Pentagon Fed. Credit Union v. McMahan

308 So.3d 496

PENTAGON FEDERAL CREDIT UNION

v.Susan R. MCMAHAN

1180804

Supreme Court of Alabama.

May 8, 2020

Paul T. Beckmann of Hand Arendall Harrison Sale LLC, Mobile, for appellant.

Franklin H. Eaton, Jr., of The Callaghan Law Office, Gulf Shores, for appellee.

MENDHEIM, Justice.

Pentagon Federal Credit Union ("PenFed") appeals a judgment entered by the Baldwin Circuit Court in favor of Susan R. McMahan. We reverse the circuit court's judgment and remand the cause for further proceedings.

Facts and Procedural History

PenFed and McMahan stipulated to the following facts:

"1. On or about June 16, 2005, Plaintiff Susan R. McMahan and her now deceased husband (collectively ‘the McMahans’), purchased the property located at 23324 Cornerstone Drive, Loxley, Alabama 36551 (the ‘property’)....

"2. Also on June 16, 2005, the McMahans executed a mortgage on the property in favor of Wells Fargo in the principal amount of $122,700.00 (the ‘Wells Fargo mortgage’)....

"3. The Wells Fargo mortgage identifies the property encumbered by the [Wells Fargo] mortgage as being located at ‘23324 Cornerstone Drive, Loxley, Alabama 36551,’ Id. at p. 3. The legal description attached to the Wells Fargo mortgage does not correctly describe the property.

"4. On or about September 14, 2007, the McMahans obtained a loan and executed a promissory note in favor of PenFed in the amount of $55,000.00 (‘PenFed note’)....

"5. On or about September 14, 2007, the McMahans executed a second mortgage on the property in favor of PenFed (the ‘PenFed mortgage’)....

"6. PenFed was aware of the Wells Fargo mortgage when PenFed made the loan to the McMahans and obtained its mortgage on the McMahans' property."

The PenFed mortgage states, in pertinent part:

"At no time shall this mortgage, not including sums advanced to protect the security of this mortgage, exceed $55,000.00.

"....

"... [PenFed] shall be subrogated to the rights of the holder of any previous lien, security interest, or encumbrance discharged with funds advanced by [PenFed] regardless of whether these liens, security interests or other encumbrances have been released of record."

The parties' stipulation of facts further states:

"7. On or about September 27, 2014, the McMahans filed for Chapter 13 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Alabama, Case No. 14-03147....

"8. In Schedule D of their bankruptcy petition, the McMahans acknowledged that Wells Fargo held a $112,000.00 mortgage on the property ..., which was incurred in June 2005 ....

"9. The McMahans also acknowledged in Schedule D the second mortgage on the property held by PenFed in the amount of $46,000.00....

"10. On or about March 31, 2015, PenFed sought relief from the automatic bankruptcy stay in order to foreclose the PenFed mortgage....

"11. On or about May 6, 2015, Wells Fargo sought relief from the automatic bankruptcy stay in order to foreclose the Wells Fargo mortgage. ...

"12. The bankruptcy court granted PenFed's motion to lift the stay on May 19, 2015....

"13. The bankruptcy court granted Wells Fargo's motion for relief from the automatic stay on June 22, 2015....

"14. On or about July 1, 2015, PenFed declared the PenFed note and mortgage in default and scheduled a foreclosure sale for August 7, 2015.

"15. At the duly noticed and conducted foreclosure sale on August 7, 2015, PenFed purchased the property for a credit bid of $36,000.00 (the ‘foreclosure sale’). PenFed received a foreclosure deed, taking title subject to the senior lien of Wells Fargo. ...

"16. As of the date of the foreclosure sale, the McMahans owed PenFed the total amount of $47,714.16 under the PenFed note.

"17. The fees and costs incurred in association with the foreclosure sale totaled $2,719.25.

"18. The McMahans' bankruptcy case was dismissed on or about November 17, 2015.... The Wells Fargo debt/lien and the PenFed debt were not discharged in the bankruptcy proceedings.

"19. On or about December 30, 2015, PenFed brought suit against Wells Fargo in the Circuit Court of Baldwin County, Alabama, Civil Action No. 05-CV-2015-901538, to quiet title as the first lien holder and fee simple owner of the property by virtue of the PenFed mortgage, the foreclosure deed, and the erroneous legal description in the Wells Fargo mortgage. PenFed did not notify or make [McMahan] a party to that lawsuit.

"20. That lawsuit was never tried to conclusion but was settled, and PenFed paid Wells Fargo $91,256.54 to satisfy the [Wells Fargo] note and in exchange for a cancellation and release of the Wells Fargo mortgage. PenFed did not acquire the right to enforce the Wells Fargo note and/or mortgage. ...

"21. On or about July 28, 2016, within one year of the foreclosure, PenFed sold the property to independent third-party purchasers for a sales price of $157,525.00 (the ‘post-foreclosure sale’)....

