Opinion
August 17, 1938.
1. MORTGAGES: Sale Under Power. Where a mortgage securing part of the purchase price was foreclosed under power of sale by the mortgagee, who through another became the purchaser, in an action to set aside the sale where the property was worth $2000 without improvements and was subject to judgment liens for labor and material in excess of $4000, the evidence failed to show that the bidding by an agent of the mortgagee in the sale had a detrimental effect upon the bidding, or that the price paid, $2000, was inadequate.
2. MORTGAGES: Sale Under Power: Equity: Redemption. A mortgagee with power of sale occupies a dual relationship, being trustees with respect to the power to sell and cestui que trust to the extent of the ownership in the secured debt.
A purchase by a mortgagee at a foreclosure sale conducted by himself under a power of sale in the mortgage is subject to affirmance or avoidance by the purchaser, or those holding under him.
The rule does not require actual fraud or injury but keeps the mortgagee's eye single and clear to the rights of the mortgagor.
Such a purchase by the mortgagee is not a nullity, but since one who seeks equity must do equity a bill in equity to redeem is a usual remedy.
Where the mortgagor subsequent to the mortgage commenced the construction of improvements which were not completed when the mortgage deed was past due, under the circumstances, redemption would have afforded the full measure of equitable relief to which the mortgagor might have been entitled.
3. MORTGAGES: Power of Sale. A provision in a mortgage permitting the mortgagee to purchase at his own sale is valid, and a lawful sale under the power, absent prohibitions to the contrary, forecloses the mortgagor's equity of redemption.
Where the record shows such mortgage was in ordinary form, containing power of sale in mortgagee, and the sale was in accordance with the power, under the record, the Supreme Court is not justified in interfering with the decree of the trial court refusing to set aside the sale and reinvest title in mortgagor subject to the mortgage.
Appeal from McDonald Circuit Court. — Hon. Emory E. Smith, Judge.
AFFIRMED.
Wilbur F. Hall, J.T. Pinnell and Ernest D. Martin appellant.
(1) A mortgagee, in a mortgage with power of sale, is a trustee, and cannot purchase at her own sale, and the sale thereunder at which she is the purchaser either directly or through an agent, is void and she takes no title thereunder. Guels v. Trust Co., 49 S.W.2d 63; Northcutt v. Fine, 44 S.W.2d 125; Duncan v. Home Co-Operative Co., 221 Mo. 315, 120 S.W. 733; Stark v. Love, 128 Mo. App. 24, 106 S.W. 87; McNees v. Swaney, 50 Mo. 388; Thornton v. Irwin, 43 Mo. 153; 41 C.J., pp. 978, 982, secs. 1429, 1432. (2) The purchase by a mortgagee through the interposition of a third party, is considered by the courts of equity as a mark or badge of fraud, or fraud per se. Powers v. Boyd, 105 S.W.2d 64; Thornton v. Irwin, 43 Mo. 164; Sugden on Vendors, 890. (3) Equity jealously scrutinizes every such sale. Mueller v. Becker, 263 Mo. 165, 172 S.W. 325; Perry on Trusts (6 Ed.), 187. (4) There was no delivery of deeds and no consideration. Ray v. Walker, 293 Mo. 447, 240 S.W. 187; Hall v. Hall, 107 Mo. 101, 17 S.W. 812; Tyler v. Hall, 106 Mo. 313, 17 S.W. 321; Crider v. Meatte, 320 Mo. 474, 7 S.W.2d 691. (5) Plaintiff's valuable rights and property were confiscated by the mortgagee, which calls for equitable relief. Stoffel v. Schroeder, 62 Mo. 147; West v. Axtell, 17 S.W.2d 335; Dwyer v. Rohan, 99 Mo. App. 120, 73 S.W. 384. (6) The right of redemption is valuable and cannot be extinguished by a pretended sale to a third party, thus preventing others bidding at the sale, and prohibiting the real owner from exercising its right of redemption. Guels v. Miss. Valley Trust Co., 49 S.W.2d 63.
O.R. Puckett for respondent.
