Opinion
August 17, 1938.
1. DEEDS OF TRUST: Substitute Trustee. Where a deed of trust securing a note provided that in case the trustee, a corporation, named, by reason of absence, etc., "shall fail to perform this trust . . . the legal holder of said note shall have the power to substitute any other person as trustee, and the party so substituted shall have the same powers as the trustee herein named," a claim by the debtor that because the original trustee was without power to execute the trust cannot be maintained since the provision quoted continues, "and the acts of said substituted trustee shall be as effectual and binding upon all parties as if performed by the trustee herein named."
Where at the date of the appointment the original trustee did not have legal capacity to administer the trust but had legal authority to hold title to real estate and afterwards acquired corporate power to administer the trust but became disabled by forfeiture of his charter, the provisions of Section 3135, Revised Statutes 1929, being identical with respect to the authority of the trustee appointed under the substitute clause, a claim by the holder of the note that the substitute trustee was without authority to administer the trust cannot be successfully maintained.
2. DEEDS OF TRUST: Foreclosure Sale. A foreclosure sale under a deed of trust by a substitute trustee was not invalid because made by an employee of the noteholder where the sale was conducted in proper form, the debtor and his attorney being present.
A complaint by the debtor that the actions of the trustee chilled the bidding was not sustained where the debtor testified in an action to quiet title that his only objection was that the substitute trusee named conducted the sale, and the note owner's purchase was compatible with the maker's notice to redeem, and there was no affirmative proof of any inadequacy in the price that was bid.
Writ of Error to Buchanan Circuit Court. — Hon. L.A. Vories, Trial Judge.
AFFIRMED.
Earl C. Borchers for plaintiffs in error.
(1) Note and deed of trust executed by plaintiffs in error constituted a written contract between the parties and as such said contract could not be altered nor enlarged so as to increase the obligations of the parties excepting by the mutual action of both. Adams v. Boyd, 58 S.W.2d 704, 332 Mo. 494; United States v. Chemical Foundation, 294 F. 300. (2) The deed of trust executed by plaintiffs in error, and under which the foreclosure sale in question was purported to be held, named an impotent trustee and thus created a trust, which could not be foreclosed without the aid of a court of equity. (a) A corporation is prohibited from engaging in any business other than that expressly authorized in its charter. Art. XII, Sec. 7, Mo. Const., Sec. 4555, R.S. 1929; Bowman Dairy Co. v. Mooney, 41 Mo. App. 665; Orpheum Theater Realty Co. v. Seavy Flarshein Brokerage Co., 119 S.W. 257; Natl. Home Bldg. Assn. v. Pullman Car Co., 139 U.S. 24; 14A C.J., p. 515, sec. 2403. (b) The powers of a trustee are fixed by the instrument creating the trust. United States v. Chemical Foundation, 294 F. 300. (c) It is essential to the creation of every expressed trust that there be a trustee legally competent to take and hold the property. 26 R.C.L. 1191. (d) The trustee appointed in the deed of trust in this case was an impotent trustee, unendowed by law with the power to be more than a mere inactive depository of the title. (e) Power of sale under trust deed is purely contractual matter on conditions expressed. Adams v. Boyd, 58 S.W.2d 704. (f) The named trustee being an impotent trustee and the substituted trustee being limited by the terms of the deed of trust to the same powers as the named trustee in said deed of trust the trust did not fail, but the court alone had the power to save the trust from failing. Sec. 3135, R.S. 1929; Newton v. Burial Park Cemetery, 34 S.W.2d 118, 326 Mo. 901. (3) The holder of the note being a corporation and the said Carl O. Nelson an active employee of said corporation, it was in effect appointing the holder of the note as trustee. This was done without the knowledge or consent of the makers of the note and is objectionable. Northcutt v. Fine, 44 S.W.2d 128; Rayfield v. Donovan, 17 Mo. App. 690; Long v. Long, 79 Mo. 656. (a) The substituted trustee, Carl O. Nelson, was not appointed by a court of equity but on the contrary was selected by his employer, who was at the same time the holder of the note, and the said substituted trustee continued to remain in the employment of the holder of the note throughout the time of the purported sale and was still the employee of the holder of the note at the time of the trial. Under the facts of this case it should have been the duty of the court of equity to have appointed upon proper application a competent trustee. R.C.L., pp. 559, 560, sec. 543; 11 U.S. 205; 41 C.J. 378, sec. 175.
John D. McNeely, John F. Reinhardt J.V. Gaddy and Geo. W. Carter for defendants in error.
