Knight Properties, Incorporated v. State Bank & Trust Company
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IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI
NO. 2009-CA-01429-COA
KNIGHT PROPERTIES, INCORPORATED
AND CHAD KNIGHT
APPELLANTS
v.
STATE BANK & TRUST COMPANY
DATE OF JUDGMENT:
TRIAL JUDGE:
COURT FROM WHICH APPEALED:
ATTORNEYS FOR APPELLANTS:
ATTORNEYS FOR APPELLEE:
NATURE OF THE CASE:
TRIAL COURT DISPOSITION:
DISPOSITION:
APPELLEE
03/23/2009
HON. SAMAC S. RICHARDSON
MADISON COUNTY CIRCUIT COURT
DREW MCLEMORE MARTIN
MELISSA SELMAN MARTIN
RONALD KEITH FOREMAN
ANNETTE ELISE BULGER MATHIS
CIVIL - CONTRACT
SUMMARY JUDGMENT GRANTED TO
APPELLEE. JUDGMENT ENTERED FOR
$360,000.
AFFIRMED: 02/22/2011
EN BANC.
KING, C.J., FOR THE COURT:
¶1.
Knight Properties, Inc. (KPI) and Chad Knight entered into a contract with State Bank
& Trust Co. for a loan and offered six tracts of land as security. KPI and Knight defaulted
on the loan, and State Bank pursued a monetary judgment. The Circuit Court of Madison
County granted summary judgment to State Bank. KPI and Knight filed a post-trial motion
to reconsider and to vacate the judgment, which was denied. KPI and Knight have appealed
raising the following issues: (1) whether the doctrine of election of remedies prevents State
Bank from seeking a monetary judgment instead of foreclosure; (2) whether equitable
estoppel prevents State Bank from foregoing foreclosure, after notice was provided, and
seeking monetary judgment; and (3) whether KPI or Knight waived the defenses of election
of remedies or equitable estoppel by agreement. Finding no reversible error, we affirm.
FACTS
¶2.
Knight is the principal owner of both North Place Seven Development, LLC (North
Place) and KPI. On December 31, 2006, Knight purchased six tracts of land on behalf of
North Place; and on February 7, 2006, the City of Madison (City) approved the final plat for
development subject to specific restrictions. Those restrictions required Knight to replace
the overhead power lines with underground facilities.
The cost of compliance was
approximately $130,024.62. Knight requested that the City waive the non-conforming
restrictions on the specified tracts of land. On November 21, 2006, the City denied his
request.
¶3.
On November 30, 2006, North Place sold the six tracts of land to KPI for $300,000.
On December 1, 2006, Knight appealed the denial of his request for a waiver to the circuit
court alleging that the restrictions rendered the land “unmarketable.”
¶4.
On January 16, 2007, KPI and Knight entered into a contract with State Bank for a
loan and offered the six tracts of land as security. KPI was named as the promisor on the
promissory notes, and Knight was named as a guarantor within the commercial guarantee.
Knight represented to State Bank that the collateral property was valued at $300,000, but he
failed to inform State Bank of the restrictions imposed on the land and that the cost of
conforming to the imposed restrictions would decrease the value of the properties by nearly
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half. KPI and Knight defaulted on the promissory notes; as a result, on October 22, 2007,
State Bank sent a notice of foreclosure. The foreclosure sale was to occur on November 26,
2007.
State Bank procured an appraisal of the land in anticipation of the pending
foreclosure, and only then, it was informed of the discrepancy in value.
¶5.
Due to the discrepancy, State Bank opted to forego foreclosure and pursue a monetary
judgment against KPI and Knight. On January 18, 2008, State Bank filed its complaint. On
January 25, 2008, the appeal that Knight filed on behalf of North Place against the City was
dismissed by the circuit court for failure to file timely a brief.
¶6.
