Opinion
No. 3267.
Decided January 6, 1942.
The title of a bona fide purchaser of property at a sale conducted by the mortgagee in pursuance of a power of sale contained in the mortgage and in conformity to the requirements of P. L., c. 215, s. 23, is unimpeachable by the mortgagor. As between the mortgagee under a power of sale mortgage and the mortgagor, certain facts in connection with the sale entitled the mortgagor to a hearing on the question whether the mortgagor had actual notice of the sale and whether under all the circumstances the mortgagee should have adjourned the sale, given actual notice of a future sale, if none had been given and made reasonable efforts to obtain what the equity was fairly worth. Acceptance of part payment during foreclosure proceedings does not constitute a waiver as a matter of law; and unless it is found the mortgagee did in fact accept the payment and waived its right to foreclose, the sale cannot be voided. The principle that the mortgagee in the exercise of the power of sale acts as a trustee of the mortgagor and must exercise good faith and use reasonable efforts to obtain a fair price for the property does not apply in a case where the purchaser at the sale knew nothing about the lack of good faith or want of reasonable diligence on the part of the mortgagee.
PETITION IN EQUITY, for rescission of mortgage foreclosure and cancellation of mortgage foreclosure deed. Trial by the court. Lorimer, J., found the facts. The important ones are the following: January 15, 1938 petitioner mortgaged his property to the defendant association (hereinafter referred to as the bank), in the sum of $3,600. This was a second renewal of prior loans. The condition of the loan provided for $36 monthly payments, to be applied on the principal and interest. A further provision was that taxes should be paid by the borrower, and if not paid within thirty days after due date, then the whole principal, interest, and taxes would become due, without notice or demand. Petitioner paid $50 per month for a while, and then $36. Default occurred in two monthly payments, and also in payment of taxes for 1938 and 1939, which the bank paid. In August, 1939, petitioner and his partner, one Creeden, who did business as Creeden Tobacco Company, were petitioned in bankruptcy. They were discharged April 3, 1940. The bank had proved its claim as a secured claim, and in May, 1940, not knowing of the discharge, petitioned the bankruptcy court for leave to foreclose its mortgage. May 8, 1940, the petition was granted; May 14, 1940, the bank started its foreclosure proceedings by publishing notice thereof in the Manchester Union, May 16, 23, and 30. Copy of the publication was sent to petitioner May 16 by registered mail at what was his actual home and address. This was returned "unclaimed." A second like notice sent in the same manner was mailed May 20 and likewise returned. The sale took place as advertised June 8. Present at the sale, besides the auctioneer, were a representative of the bank and the defendant purchasers, Mr. and Mrs. Sofronas. All three were bidders, and the property was finally sold to Mrs. Sofronas for $3,850, subject to taxes (probably $240 as in two previous years), and at least $300 had to be expended in repairs. The property was carried on the books of the bank at a valuation of $5,100, assessed for $6,000, and valued by a real estate man in its then condition at $6,500. The bank's claim at the time of the sale was $3,410.74. The bank deeded the property to Pota A. Sofronas June 10, 1940; she paid part of the purchase price and financed the balance with the defendant bank. Petitioner did not know of the foreclosure proceedings, nor of the sale thereunder until June 19, when he received a notice by mail to the effect his rent was due to Mrs. Sofronas since June 8. He had not seen the foreclosure notice published in the Union, nor did he have any such notice from any other source. He thereupon consulted counsel, who instituted these proceedings. The petitioner now claims that through mistake and misfortune he was prevented from avoiding the foreclosure sale; that had he been apprised of the bank's action he could have saved his property by financing a loan elsewhere; that the bank did not act in good faith; that he was misled in believing the bank still carried the loan as not in default, in that it accepted the regular monthly payment of $36 May 31, 1940; that consequently this constituted a waiver of a claim of default, and that the bank was therefore estopped from going through with the sale. The petitioner further claims that the price paid at the sale was inadequate, that the sale was unconscionable, that it amounted to a fraud on the petitioner, and that consequently the sale should be set aside. Other pertinent facts appear in the opinion. The court, after making certain other findings, transferred, without ruling, the question as to whether, under the circumstances, petitioner is entitled to relief.
Sheehan Phinney (Mr. Sheehan orally), for the petitioner.
David P. Prugh and Wyman, Starr, Booth, Wadleigh Langdell (Mr. Booth orally), for the Association.
John J. Broderick and McLane, Davis Carleton (Mr. George F. Nelson orally), for the Sofronas.