"22. The costs and expenses associated with the July 28, 2016, post-foreclosure sale of the property totaled $12,350.39, which resulted in the net proceeds from the post-foreclosure sale totaling $145,174.61.

"23. The McMahans' deficiency balance of $14,433.41 on the PenFed note was satisfied as a result of the post-foreclosure sale.

"24. On or about December 5, 2017, counsel for Susan McMahan wrote PenFed inquiring about how the Wells Fargo mortgage was satisfied. ...

"25. On or about January 8, 2018, counsel for PenFed responded to the December 5 letter, explained PenFed's calculation of the surplus remaining after the post-foreclosure sale, and offered to tender the surplus in exchange for execution of a hold harmless agreement. ..."

PenFed's calculation of the post-foreclosure-sale surplus proceeds excluded the $91,256.54 that PenFed paid to Wells Fargo to satisfy the Wells Fargo note and cancel the Wells Fargo mortgage.

On February 7, 2018, McMahan sued PenFed, asserting claims of breach of contract, "breach of quasi-fiduciary (trustee) duty," money had and received, unjust enrichment, constructive trust, and conversion. McMahan alleged that PenFed's sale of the property to third-party purchasers for $157,525 ("the post-foreclosure sale") "created excess proceeds[ ] greater than the amount Pen[Fed] was entitled to collect under the Pen[Fed] ... note." The gravamen of each of McMahan's claims against PenFed is that the proceeds of the post-foreclosure sale exceeded the amount McMahan owes on the PenFed note, that McMahan is entitled to the proceeds of the post-foreclosure sale that exceed the amount McMahan owes on the PenFed note, and that PenFed has failed to remit to McMahan the entirety of the surplus proceeds from the post-foreclosure sale that she says she is entitled to. In essence, McMahan asserted that PenFed should not have excluded from the post-foreclosure-sale surplus proceeds the $91,256.54 that PenFed paid to Wells Fargo to settle the Wells Fargo note and the Wells Fargo mortgage.

On June 6, 2018, McMahan filed a motion for a partial summary judgment as to her claims of breach of contract and money had and received. On August 13, 2018, PenFed filed a motion for a summary judgment as to all of McMahan's claims. Both parties filed responses opposing the other's summary-judgment motion. On April 9, 2019, the circuit court denied the parties' summary-judgment motions.

On May 23, 2019, the parties submitted a joint motion containing a stipulated statement of facts, which is set forth above. The parties further stated in their joint motion that, "[h]aving reached this stipulation, [the parties] further stipulate that joint exhibits will be submitted and that neither party will present testimony at the trial of this matter." On May 31, 2019, the circuit court conducted a bench trial. PenFed submitted a trial brief at the conclusion of the bench trial. During arguments presented at the trial and in its trial brief, PenFed argued that the doctrine of unjust enrichment prohibited McMahan from recovering the $91,256.54 that PenFed paid to Wells Fargo to settle the Wells Fargo note and the Wells Fargo mortgage; McMahan objected to PenFed's raising the doctrine of unjust enrichment for the first time at trial.

On June 7, 2019, the circuit court entered a judgment in favor of McMahan. The circuit court concluded that,

"[a]t the time of the post[-]foreclosure sale, [McMahan] was entitled to $94,741.20 in surplus, which represents the [post-foreclosure] sale price of $157,525.00 minus the amount owed on the PenFed note of $47,714.16 minus the costs associated with the foreclosure of $2,719.25 minus the costs associated with the post[-]foreclosure sale of $12,350.39. Prejudgment interest on $94,741.20 from July 28, 2016, is calculated to be $15,632.30."

In other words, the circuit court concluded that PenFed could not exclude from the post-foreclosure-sale surplus proceeds the $91,256.54 that it paid to Wells Fargo to settle the Wells Fargo note and the Wells Fargo mortgage. Further, concerning PenFed's unjust-enrichment argument, the circuit court stated:

"PenFed did raise a defense at trial that [McMahan] had been unjustly enriched by PenFed's payment to Wells Fargo; however, PenFed did not raise unjust enrichment as a defense in any of its responsive pleadings, nor did PenFed claim unjust enrichment as a counterclaim. Thus PenFed's defense of unjust enrichment was waived, and this court need not have an opinion as to its merit."

PenFed appealed.

Standard of Review

In Ivey v. Estate of Ivey, 261 So. 3d 198, 206 (Ala. 2017), this Court stated:

" ‘ "[W]here the facts before the trial court are essentially undisputed and the controversy involves questions of law for the court to consider, the court's judgment carries no presumption of correctness." Allstate Ins. Co. v. Skelton, 675 So. 2d 377, 379 (Ala. 1996). Questions of law are reviewed de novo. BT Sec. Corp. v. W.R. Huff Asset Mgmt. Co., 891 So. 2d 310 (Ala. 2004).’

" Alabama Republican Party v. McGinley, 893 So. 2d 337, 342 (Ala. 2004)."

Discussion

It is undisputed that McMahan is entitled to the entirety of...