On November 7, 2008, after a period of discovery, State Bank filed a motion for
summary judgment arguing that as a matter of undisputed fact, KPI and Knight were jointly
and severally liable to State Bank on their promissory notes and guarantees. KPI and Knight
filed a cross-motion for summary judgment claiming that State Bank was barred from
enforcing the guarantees and notes based on the doctrine of equitable estoppel. Specifically,
KPI and Knight alleged that reliance on the notice of foreclosure resulted in the dismissal of
the appeal against the City. State Bank responded asserting that the elements of equitable
estoppel were not met and that the contracts specifically waived the right to claim defenses
against State Bank’s right to forego foreclosure and pursue a monetary judgment. On March
23, 2009, the circuit court granted summary judgment in favor of State Bank.
¶7.
KPI and Knight subsequently filed a motion for reconsideration and to vacate the
judgment arguing that State Bank’s election of the remedy of foreclosure barred it from
changing that election and that KPI had detrimentally relied on State Bank’s notice of
foreclosure. After a hearing on the merits, the circuit court denied the motion. On November
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2, 2009, KPI and Knight timely filed a notice of appeal.
ANALYSIS
¶8.
This Court will review issues of contract construction as well as a trial court’s grant
of summary judgment de novo. Leitch v. Miss. Ins. Guar. Ass’n., 27 So. 3d 396, 398 (¶6)
(Miss. 2010); Limbert v. Miss. Univ. For Women Alumnae, Ass’n., 998 So. 2d 993, 998
(¶10) (Miss. 2008).
I. Election of Remedies
¶9.
KPI and Knight argue that the doctrine of election of remedies applies to bar State
Bank from pursuing a monetary judgment against them after State Bank provided notice of
foreclosure. The defense of election of remedies is not properly before this Court; therefore,
this claim is procedurally barred.
¶10.
Election of remedies is an affirmative defense. O’Briant v. Hull, 208 So. 2d 784, 785-
86 (Miss. 1968). Mississippi Rule of Civil Procedure 8(c), specifically requires that, in
pleading to a preceding pleading, a party shall set forth affirmatively certain listed defenses
and any other matter constituting an affirmative defense. M.R.C.P. 8(c). Generally, if the
defense is not specifically pleaded in the original answer, the defense is deemed waived.
Hutzel v. City of Jackson, 33 So. 3d 1116, 1119 (¶12) (Miss. 2010) (citation omitted).
¶11.
KPI and Knight did not specifically plead election of remedies as a defense in their
original answer. In fact, the first reference to the doctrine of election of remedies was within
the supplemental memorandum in support of defendant’s motion for reconsideration and to
vacate the judgment. The supplemental memorandum was filed more than one year after the
filing of the original complaint and more than three months after the entry of the final
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judgment in favor of State Bank.
¶12.
This Court has held that: “[A] defendant's failure to timely and reasonably raise and
pursue the enforcement of any affirmative defense or other affirmative matter or right which
would terminate or stay the litigation, coupled with active participation in the litigation
process, will ordinarily serve as a waiver.” Knox v. BancorpSouth Bank, 37 So. 3d 1257,
1261 (¶11) (Miss. Ct. App. 2010) (quoting Daughtrey v. Allred, 22 So. 3d 1253, 1264 (¶26)
(Miss. Ct. App. 2009)). KPI and Knight failed to raise the affirmative defense of election of
remedies in a timely and reasonable manner. Furthermore, KPI and Knight participated
throughout the litigation process, including discovery and appearing for a hearing before the
circuit court. The affirmative defense was only pleaded after the final judgment was entered.
These facts are sufficient to find a waiver of the defense of election of remedies.
¶13.
Procedural bar aside, in order for State Bank to be barred from pursuing a monetary
judgment instead of foreclosure, Knight and KPI must satisfy the three necessary elements
of the doctrine of election of remedies: (A) existence of two or more remedies, (B)
inconsistency between such remedies, and (C) a choice of one of the remedies. O’Briant,
208 So. 2d at 786.
A. Two or More Remedies
¶14.
