Court Opinion

ID: 4564804
Source: CourtListenerOpinion
Date Created: 2020-09-11 15:04:29.75456+00
Date Added: 2024-06-11T12:33:25.082315
License: Public Domain

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        Review of the judgment of the Court of Appeals in an unpublished opinion filed March 1, 2019.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

1
 REPORTER'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.

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