If it be the law that all sales made by mortgagees, under power of sale contained in the mortgage, where the mortgagee becomes the purchaser, should be set aside for that sole and only reason, such law has never been invoked nor applied during the history of this State. Where a sale under a deed of trust is made in strict compliance with its terms and without any semblance of fraud or unfair dealing, courts of equity will not set it aside. It is well established that where a sale has been conducted without fraud or unfair dealing and in strict compliance with the terms of the mortgage, the legal title passes to the purchaser and the beneficiary has a perfect right to bid in the property at the sale. Reed v. Inness, 102 S.W.2d 715. Sale made according to terms of trust deed with absolute fairness cannot be set aside. Bank of Morrison v. Whertvine, 20 S.W.2d 529; Guels v. Trust Co., 49 S.W.2d 60; Allen v. Ranson, 44 Mo. 263; Reddick v. Grossman, 49 Mo. 389; Lundrum v. Union Bank, 63 Mo. 48; Bruner v. Stevenson, 73 S.W.2d 414. The petition does not place the plaintiff in a position to have the sale set aside. There is no offer to redeem. The plaintiff can have the sale set aside only by an offer to redeem by paying the debt. Young v. K.C. Life Ins. Co., 43 S.W.2d 1048. In a suit to set aside a trustee's sale, plaintiff must offer to redeem. Lipscomb v. Ins. Co., 138 Mo. 17. An unsurmountable obstacle to plaintiff's recovery is that they do not seek to do equity. They seek to set aside the sale. In all such cases the mortgagor must offer to redeem from the encumbrance. McNatt v. Ins. Co., 50 S.W.2d 1044.
Della Johnson, the owner, on October 17, 1929, sold and conveyed to William H. Evans fifteen acres of land situate in McDonald County, Missouri. The consideration was $3,000; Mr. Evans paying $500 cash and giving his eighteen months' negotiable note, secured by "mortgage deed" on said real estate "in ordinary form, containing power of sale in mortgagee," to said Della Johnson for the $2500 unpaid balance. On May 8, 1930, Mr. Evans conveyed the real estate to Pueblo Real Estate, Loan and Investment Company, a corporation, appellant. Default occurring in the payment of said indebtedness, Della Johnson, on November 21, 1931, "sold said tract of land under and in accordance with the power of sale therein contained at which sale she, the said Della Johnson, became the purchaser thereof on her authorized bid of $2000. . . ." Actually, although deemed immaterial, one Noel bid in said land at said sale, received mortgagee's deed from Della Johnson and thereupon immediately quitclaimed the said land to said Della Johnson.
On October 1, 1934, appellant instituted this action to set aside the aforesaid foreclosure and the Johnson-Noel and Noel-Johnson deeds, to reinstate said Evans-Johnson mortgage and to revest the title in appellant subject to said mortgage; and for an accounting.
Mr. Evans and appellant erected improvements on the land — a gasoline service station and a foundation for a large building. There was testimony that in November, 1931, the property was worth $10,000; but other testimony was to the effect that the building would carry insurance of $4000, that said improvements were subject to judgment liens for work and labor as of the date of trial, February 27, 1935, in excess of $4000, and that the land, without said improvements, was worth $2000. Respondent's bid was $2000 and said consideration was credited on mortgagor's note. This record did not convince the trial court, and it does not convince us, that the bidding of Noel for respondent had a detrimental effect upon the bidding at said mortgage sale or that said sale price was inadequate. [Consult Webb v. Salisbury, 327 Mo. 1131, 1141 (7), 39 S.W.2d 1045, 1052 (13); Masonic Home v. Windsor, 338 Mo. 877, 883 (5), 92 S.W.2d 713, 717 (6).] The case is not like the cases of West v. Axtell, 322 Mo. 401, 415, 17 S.W.2d 328, 334 (3, 4) or Guels v. Mississippi Valley Trs. Co., 329 Mo. 1154, 1162, 49 S.W.2d 60, 63 (3-5) stressed by appellant.