As for the first element, there is no dispute that there are two or more remedies in
existence. State Bank could (1) foreclose on the secured property and pursue a legal
judgment for deficiency or (2) seek a monetary judgment in total satisfaction of the debt.
This element is satisfied.
B. Inconsistency Between Remedies
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¶15.
The Mississippi Supreme Court has specifically held that there is no inconsistency in
a mortgagee’s legal and equitable rights, stating:
There is no inconsistency in the two remedies here available to [W.O.] Rea,
receiver. He could pursue the foreclosure to conclusion, or, if he deemed it
advantageous to himself, he could forego the foreclosure and proceed at law
to collect his debt in the law forum. . . . There is no inconsistency between
the legal and equitable remedial rights possessed by a mortgagee in case of
a breach, and he may exercise them all at the same time, and resort to one is
not a waiver of the other.
Rea v. O’Bannon, 171 Miss. 824, 832, 158 So. 916, 918 (1935). See also West Point Corp. v.
New N. Miss. Fed. Sav. & Loan Ass’n., 506 So. 2d 241, 243 (Miss. 1986); Cooper v. Miss.
Land Co., 220 So. 2d 302, 308 (Miss. 1969). This element is not satisfied.
C. Choice of Remedy
¶16.
KPI and Knight argue that State Bank initiated foreclosure proceedings and, thus,
elected their choice of remedy. The Mississippi Supreme Court has expressed its disfavor for
the doctrine of election of remedies and held that the doctrine of election of remedies only
applies once a cause of action is pursued to satisfaction. O’briant, 208 So. 2d at 786. A claim
must be litigated to its conclusion in order to warrant the defense of election of remedies to bar
a subsequent cause of action. Aetna Cas. and Surety Co. v. Berry, 669 So. 2d 56, 72 (Miss.
1996) (overruled on other grounds). State Bank did provide notice of foreclosure to KPI and
Knight, but the cause of action was not pursued to satisfaction, and a foreclosure sale never
occurred.
See 25 Am. Jur. 2d Election of Remedies § 15 (2004).
Notification of a
contemplated action, such as the filing of a notice of a claim, does not constitute an election
that precludes the subsequent prosecution of an action or suit based upon an inconsistent
remedial right. Id. Because notification or other such actions required by state law are
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generally not considered an election, this element is not satisfied.
¶17.
KPI and Knight failed to satisfy the necessary elements for the doctrine of election of
remedies to bar State Bank from pursuing a monetary judgment instead of foreclosure. This
issue is without merit.
II. Equitable Estoppel
¶18.
KPI and Knight argue that equitable estoppel applies to prevent State Bank from
foregoing foreclosure and seeking a monetary judgment because KPI and Knight failed to
participate in the appeal against the City in reliance on notice of foreclosure. In order to
invoke the doctrine of equitable estoppel, KPI and Knight must prove by a preponderance of
the evidence that the actions of State Bank induced Knight’s lack of participation in the
pending appeal between North Place and the City and that KPI and Knight suffered a detriment
in reliance on the notification of foreclosure. Harrison Enter., Inc. v. Trilogy Commc’n, Inc.,
818 So. 2d 1088, 1095 (¶31) (Miss. 2002). Further, in order for equitable estoppel to apply,
State Bank must have had reasonable foresight that such consequences may result. PMZ Oil
Co. v. Lucroy, 449 So. 2d 201, 206 (Miss. 1984).
¶19.
Knight alleges that once he received notice of foreclosure, he did not have time to
prepare adequately for his appeal. The appeal against the City was filed on December 1, 2006,
and the notice of foreclosure was issued ten months later. Detrimental reliance on the notice
of foreclosure does not seem plausible when Knight had failed to participate in the litigation
of the appeal during the ten months prior to the notice of foreclosure.
¶20.
The Uniform Circuit and County Court Rule 5.06 states that:
Briefs filed in an appeal on the record must conform to the practice in the
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Supreme Court, including form, time of filing and service, except that the
parties should file only an original and one copy of each brief. The
consequences of failure to timely file a brief will be the same as in the
Supreme Court.
