Opinion
No. 2-157 / 01-1156.
Filed December 11, 2002.
Appeal from the Iowa District Court for Ringgold County, GARY G. KIMES, Judge.
The defendant appeals a district court ruling granting the plaintiff's foreclosure action against the defendant's agricultural real estate. AFFIRMED.
David J. Lawler of Legal Services Corporation of Iowa, Council Bluffs, for appellant.
Justin G. Allen and August B. Landis of Whitfield Eddy, P.L.C., Des Moines, for appellee.
Heard by MAHAN, P.J., and ZIMMER and EISENHAUER, JJ.
The defendant appeals a district court order granting the plaintiff's foreclosure action against the defendant's agricultural real estate. The defendant argues (1) the district court erred in entering a foreclosure decree since the plaintiff violated terms of Missouri Annotated Statute section 400.9-504(3) (no notice — no deficiency rule) by failing to give proper written notice of the sale, (2) the court failed to determine whether the sale was commercially reasonable, and (3) that if the plaintiff failed to properly comply with section 9-504(3), then it is entitled to sanctions preventing the plaintiff from seeking a deficiency judgment after all other collateral is sold to satisfy the debt. We affirm.
I. Background Facts and Proceedings. On October 10, 1996, Vulcano Industries, Inc., by its president, Michael Mauro, executed and delivered to Central Bank of Kansas City two promissory notes and security agreements for $116,000 and $25,000, due on October 10, 1997. The defendant, Alva Parker, signed a continuing commercial guarantee securing payment of the notes. The notes were secured by Vulcano's business equipment and a real estate mortgage on two hundred acres of agricultural real estate owned by Parker.
Despite various extensions and renewals, Vulcano eventually defaulted on the notes. In May 2000, Central Bank sent Parker a forty-five day notice of right to cure default. In June 2000, Central Bank and Vulcano participated in mediation, and Central Bank agreed to take possession of Vulcano's business equipment to help satisfy the past due notes. The equipment was sold for $6500. Central Bank discussed the sale of the real estate with Parker, but did not formally provide him or Vulcano with written notice of a sale.
On August 2, 2000, Central Bank instituted a foreclosure action. Parker filed an affirmative defense, arguing that Central Bank failed to give proper written notice of the sale, failed to sell the equipment in a commercially reasonable manner, and should be barred from collecting any deficiency judgment because it failed to comply with Missouri Annotated Statute section 400.9-504(3).
Central Bank subsequently filed a motion for summary judgment. The district court granted partial summary judgment regarding the amounts owed, but reserved the questions raised in Parker's affirmative defenses. Following an application for adjudication of law points, the district court ruled that Central Bank failed to give proper written notice of the sale, but that Parker had actual notice and therefore suffered no prejudice. The court additionally ruled that Central Bank was entitled to proceed against all remaining collateral securing the note, but that because it failed to comply with section 9-504(3), it was barred from seeking a personal deficiency judgment against Parker. Based on the court's ruling, the parties stipulated to the form of a judgment entry and decree of foreclosure, which was filed on June 13, 2001. Parker has appealed.
II. Scope of Review. Mortgage foreclosure proceedings are equitable in nature. Iowa Code § 654.1 (2001). Because this action was tried in equity, our scope of review is de novo. First State Bank v. Kalkwarf, 495 N.W.2d 708, 711 (Iowa 1993). We give weight to the fact-findings of the district court, especially when considering the credibility of witnesses, but we are not bound by them. Iowa R.App.P. 6.14(6)(g).
III. Foreclosure. Parker contends the district court erred in entering a judgment of foreclosure against the agricultural real estate, since Central Bank failed to comply with the requirements of Missouri Annotated Statute section 400.9-504(3). Parker asserts Central Bank failed to properly provide written notice of the foreclosure sale, and did not dispose of the equipment collateral in a commercially reasonable manner. Parker also contends Central Bank should be barred by sanctions from obtaining a deficiency judgment upon exhaustion of all other collateral to satisfy the debt, since it failed to meet the requirements of section 400.9-504(3).
