Summary
In Grandberry et al. v. Mortgage Bond Trust Co., 159 Miss. 460, 132 So. 334 (1931), the Supreme Court was called upon to decide whether or not an agreement between the owners of a third deed of trust on a certain parcel of land and the owner of a second deed of trust whereby the owners of the third deed of trust agreed not to bid at the foreclosure sale in return for a guaranteed lesser amount to be paid for their third deed of trust was valid and enforceable.
Summary of this case from Saunders v. BerrongOpinion
No. 29114.
February 9, 1931. Suggestion of Error Overruled March 9, 1931.
1. CONTRACTS.
Lienholders interested in property to be sold under trust deed may lawfully enter into agreement regarding bidding to protect their interests, provided general public is not thereby excluded.
2. CONTRACTS.
In construing contract, all terms of agreement and surrounding circumstances must be considered, and contract given fair and reasonable construction or interpretation.
3. CONTRACTS.
Contract should be given construction, if possible, which will render it legal, rather than construction which would render it illegal.
4. EQUITY.
Equity will look to actual substance of transaction rather than to any mere form.
5. FRAUDS, STATUTE OF.
Agreement between lienholders interested in property to be sold under trust deed relative to bidding and division of proceeds held not within statute of frauds.
APPEAL from chancery court of Hinds county, First district. HON. V.J. STRICKER, Chancellor.
Franklin, Easterling Rosenthal, of Jackson, for appellants.
If two or more lienholders choose to unite their fortune in a new purchase, there is no principle of law or morals to forbid. That they should agree to buy at the best price obtainable was their right, if they might buy at all, provided they resorted to no artifice to deter others from bidding.
Starkweather v. Jenner, 54 L.Ed. 602.
If appellants were misled to their damage and prejudice, the action on the part of the appellee would constitute such fraud against appellants as to estop it from asserting the title so acquired at said sale to the prejudice of appellant's rights.
Delta Lumber Co. v. Wall, 80 So. 782.
A party whose property is about to be sold, either under judicial process, deed of trust, or mortgage, may contract with another to become the purchaser of such property, at the sale to be made for the benefit of the debtor. The law never looks to the amount of the consideration to uphold a contract, so that there is a consideration, though trivial, moving the parties. Loss or injury to one of the parties, or benefit to the other, may be a sufficient consideration. The debtor, in such case, by trusting to the agreement of the party to purchase may be prevented from raising the money to pay the debt, or from making a more advantageous sale of it to another, with the consent of the creditor.
Magee v. Catchings, 33 Miss. 672.
When a party agrees before the sale to purchase property about to be sold under an execution against a party, and to give such party the benefit of the purchase, the agreement is binding and will be enforced.
Such agreement is not void under the statute of frauds. The statute has reference alone to the sale of lands, and not to a contract to purchase by one person for the benefit of another. Soggins v. Heard, 31 Miss. 426.
Where an agreement is used defensively, as a shield against the assertion of title fraudulently acquired in violation of the agreement, the agreement operates as an equitable estoppel, to prevent these things.
Higgins v. Haberstraw, 76 Miss. 627, 25 So. 168.
The statute of frauds presents no obstacle to a bill, which does not seek the enforcement of a parol agreement for the sale of land, but the cancellation of a conveyance which it is inequitable for the defendant to hold.
Dickerson v. Mays, 60 Miss. 388.
The true case as charged in the amended bill of complaint does not constitute a parol agreement for the sale of land contrary to the statute of frauds, but that the appellee held the property under an express parol trust and not under an implied trust.
Robinson v. Leflore, 59 Miss. 148; Thomas v. Thomas, 62 Miss. 531; Wilson v. Hoffman, 104 Miss. 743, 61 So. 99; Comfort v. Winters, 108 Miss. 330, 66 So. 532; McLemore v. Carter, 7 So. 357. Wells, Jones, Wells Lipscomb and W.R. Newman, Jr., all of Jackson, for appellee.
It is not admissible to prove an agreement by one to purchase land for another, for this would be to establish an express trust founded on contract and within the statute of frauds.
Miazza v. Yerger, 53 Miss. 135.
An oral agreement to execute a deed of trust on land cannot be enforced as being within the statute of frauds.
Berry v. Bullock, 81 Miss. 463.
There can be no trustee without a trust. The law recognizes only two kinds of trusts, namely; express and implied. Implied trusts are usually divided into two kinds, namely; constructive and resulting. Express trusts arise from agreements between the parties, while implied trusts arise from the action of the parties. It is essential to the creation of resulting trusts that the money or assets furnished by or for the person claiming the benefit of the trust should enter into the purchase price of the property. If the money or assets is not furnished by or for the person claiming the benefit of the trust at the time of the purchase there must be an absolute obligation to pay incurred by the person seeking to enforce the trust or by some other person on his behalf as a part of the original transaction to purchase.
Gibson v. Foote, 40 Miss. 788; 39 Cyc. 130; Bush v. Bush, 134 Miss. 523.
Constructive trusts do not arise from agreements or from intention of the parties, but by operation of law and fraud, active or constructive.
