
otherwise and exclude Borrower and its agents or servants wholly therefrom[,] . . . and 
thereupon Lender may exercise all rights and powers of Borrower with respect to the 
Property."  
 
 
Carojoto further claimed the remedies clause was strengthened by the alleged 
vacancy of the property at the time Carojoto took possession of it. 
 
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The district court granted Carojoto's motion to dismiss on the basis of the 
mortgage remedies provision, Fairfax's default, and the fact the property was vacant. 
Fairfax appealed. A Court of Appeals panel reversed the district court's decision, holding 
that Carojoto's reliance on the provisions of executory agreements is unsupported by 
Kansas law and the facts do not support an exception. Fairfax Portfolio, L.L.C. v. 
Carojoto, L.L.C., No.118,712, 2019 WL 986149, at *6 (Kan. App. 2019).  
 
ANALYSIS 
 
Standard of Review 
 
 
The standard of review turns on what the trial court considered when granting 
Carojoto's motion to dismiss. When, as in this case, matters outside the pleadings were 
considered by the court, the appropriate standard of review is the same as that for 
summary judgment. 
 
 
K.S.A. 2019 Supp. 60-212(d) states: 
 
"Result of presenting matters outside the pleadings. If, on a motion [to dismiss] 
under subsection (b)(6) or (c), matters outside the pleadings are presented to and not 
excluded by the court, the motion must be treated as one for summary judgment under 
K.S.A. 60-256, and amendments thereto. All parties must be given a reasonable 
opportunity to present all the material that is pertinent to the motion." (Emphasis added.) 
 
Our standard for reviewing an order granting summary judgment is de novo, and:   
 
"'"Summary judgment is appropriate when the pleadings, depositions, answers to 
interrogatories, and admissions on file, together with the affidavits, show that there is no 
genuine issue as to any material fact and that the moving party is entitled to judgment as 
a matter of law. The trial court is required to resolve all facts and inferences which may 
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reasonably be drawn from the evidence in favor of the party against whom the ruling is 
sought. When opposing a motion for summary judgment, an adverse party must come 
forward with evidence to establish a dispute as to a material fact. In order to preclude 
summary judgment, the facts subject to the dispute must be material to the conclusive 
issues in the case. On appeal, we apply the same rules and where we find reasonable 
minds could differ as to the conclusions drawn from the evidence, summary judgment 
must be denied." [Citations omitted.]'" Hansford v. Silver Lake Heights, 294 Kan. 707, 
710-11, 280 P.3d 756 (2012). 
 
Our review over the interpretation and legal effect of written instruments is 
unlimited, and we are not bound by the lower courts' interpretations of those instruments. 
Prairie Land Elec. Co-op v. Kansas Elec. Power Co-op, 299 Kan. 360, 366, 323 P.3d 
1270 (2014). 
 
DISCUSSION 
 
This case prompts us to look at one of the earliest statutes in Kansas, which by and 
large remains unaltered to this day. K.S.A. 58-2301—just seven years younger than the 
state of Kansas—holds clearly:  "In the absence of stipulations to the contrary, the 
mortgagor of real property may retain the possession thereof." Likewise, even the earliest 
Kansas real estate cases, which lay the foundation for the nature of the relationship 
between mortgagor/borrower and mortgagee/lender, make it clear that the borrower 
retains possession of the mortgaged property.  
 
"In this State, a clean sweep has been made by statute. The common law attributes of 
mortgages have been wholly set aside; the ancient theories have been demolished[] . . . . 
The statute gives the mortgagor the right to the possession, even after the money is due, 
and confines the remedy of the mortgagee to an ordinary action and sale of the mortgaged 
premises; thus negativing any idea of title in the mortgagee. It is a mere security, 
although in the form of a conditional conveyance; creating a lien upon the property, but 
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vesting no estate whatever, either before or after condition broken. It gives no right of 
possession, and does not limit the mortgagor's right to control it—except that the security 
shall not be impaired. He may sell it, and the title would pass by his conveyance—
subject, of course, to the lien of the mortgagee." (Emphasis added.) Chick et al. v. 
Willetts, 2 Kan. 384, 391, 1864 WL 445 (1864). 
 
This court continued to reiterate the same principles of Kansas mortgages for decades: 
 
"In this state a real-estate mortgage conveys no estate or title, in whatever form the 
mortgage may be drawn; it creates only a lien upon the mortgaged property. And such 
lien can be enforced only by a judgment or order of the district court. A holder of a real-
estate mortgage cannot, even after condition broken, take possession of the mortgaged 
property, or of the rents or profits thereof, except by consent of all the parties, or by an 
action in the district court; and he cannot realize upon his mortgage except by judgment 
of such court. And this is true, whatever the form of the mortgage may be. Even if it were 
in form a deed absolute, still in its nature and character it would be only a mortgage. 
 