The parties in the present case contracted that Missouri laws would govern any dispute between the parties. Under Iowa law, parties may agree as to what state's laws govern under the contract. Cole v. State Auto. Cas. Underwriters, 296 N.W.2d 779, 781 (Iowa 1980). In the present case, the parties specifically contracted that Missouri law would apply. Both parties are Missouri corporations, and performance of the notes was to take place in Missouri. Therefore, Missouri law governs our review of this case. See also Carlson v. Tandy Computer Leasing, 803 F.2d 391, 393-94 (8th Cir. 1986).
Parker contends Central Bank failed to follow the notice provisions of section 400.9-504(3) by failing to properly give written notice of the sale and the sale of the business equipment was not commercially reasonable. However, we do not believe this section is applicable to the present case. Section 400.9-504(3) provides that a creditor may dispose of collateral pledged for security on a debt, but the process must be "commercially reasonable," and must also provide "reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made. . . ." The general purpose of this statute is to apprise a debtor of the details of a sale of collateral so he or she may take action necessary to protect his or her interest therein. McKesson Corp. v. Colman's Grant Vill., Inc., 938 S.W.2d 631, 633 (Mo.Ct.App. 1997). Section 400.9-104(j), however, provides that transactions involving a lien against real estate are excluded from the application of section 400.9-504(3). Because the issue is whether Central Bank may obtain foreclosure against Parker's real estate, section 9-104(j) applies, and any reliance on section 9-504(3) is misplaced.
The crux of Parker's argument that Central Bank is not entitled to foreclosure because it failed to comply with section 400.9-504(3) is based on the premise that Central Bank is seeking a deficiency judgment. Under Missouri law, the failure to strictly comply with the notice requirements of section 400.9-504(3) precludes a party from obtaining a deficiency judgment after all collateral is exhausted. Ford Motor Credit Co. v. Henson, 34 S.W.3d 448, 450-51 (Mo.Ct.App. 2001); Gateway Aviation, Inc. v. Cessna Aircraft Co., 577 S.W.2d 860, 863 (Mo.Ct.App. 1978). However, Central Bank is not seeking a deficiency judgment by attempting to foreclose on the real estate, but rather is seeking to exhaust all collateral pledged to secure the bank notes.
The Missouri Court of Appeals in Victory Hills Limited Partnership v. Nationsbank N.A. (Midwest), 28 S.W.3d 322 (Mo.Ct.App. 2000) considered a similar factual situation. In Victory Hills, the creditor failed to comply with section 400.9-504(3) by failing to provide notice of sale of an item of secured collateral. 28 S.W.2d at 326. The debtor claimed the creditor was barred from any further collection on the outstanding debt, including any action against collateral already pledged to secure the bank notes. Id. at 326-27. In concluding that section 400.9-504(3) was inapplicable, the court ruled that no Missouri court has applied the "no notice-no deficiency" rule "to allow a debtor to extinguish a debt where collateral remains to satisfy the debt and the creditor has not filed an action seeking a deficiency judgment." Id. at 332. The court limited the application of section 9-504(3) to those situations where a creditor seeks a deficiency judgment. Id. The court opined that "[l]ogically, there is not a `deficiency', as the term appears in section 400.9-504(2), until the collateral is sold and a balance remains due and owing on the debt, after giving credit against the same for the proceeds of the sale of collateral." Id.
In the present case, Central Bank is only attempting to satisfy the remaining debt by foreclosing on real estate that was originally pledged to secure the notes. Central Bank has filed no action seeking a deficiency judgment, since there is still collateral from which to satisfy the debt. Although Parker contends the sale was commercially unreasonable, he does not provide any specifics, and none appear in the record. Section 400.9-504(3) is therefore not applicable, and Central Bank is not precluded from obtaining a foreclosure judgment against the real estate. We therefore affirm the district court's entry of a foreclosure judgment against Parker's real estate.