29 Cyc. 169.
The mere refusal to execute a parol trust or denial of its existence is not such fraud as to take the case out of the statute of frauds and authorize equity to enforce the trust.
A merely oral promise, and its subsequent breach, however disappointing and harmful, and though ever so reprehensible in morals, is not of itself enough to cause a court of chancery to declare a trust.
Ragsdale v. Ragsdale, 68 Miss. 92.
While a trust which a court of equity will enforce may spring out of the relations of the parties, no such trust can arise by a parol contract between parties, and that wherever the claim is based solely on a parol agreement it must be treated as void.
Robinson v. LeFlore, 58 Miss. 148.
The only test and criterion by which to determine whether the promise needs to be in writing, is the question whether it is or is not a promise to answer for a debt, default or miscarriage of another, for which that other continues liable.
Sweatman v. Parker, 49 Miss. 19.
The mere fact that a verbal agreement to answer for the debt of another is an absolute promise to pay the debt and is supported by a new consideration does not necessarily take it out of the statute of frauds.
West v. Grainger, 35 So. 91; Daytona Bridge Co. v. Bond, 36 So. 445.
The agreement that complainants would not bid for the property at the foreclosure sale but would let defendant bid shows that such an agreement constituted a fraud against the debtor in that it was an agreement to stifle bidding and complainants did not therefore come into court with clean hands and are estopped to set up or rely upon any such agreement.
Galloway v. Inglis, 138 Miss. 350; Barwick v. Moyse, 74 Miss. 415; 21 C.J., page 180; 21 C.J., page 185; Watt v. Conger, 13 S. M. 412.
An agreement with reference to a lien on land or a deed of trust thereon is within the statute of frauds.
Berry v. Bullock, 81 Miss. 463, 33 So. 410; Campbell v. Bright, 87 Miss. 443; Rutland v. Brister, 53 Miss. 683.
Appellants, on February 11, 1925, were the owners of a lot with the improvements thereon in the city of Jackson, said property being worth at the time of the sale hereinafter mentioned in excess of twelve thousand dollars. On said first mentioned date, appellants executed a deed of trust on said property to the Southern Building Loan Association for seven thousand dollars, payable in principal at the rate of one hundred dollars per month. On the same date appellants executed a second deed of trust to L.B. Jones for the sum of one thousand six hundred thirty-six dollars. On January 14, 1926, appellants sold and conveyed the property to Mrs. Eva P. Wall, and, as a part of the consideration of the purchase, as recited in the deed, Mrs. Wall assumed and agreed to pay to the loan association the balance then due of six thousand four hundred eighty-three dollars and twenty-five cents, and to said Jones the said sum due him of one thousand six hundred thirty-six dollars, in addition to which, and as a further part of the purchase price, Mrs. Wall executed to appellants a deed of trust on said property for a balance of two thousand three hundred sixty-eight dollars and forty-two cents; the same being in effect a third deed of trust.
In February, 1928, Mrs. Wall, who had become in arrears with her payments on said incumbrances, arranged with appellee to purchase and take over said first and second mortgages, which was done, by the proper assignments to appellee, but Mrs. Wall still continued to be in arrears and to fall further behind as time went on. Appellants thereupon complained to appellee that it was not sufficiently diligent in enforcing said payments, and, upon the response thereto by appellee that it had been unable after diligence to make the collections on said first and second mortgages, it was finally agreed between appellants and appellee that the time had arrived when foreclosure by sale should be had against Mrs. Wall; but the sale could not be had under appellants' third deed of trust, because it did not mature until three years after its date, which due date had not then arrived. The said Jones deed of trust, however, was then past due in its entirety, wherefore it was decided that the said Jones deed should be foreclosed, leaving the title of the purchaser at the said sale subject only to the first deed of trust originally given to the loan association, which was payable in monthly installments.
A sale under this second deed of trust, if the property brought no more than the amount due on the said deed of trust, subject to that due on the first trust deed to the loan company, would, of course, eliminate and render inoperative and invalid the third deed of trust held by appellants. It was necessary, therefore, in proceeding under the said second deed of trust, that appellants should bid in the property at the sale for more than enough to cover the said Jones or second deed of trust, or else procure the said appellee to take over the said third deed of trust. Appellee was not willing, however, to take over and thereby to allow appellants for said third deed of trust in excess of one thousand five hundred dollars, with interest, which amounted to one thousand six hundred forty-six dollars, principal and interest.
Appellants thereupon agreed with appellee that they would accept the said sum of one thousand six hundred forty-six dollars for their said third mortgage, and the agreement between appellants and appellee in that respect and as to the manner of the execution thereof was put into the following oral form: It was agreed that the sale should be made by appellee under the said second, or Jones, deed of trust; that on the sale appellee would bid upon the property the amount of the said Jones deed, with interest, plus the said amount of one thousand six hundred forty-six dollars on appellants' third deed, plus costs and expenses of sale. With this assurance and understanding, and in reliance thereon, appellants, who lived in another county, did not attend the sale, and did not appear to bid in the property at a price above the said Jones deed of trust, with interest and costs of sale, as otherwise it is admitted they could and would have done, and, not having attended, there were no other bids than that of appellee, which was only one thousand dollars, or less than its said Jones deed of trust.