"Where the mortgaged property is not a sufficient security for the mortgage debt, 
the district court may in some cases appoint a receiver to take charge of the mortgaged 
property, and to receive the rents and profits thereof, but in no case can the holder of the 
mortgage, without suit, and without the consent of the mortgagor or his assignee, take 
possession of either the real estate mortgaged, or the rents or profits thereof." (Emphases 
added.) Seckler v. Delfs, 25 Kan. 159, 165, 1881 WL 794 (1881). 
 
Using this established law, Fairfax specifically relies in part on Kelso v. Norton, 
65 Kan. 778, 70 P. 896 (1902), to support the claim that any possession by Carojoto prior 
to the foreclosure action was wrongful. In that case, Kelso owned land that he sold to Mr. 
and Mrs. Norton who paid a down payment and signed two promissory notes for the 
balance. The Nortons also signed a mortgage securing the unpaid balance. The Nortons 
subsequently failed to pay taxes or anything toward the notes. Kelso filed suit and the 
court granted Kelso judgment for the unpaid amounts and foreclosure of the mortgage. 
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The sheriff sold the property to Kelso, who paid the costs of the suit and the three years 
of taxes that were owed. Kelso recovered possession of the land, received rents and 
profits from it, and continued to pay taxes on it.  
 
A few years later, Mr. and Mrs. Norton died intestate, leaving two minor children. 
The Norton children filed suit to remove Kelso and recover the land. Because of a 
technical defect in the summons, the trial court found the notes and mortgage never 
merged into a valid judgment, and so recovery of the land was granted to the Norton 
heirs. Kelso appealed. 
 
The Kelso court confirmed the general rule that a mortgagee has no possessory 
rights absent valid court order, but also found an exception to that general rule. The 
mortgagor's right to retain possession could be waived by their consent or acquiescence. 
65 Kan. at 782-83. The court held:   
 
"At common law, a mortgagee was entitled to possession and to recover possession from 
the mortgagor upon condition broken. In this state, by force of statute, a mortgage retains 
but few, if any, of its common-law attributes. It is a mere security contract, incident to the 
debt. The mortgagor, both before and after default, is entitled to the possession of the 
premises. The only legal right of the mortgagee is to foreclose the equity of redemption 
and obtain a decree of sale in satisfaction of his debt. While such are the legal rights of 
the mortgagor and mortgagee in this state, it does not follow that these legal rights may 
not be changed or waived by agreement, express or implied. If the mortgagor consents to 
the mortgagee's taking possession of the premises for the better-security of his debt, and 
the mortgagee does take possession, it is clear the possession thus taken will constitute 'a 
mortgagee in possession.'" 65 Kan. at 782-83. 
 
Fairfax argues that its objection to Carojoto changing the locks and its continued 
efforts to secure remedies for the unpaid debt demonstrate that it had not waived its legal 
right to possession of the mortgaged premises. Carojoto argues that the mortgage, in 
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Paragraph 10.1, provides the "express consent" contemplated by Kelso and the necessary 
waiver for it to take possession, even prior to the foreclosure action.  
 
Both the panel and Fairfax rely on a Court of Appeals case to dismiss the idea that 
the mortgage contract can provide that consent. In Hoelting Enterprises v. Trailridge 
Investors, L.P., 17 Kan. App. 2d 777, 884 P.2d 745 (1993), the relevant mortgage had a 
provision that upon default, Hoelting—as lender—was entitled to immediate possession 
of the property and rents. The specific issue on appeal was entitlement to the rents 
received between default and sale confirmation. The panel in that case ultimately ruled 
that Hoelting was not entitled to possession of the property and rents based on the 
mortgage agreement alone, but that the assignment of rents vested when Hoelting filed 
the foreclosure action:   
 
"Under Kansas law, therefore, a purely executory agreement alone is not 
effective to vest in a mortgagee the right to rents and profits. The right to rents and profits 
may vest in a mortgagee, however, if (1) the mortgagor defaults and the court appoints a 
receiver, or (2) the mortgage assigns the rents and the mortgagee reduces the rents to his 
possession by proper legal action. [Citations omitted.]" 17 Kan. App. 2d at 783. 
 