¶21.
Therefore, the Mississippi Rules of Appellate Procedure apply. Mississippi Rule of
Appellate Procedure 31(b) specifically states: “The appellant shall serve and file the
appellant’s brief within 40 days after the date on which the record is filed. . . .” Furthermore,
Mississippi Rule of Appellate Procedure 31(d) permits dismissal of the appeal for failure to
file timely the appellant’s brief. The circuit court recognized Knight’s failure; and on January
4, 2007, the court entered an order of deficiency pursuant to Mississippi Rule of Appellate
Procedure 2(a)(2) for the “obvious failure to prosecute the appeal and a failure to comply
substantially with the Mississippi Rules of Appellate Procedure.”
¶22.
Beyond the element of detrimental reliance, the doctrine of equitable estoppel requires
that State Bank must have had reasonable foresight that such consequences could result. PMZ
Oil Co., 449 So. 2d at 206. There is no evidence to support the claim that State Bank could
have anticipated the dismissal of the appeal. The appeal referenced the appellant as North
Place; neither KPI nor Knight were named as parties to the appeal. Knight, as the principal
owner of both businesses, did not inform State Bank of the restrictions imposed on the land or
the appeal regarding the collateral. Even after notification of the foreclosure, Knight failed to
inform State Bank of the pending appeal regarding restrictions affecting the specified tracts of
land.
¶23.
KPI and Knight fail to provide evidence to support their alleged detrimental reliance on
the foreclosure sale or that State Bank should have anticipated that the notice of foreclosure
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could result in detrimental reliance. Accordingly, this issue is without merit.
III. Waiver of Defenses
¶24.
In response to the appellant’s cross-motion for summary judgment, State Bank argued
that KPI and Knight had waived the defenses of election of remedies and equitable estoppel
by executing the contract. KPI and Knight argued that no waiver exists within the documents.
¶25.
Pursuant to Mississippi law, a “court is obligated to enforce a contract executed by
legally competent parties where the terms of the contract are clear and unambiguous.” Union
Planters Nat’l Bank v. Jetton, 856 So. 2d 674, 678 (¶15) (Miss. Ct. App. 2003) (quoting
Merchants & Farmers Bank v. State ex rel. Moore, 651 So. 2d 1060, 1061 (Miss. 1995)).
¶26.
The language of the promissory note states:
Lender may delay or forgo enforcing any of its rights or remedies under this
Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker
or endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone.
¶27.
The pertinent language of the commercial guaranty specifically states:
Except as prohibited by applicable law, Guarantor waives any right to require
Lender. . . (B) to make any presentment, protest, demand, or notice of any
kind, including notice of any nonpayment of the indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the indebtedness . . .
Guarantor also waives any and all rights or defenses based on suretyship or
impairment of collateral including, but not limited to, any rights or defenses
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arising by reason of (A) any “one action” or “anti-deficiency” law or any other
law which may prevent Lender from bringing any action, including a claim for
deficiency against Guarantor, before or after Lender’s commencement or
completion of any foreclosure action, . . . (D) any right to claim discharge of
the indebtedness on the basis of unjustified impairment of any collateral for the
indebtedness; . . . (F) any defenses given to guarantors at law or in equity other
than actual payment and performance of the indebtedness. . . .
¶28.
The language of the note and guarantee is clear and unambiguous. KPI and Knight
waived the defenses of election of remedies and equitable estoppel in regard to State Bank’s
decision to forgo foreclosure and pursue a monetary judgment. This issue is without merit.
¶29. THE JUDGMENT OF THE CIRCUIT COURT OF MADISON COUNTY IS
AFFIRMED.
ALL COSTS OF THIS APPEAL ARE ASSESSED TO THE
APPELLANTS.
LEE AND MYERS, P.JJ., IRVING, GRIFFIS, ISHEE, ROBERTS, CARLTON
AND MAXWELL, JJ., CONCUR. BARNES, J., NOT PARTICIPATING.
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