Appellee immediately took possession of said property, has proceeded to remodel the house without appellants' consent, and now repudiates its agreement with appellants on the alleged grounds that the agreement, being oral, is not enforceable under the statute of frauds, and on the further asserted ground that the said agreement is in contravention of the law in relation to the chilling of bids. As to the second ground, it is enough to say that "persons who by virtue of liens or otherwise have an existing interest in the property to be sold may lawfully combine together for the protection of their interests and may even expressly agree not to bid against each other, in furtherance of a plan to conserve their rights, providing their activities in so doing do not operate to exclude any of the general public from bidding." 35 C.J., p. 41. See, also, Starkweather v. Jenner, 216 U.S. 524, 529, 30 S.Ct. 382, 54 L.Ed. 602, 605, 17 Ann. Cas. 1167.
And for a similar reason we see nothing in the argument upon the statute of frauds. Keeping in mind the general principle that, viewing all the terms of an agreement and all the surrounding circumstances, "it is the duty of courts to give to a contract that construction or interpretation, if possible, which will square its terms with fairness and reasonableness, each party toward the other, and, moreover, that its terms shall be construed, if possible, so as to make it legal, rather than take another course of construction which would make it illegal." Citizens' Bank v. Frazier, 157 Miss. 298, 302, 127 So. 716, 717, we think there is no title to land involved here, nor any payment of the debt of another, but simply that the effect of the agreement was that appellee, so far as any rights or interest of appellants were concerned, should start the bidding at the aggregate amount of the Jones deed of trust, plus the agreed amount, one thousand six hundred forty-six dollars, which appellants were to have out of their deed of trust, plus costs of sale. If, therefore, any of the public had appeared and had bid, say, one thousand dollars more than the said aggregate amount above mentioned, then that one thousand dollars would have belonged to appellee; and, if one of the public had bid even up to the amount of both the second and third deeds of trust, appellants' interest in the proceeds would still have been only one thousand six hundred forty-six dollars, and the balance between that and the total amount of the third, or appellants', deed of trust, would have belonged to appellee. And since the agreement — keeping here in mind the fact that the property is admitted to have been worth at the date of sale in excess of twelve thousand dollars — thus operated in its potential opportunities in favor of appellee in respect to possible, or perhaps probable, profits in the proceeds of the sale, it must also and on the other hand operate to the extent of the fair and substantial effect thereof in favor of appellants, and cannot be defeated by the eventual fact that none of the public appeared to bid as high as the agreed starting point, and that appellee failed to conform to the agreement in that latter respect, but, instead, bid in the property at only one thousand dollars.
To state the matter in other words: It appearing to be to their mutual interests that the delinquent debtor should be foreclosed, appellee and appellants put their said second and third deeds of trust into a united enterprise for the purpose of this sale, so that, if any outside bidder had appeared and had bid an amount equal to the combined amounts of both of them, then appellee would have received as a profit out of the proceeds all above its own deed of trust, plus one thousand six hundred forty-six dollars and costs, and appellants would have received only the said one thousand six hundred forty-six dollars, as to which appellee would be indebted to appellants for money had and received. But, to the contrary of the previous possibility or probability that outside persons would appear and bid an adequate price for the property, no such persons appeared; and neither did appellants appear. But, as to appellants, in the first place, their failure so to do was by reason of, and in reliance on, the agreement by which appellee and appellants had united their interest in the sale and in the proceeds thereof which agreement appellee had promised to execute; and, in the second place, the bill distinctly avers that the agreement was that appellee "would bid for said property a sum equal to the Jones deed of trust and the sum of one thousand six hundred forty-six dollars in addition thereto, above the costs and expenses of the sale." Thus there was an agreement on a sufficient consideration as to what appellee would do at said sale, and it was thereupon not necessary that appellants should further concern themselves to attend said sale to see to it that appellee did what it had agreed to do. They could rely on it without being present to watch it.
We do not think, upon the entire case as made by the bill, and particularly in view of the value of the property, that it would be permissible under equitable principles that appellee could have the advantage of a profit in the proceeds of the united enterprise had the public come forth with bids, and, on the other hand, can now repudiate the agreement when it transpired that no one of the public appeared to make an adequate bid. And certainly an agreement between parties, uniting their interest as lienholders, as to the division among themselves of the proceeds of a foreclosure sale, or as to the distribution or sharing of profits and losses between them in respect to such proceeds, is not within the statute of frauds, either in letter or spirit, 27 C.J., p. 226, and in such matters, as in most others, equity looks to the actual substance of the transaction rather than to any mere form. We are therefore of the opinion that the demurrer should have been overruled, and that, if the material allegations of the bill be proved, appellants should have a decree against appellee for the said sum of one thousand six hundred forty-six dollars, with legal interest from the date of the said sale.
Reversed and remanded.