In Hall v. Goldsworthy, 136 Kan. 247, 14 P.2d 659 (1932), the court focused on a 
collateral issue of entitlement to rents and profits, as opposed to possession, after default 
on a mortgage. However, before turning its attention to the central issue, the court "set 
the stage" by cohesively summarizing the law as it applied to mortgage clauses that 
ostensibly allow mortgagee possession upon the potential occurrence of a future default. 
It stated: 
 
"The mortgagor is entitled to retain possession of the mortgaged property in the absence 
of a stipulation to the contrary. (R. S. 67-301.) [now K.S.A. 58-2301]. This statute was 
adopted in 1868 and its evident purpose was to entirely eliminate the attributes of the 
common-law mortgage. The possession contemplated in this statute necessarily applies to 
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the immediate possession and occupancy of the premises. It was not intended to authorize 
a contract for the possession of the premises upon any future contingency, such as default 
in payment or failure to pay taxes. In other words, if the mortgagee desires the possession 
of the premises such possession must be obtained and voluntarily consented to by the 
mortgagor. It cannot rest upon the happening of some future event. It has been held that 
stipulations in the mortgage instrument for possession of the mortgaged property upon 
default are of no avail to the mortgagee. [Citation omitted.]" (Emphases added.) 136 
Kan. at 249-50. 
 
Kansas precedent is clear that the mortgage instrument alone is unable to provide 
the express consent necessary for a lender to take possession of real estate prior to a valid 
court action. Although it may intuitively run contrary to the freedom to contract, Kansas 
established in its infant years that the right of a borrower to retain possession—even in 
default—is paramount. Therefore, any language in the mortgage agreement between 
Carojoto and Fairfax which would give Carojoto the ability to take possession of the 
property is simply unenforceable in light of this court's historical interpretation of K.S.A. 
58-2301. 
 
Secondarily to this contract-based claim, Carojoto cites a more narrow set of 
circumstances under which it purports to have taken possession lawfully. "If, after 
condition broke, the premises are unoccupied, the mortgagee may, if he can do so 
peaceably, enter into the possession under his mortgage; and he cannot be ejected 
therefrom by the owner until his mortgage lien has been fully satisfied." Walters v. 
Chance, 73 Kan. 680, 686, 85 P. 779 (1906).  
 
But as the panel points out in distinguishing that case, Walters considered property 
abandoned for a number of years before the lender quietly and peaceably came into 
possession of it. See Fairfax, 2019 WL 986149, at *5-6. There is nothing similar in the 
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present facts. Rather, after apparently being ousted, Fairfax promptly expressed its 
objection to Carojoto upon discovering the unexpected possession. 
 
The Court of Appeals panel was correct. We find no support in our law for 
Carojoto's reliance on the provisions of the executory agreements. The facts do not 
support an exception arising from either express or implied consent by Fairfax after 
default. Carojoto needed first to file its action in the district court, then seek its remedies 
for the default. We affirm the decision of the Court of Appeals and remand the case to the 
district court for further proceedings consistent with this opinion.  
 
MICHAEL E. WARD, Senior Judge, assigned.1 
 
* * * 
 
STEGALL, J., concurring:  If this were a question of first impression, I would agree 
with the dissent's articulated statutory interpretation. Given, however, that Hall v. 
Goldsworthy, 136 Kan. 247, 14 P.2d 659 (1932), has been on the books for almost nine 
decades, I concur in the outcome solely on the grounds of stare decisis. Our commitment 
to prior holdings of this court should be the strongest in cases of economic reliance, when 
parties to commercial transactions must know the rules ahead of time. McCullough v. 
Wilson, 308 Kan. 1025, 1036, 426 P.3d 494 (2018) ("'[c]onsiderations in favor of stare 
decisis are at their acme in cases involving property and contract rights, where reliance 
interests are involved'"). Stare decisis is further strengthened when the legislative branch  
                                               
 
 
 
1REPORTER'S NOTE:  Senior Judge Ward was appointed to hear case No. 118,712 
under the authority vested in the Supreme Court by K.S.A. 20-2616 to fill the vacancy on 
the court by the retirement of Chief Justice Lawton R. Nuss.  
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has failed—over a long period of time—to take any action to remedy an erroneous 
judicial interpretation of one of its statutes. State v. Quested, 302 Kan. 262, 278, 352 P.3d 
553 (2015) ("The doctrine of stare decisis is particularly compelling in cases where, as 
here, the legislature is free to alter a statute in response to court precedent with which it 
disagrees but declines to do so."). For these reasons, I would apply the clear interpretation 
of K.S.A. 58-2301 articulated by this court in Hall to the present case. 
 
* * * 
 
BILES, J., dissenting:  K.S.A. 58-2301 straightforwardly provides:  "In the absence 
of stipulations to the contrary, the mortgagor of real property may retain the possession 
thereof." (Emphasis added.) And everyone agrees this mortgage authorizes the lender to 
take possession of the property if the mortgagor defaults. So the question is pretty simple:  
Why can't this mortgage provision, which the mortgagor expressly conceded to get this 
loan, be among the "stipulations to the contrary" authorized by K.S.A. 58-2301? The 
statute's plain language certainly does not exclude possession-upon-future-contingency 
language expressed in mortgage instruments; but the majority's decision does. In doing 
so, the majority compromises the statute's terms by adding language limiting the 
permissible stipulations exclusively to those entered post-default. Fairfax Portfolio v. 
Carojoto, No. 118,712, Syl. ¶¶ 2, 3. The statute doesn't say that. Accordingly, I dissent. 
 