A mortgagee with power to sell occupies a duel relationship. He is a trustee with respect to the power to sell but, at the same time, a cestui to the extent of his ownership of the secured debt. Unless authorized or consented to in fact or in law, it appears to be settled in Missouri that a purchase by a mortgagee at a foreclosure sale conducted by himself under a power of sale in the mortgage deed is subject to affirmance or avoidance by the mortgagor or those holding under him. [Thornton v. Irwin, 43 Mo. 153, 162; Allen v. Ranson, 44 Mo. 263, 267 (ejectment); Reddick v. Gressman, 49 Mo. 389, 392 (ejectment); Byrne v. Carson, 70 Mo. App. 126, 130 (chattel mortgage); 41 C.J., p. 978, sec. 1429, p. 980, sec. 1431; 2 Perry on Trusts (7 Ed.), p. 1043, sec. 602v; 3 Jones on Mortgages (8 Ed.), p. 943, sec. 2417; 2 Wiltsie on Mortgage Foreclosure (4 Ed.), p. 1114, sec. 868.] The rule does not require actual fraud or injury. It, even at a sacrifice, keeps the mortgagee's eyes single and clear to the rights of the mortgagor, closes the door to temptation and tends to preserve from human frailties a saintlike fidelity to the trust and confidence. The reasons are stated in the Thornton case. [See also Cummings v. Parker, 250 Mo. 427, 438, 157 S.W. 629, 632(1).]
Such a purchase is not a nullity. One who seeks equity must do equity, and a bill in equity to redeem is the usual remedy. In the Thornton case the plaintiff was permitted to redeem (l.c. 161); the court stating (l.c. 167): "The relief granted by the court in the various cases which fill the books varies according to circumstances. In naked powers to sell, a re-sale is usually ordered. In mortgages, the usual order has been to permit the mortgagor to redeem; and the relief given in the circuit court in the case before us was the correct one." And the Allen (l.c. 267) and Reddick (l.c. 392) cases contain observations to the same effect; the Allen case stating: "But such a sale is not void. It is good as to all the world, and for all purposes, excepting only that the mortgagor still has the right to pay the debt and redeem the land. Purchases by some classes of trustees at their own sales are sometimes treated as void, but never in sales of this kind." BLISS, J., was the author of the Thornton and Allen cases and concurred in the Reddick case. Evans and appellant subsequent to the mortgage commenced the construction of improvements, which were not fully completed, and permitted lien claims to accrue. This, no doubt, was of some concern to the mortgagee. When the mortgagee purchased in November, 1931, mortgagor's debt was past due. It was not until October, 1934, that appellant attacked respondent's purchase. Redemption may not be an exclusive remedy. However, we are of opinion that redemption would have afforded that full measure of equitable relief, under the instant record, to which appellant in any event might have been entitled. Appellant makes no offer to redeem or restore to respondent any outlays protecting the rights of appellant or respondent in the property. [Consult in this connection McNatt v. Maxwell Inv. Co., 330 Mo. 675, 684 (3), 50 S.W.2d 1040, 1044 (6-8).]
Mortgages are the subject matter of private contract and contain many and varied provisions. A provision permititng or authorizing the mortgagee to bid and purchase at his own sale is valid and a mortgagee's purchase at a lawful sale thereunder forecloses, absent prohibitions contra, the mortgagor's equity of redemption. [41 C.J., p. 979, sec. 1430; 1 Perry on Trusts (7 Ed.), p. 340, sec. 199; 3 Jones on Mortgages (4 Ed.), p. 957, sec. 2425; 2 Wiltsie on Mortgage Foreclosure (4 Ed.), p. 1116, sec. 869.] It is apparent the ultimate determination of the issue revolves around the Evans-Johnson mortgage provisions. It nowhere appears of record. The record informs us the mortgage was "in ordinary form, containing power of sale in mortgagee" and the sale was "under and in accordance with the power." Some authorities [3 Jones on Mortgages (8 Ed.), p. 957, sec. 2425; 2 Perry on Trusts (7 Ed.), p. 1043, sec. 602v, n. 12] state mortgages containing a power of sale usually contain a provision permitting the mortgagee to bid and purchase at the mortgage sale. We think, under the instant record, we are not justified in interfering with the decree nisi. Appellant had the burden of proof in the trial court. Upon appeal, appellant assumed the burden of affirmatively disclosing error.
The judgment is affirmed. Cooley and Westhues, CC., concur.
The foregoing opinion by BOHLING, C., is adopted as the opinion of the court. All the judges concur.