The bank had a right to foreclose. Two defaulted payments of taxes in addition to two defaulted monthly payments gave the bank that right. The foreclosure proceedings were regular; the publication complied with the provision in the mortgage, and forwarding of copy thereof complied with the statute. P. L., c. 215, s. 23. The statute does not provide that proof of receipt of notice sent by registered mail is a prerequisite to a right of foreclosure. If the petitioner is entitled to relief it must be on some other ground.
One of petitioner's positions is that he was misled because of the fact that the bank did not make a demand upon him for unpaid monthly dues and unpaid taxes previous to foreclosure, claiming it was a custom of the bank so to do. The court found such was the custom. This, however, does not help the petitioner. No such requisite is found in the note or mortgage. It was only optional with the bank to proceed by making a demand upon the mortgagor to make up his delinquencies within ten days, failing which the bank would foreclose. Whether the bank saw fit to do so in this instance does not defeat the bank's right to foreclose.
The next position is that acceptance of a monthly payment after foreclosure proceedings were started constituted a waiver of any right it had to foreclose. The Presiding Justice does not find this to be the fact in the instant case. He does find that: "The Bank's entire course of conduct would have led a reasonable person in the position of the petitioner to have considered that the Bank, despite any provisions in the original note and mortgage, waived any right it had to foreclose because of any delinquency, and that the Bank agreed to keep the loan in good standing provided the petitioner continued to make his monthly payments of $36 seasonably." This avails the petitioner nothing here. To begin with, acceptance of part payment during foreclosure proceedings does not constitute a waiver as a matter of law. Bergman v. Fortescue, 74 N.J. Eq. 266; Curran v. Houston, 201 Ill. 422. Unless it is found the mortgagee did in fact accept the payment and waived its right to foreclose, the sale cannot be voided.
The principle of law enunciated in Wheeler v. Slocinski, 82 N.H. 211, 212; Pearson v. Gooch, 69 N.H. 208, 209; Roberge v. Cyr, 84 N.H. 204, 205, that the mortgagee in the exercise of the power of sale acts as a trustee of the mortgagor, and in the performance of his right to sell must exercise good faith and reasonable diligence to protect the rights of the mortgagor and use reasonable efforts to obtain a fair price for the property, in properly advertising and conducting the sale, does not apply in a case where the purchaser at the sale knew nothing about the lack of good faith or want of reasonable diligence on the part of the mortgagee in its discharge of its duty as trustee for the mortgagor. Very v. Russell, 65 N.H. 646, 649. As between the mortgagor and the purchaser, the former rather than the latter should suffer the loss, because by granting to the mortgagee the right to sell, the mortgagor put it in the mortgagee's power to work the injury through the execution of that power.
If, by reason of breach of duty on the part of the mortgagee, the property did not sell for a fair price and the mortgagor was therefore damaged, the remedy ordinarily would be in an action at law to recover such damage. Very v. Russell, supra 650. The court having found that "there is no evidence that they (the purchasers) had any knowledge of the transaction between the petitioner and the Bank other than they purchased the property at a mortgage sale foreclosing the title of the petitioner "; that "they did not know that petitioner did not possess actual knowledge of the foreclosure proceedings," and further that "they knew nothing of the bankruptcy proceedings," the purchasers must be found to be bona fide purchasers for value, without notice of any irregularity, if any, on the part of the bank in its dealings with the petitioner in respect to the foreclosure.
Nor can we be concerned with the price paid for the property. It cannot be said to be so inadequate as to charge the purchasers with knowledge that they were buying at an unconscionable price and therefore should have been put on inquiry as to whether there was anything irregular about the whole proceedings. As appears in the statement of facts their total investment would be at least $4,390. There is no evidence they knew anything about real estate values, and there is no finding except that they "secured the premises at a very low price" that could warrant a conclusion of an attempt to deprive the mortgagor of his rightful equity in the premises.
The conclusion is that the purchaser's equity, being superior to that of the mortgagor's, the petition as to the defendants Sofronas cannot be maintained.
Not so, however, as to the bank. True it is there is no finding that the bank was remiss in its fiduciary duty towards the petitioner. That issue has not been passed upon. There is evidence from which the issue could probably be determined in favor of the petitioner, such as return of the registered letters unclaimed, a monthly payment while foreclosure proceedings were in process, and absence of the mortgagor at the sale, sufficient proof to the bank that the mortgagor did not know of the sale. It is a question of fact whether under such circumstances the bank should have adjourned the sale, seen to it that the mortgagor got actual notice of the proposed sale, given proper notice of the adjournment, and made reasonable efforts to obtain for the mortgagor what his equity was fairly worth. Equity jurisdiction existing, it embraces all matters arising from the case. Hence, the trial court (with or without jury as it may in discretion say), if it finds a breach of duty, may assess the damages in the suit.
Case discharged.
ALLEN, C.J., was absent: the others concurred.