Courts apply the plain language of statutes and avoid adding, deleting, or 
substituting words. Kelly v. Legislative Coordinating Council, 311 Kan. 339, 347, 460 
P.3d 832 (2020); Nauheim v. City of Topeka, 309 Kan. 145, 149-50, 432 P.3d 647 (2019) 
("When the language is plain and unambiguous, the court must give effect to its express  
language, rather than determine what the law should be. The court will not speculate  
about legislative intent and will not read the statute to add something not readily found in  
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it."). For more than a decade, this court has made concerted efforts to adhere to that 
principle. And we have done so even if it meant overruling prior caselaw when earlier 
courts or a lower court perceived a legislative purpose beyond the statute's plain 
language. See, e.g., Hoesli v. Triplett, Inc., 303 Kan. 358, 361 P.3d 504 (2015) 
(overruling prior Supreme Court precedent on workers compensation offset statute); 
Casco v. Armour Swift-Eckrich, 283 Kan. 508, 524-27, 154 P.3d 494 (2007) (overruling 
prior Supreme Court precedent on parallel injury rule in workers compensation); Graham 
v. Dokter Trucking Group, 284 Kan. 547, 556, 161 P.3d 695 (2007) (reversing Court of 
Appeals for "overlooking the import of this plain language in the statute, [and] instead 
attempting to divine legislative intent from a review of legislative history"). 
 
The majority deviates without explanation from our more deliberate adherence to 
plain language statutory interpretation. And it makes no effort to reconcile this statute's 
language with its holdings in Syllabus ¶¶ 2 and 3. To be sure, there is no caselaw directly 
on point interpreting K.S.A. 58-2301 as the majority does in the present context. Its 
rationale is nothing less than a bare conclusion that the statute must not mean what it says 
because prior court cases have said so on their way to deciding some other issue being 
litigated. We have labored in recent years to go beyond such a superficial approach 
because the words used by the Legislature should be respected when at all possible.  
 
Take, for example, the majority's citation to Hall v. Goldsworthy, 136 Kan. 247, 
14 P.2d 659 (1932). The majority touts Hall as "cohesively summarizing the law as it 
applied to mortgage clauses that ostensibly allow mortgagee possession upon the 
potential occurrence of a future default." Slip op. at 8. But it does no such thing. Setting 
aside the fact that the passage the majority quotes is dicta because Hall dealt with 
entitlement to rents and profits, not possession, Hall did not even discuss the statute's  
language. Instead, Hall made the same analytical misstep we have exposed in Casco,  
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Hoesli, and other cases by interpreting a statute based on what the court divined as 
legislative intent—not the statute's plain language. Hall, 136 Kan. at 250 ("[K.S.A. 58-
2301] was not intended to authorize a contract for the possession of the premises upon 
any future contingency, such as default in payment . . . . It has been held that stipulations 
in the mortgage instrument for possession of the mortgaged property upon default are of 
no avail to the mortgagee." [Emphasis added.]). 
 
And when one looks a little deeper into Hall where it claims caselaw support for 
the proposition relied on by the majority, this supposed authority falls apart with very 
little additional scrutiny. Those cases do not prohibit stipulations in a mortgage 
instrument for possession of mortgaged property upon default if that possession does not 
amount to an absolute conveyance or interference with the mortgagor's exercise of 
redemption rights. See Citizens' Nat. Bank v. Williams, 100 Kan. 140, 163 P. 647 (1917) 
(citing Beverly v. Barnitz, 55 Kan. 466, 42 P. 725 [1895]); Holden Land & Live Stock Co. 
v. Trading Co., 87 Kan. 221, 123 P. 733 (1912); Williams v. Schrock, 118 Kan. 347, 235 
P. 111 (1925). This makes them analytically noteworthy perhaps, but certainly not 
conclusive. 
 
My point is fairly basic. To the extent such cases are marginal guides because they 
tangentially touch on the issue presented as they go on to answer a different legal 
question, their assertions conflict with K.S.A. 58-2301's plain language. And the majority 
fails to explain—based on the actual language in the statute—why a mortgage provision 
for the mortgagee's possession upon default cannot be a stipulation "to the contrary" as 
that statute provides with respect to the mortgagor's retention of possession. See Black's 
Law Dictionary 1712 (11th ed. 2019) (defining "stipulation" as "[a] material condition or 
requirement in an agreement; esp., a factual representation that is incorporated into a  
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contract as a term "). Appealing 
instead to "historical interpretation," the majority reforms the statute to add a future-
contingency exclusion and ignores the words used by the Legislature. Slip op. at 9. 
 
For these reasons, I dissent.