(1) It is true that a corporation in Missouri is prohibited from engaging in a business that is not authorized by its charter. (a) The powers of a trustee are undoubtedly fixed by the instrument creating the trust. Such trustee has only such power as the deed of trust gives him. (b) Plaintiffs in error's statement therein is an abstract proposition of law which is undoubtedly true. However, it has been repeatedly held in this State that no trust shall fail for the want of a trustee. Newton v. Burial Park Cemetery, 34 S.W.2d 118, 326 Mo. 901; Commerce Trust Co. v. Ellis, 258 Mo. 702. (c) The trustee appointed herein had authority to take and hold property and if for any reason it was unable to execute the trust created by the deed of trust in controversy, the parties agreed upon the method of substituting a trustee that would be able to execute the trust. Commerce Trust Co. v. Ellis, 167 S.W. 974, 258 Mo. 702. (d) The power referred to in the deed of trust was the power given the first trustee in that instrument and had no reference to the ability of the first trustee to exercise the power. However that may be, the plaintiffs in error's abstract shows that from August 3, 1927, until January 1, 1930, the original trustee had full power to act had there been a default and a request to foreclose. (e) It is true that a power of sale under a deed of trust is purely contractual on the conditions expressed, and inasmuch as the power of sale provided that the holder of the note could appoint a new trustee upon the resignation or for the failure or refusal or inability to act of the original trustee, the acts of the substituted trustee was therefore in strict compliance with the original deed of trust. (f) The named trustee having resigned and the parties having agreed in the deed of trust that the holder of the note could appoint a substitute trustee, there was no necessity for applying to a court for the appointment of a substitute trustee. Commerce Trust Co. v. Ellis, 167 S.W. 974. (2) The appointment of C.O. Nelson although an employee and holder of the note was proper and a sale by him is valid if the courts in scrutinizing his acts find that the sale was conducted in a fair and equitable manner. Schwartz v. Kellogg, 243 S.W. 179; Cloud v. Trust Co., 52 Mo. App. 318; Judah v. Pitts, 62 S.W.2d 715. (3) It is defendants in error's contention that when the Kansas City Finance Company resigned as trustee, we had the right to appoint a substitute trustee, and that regardless of the fact of whether or not the Kansas City Finance Company was originally a proper or legal trustee. Commerce Trust Co. v. Ellis, 167 S.W. 974, 258 Mo. 702; 41 C.J. 370.
George S. and Lena Homan, husband and wife, on May 1, 1925, conveyed certain real estate situate in Buchanan County, Missouri, to the Kansas City Finance Company, a Missouri corporation, in trust, however, to secure their indebtedness in the principal sum of $3500 evidenced by their negotiable promissory note of even date payable, on an amortization plan, to the Kansas City Joint Stock Land Bank, a corporation organized under certain acts of Congress. The Farm Mortgage Holding Company, a corporation, acquired said note and deed of trust. Default occurring, foreclosure sale was conducted by Carl O. Nelson, substitute trustee, on April 7, 1934.
Thereafter, the Homans instituted an action to quiet title and the Farm Mortgage Holding Company instituted an action in ejectment, said causes being consolidated for the purposes of trial nisi and also for review here. The review involves the validity of the foreclosure sale; the Homans asserting it was void because (1) the provision of the deed of trust authorizing the appointment of a substitute trustee was so worded as to render ineffective acts of a substitute trustee administering the trust and (2) on account of the partiality on behalf of the note owner with which said sale was conducted.
I. After naming the Kansas City Finance Company trustee and prescribing its powers and duties, the deed of trust continued: "In case the trustee herein named, by reason of absence, resignation, death, refusal to act or disability, shall fail to perform this trust, as herein provided, the legal holder of said note shall have the power to substitute any other person as trustee, and the party so substituted shall have the same powers as the trustee herein named, and the acts of said substituted trustee shall be as effectual and binding upon all parties as if performed by the trustee herein named." It is manifest that the creation of a trust was of the essence of the instrument and that the selection of a trustee to administer the same was of secondary importance.
We may assume that as of May 1, 1925, the Kansas City Finance Company was without corporate power to effectuate the trust created. Under date of August 4, 1927, said corporation was vested with corporate authority to act as trustee under deeds of trust conveying real estate, and to perform all the usual and customary duties of such a trustee. Its charter was forfeited January 1, 1930.
The Homans take the position that since the named trustee, at the time of appointment, was a "mere passive, impotent trustee, . . . unendowed by law" to administer the trust, Carl O. Nelson, appointed trustee under the substitution clause, under the wording of the substitution clause vesting such substitute trustee with "the same powers as the trustee herein named" and making his acts "as effectual and binding upon the parties as if performed by the trustee herein named," was likewise an impotent trustee, and a proceeding under Section 3135, Revised Statutes 1929 (Mo. Stat. Ann., p. 8167), was necessary to effectuate the trust. The contention ignores the subsequent corporate authority conferred upon the named trustee.
Further, the provisions of Section 3135, when read in connection with Section 3137, Revised Statutes 1929 (Mo. Stat. Ann., p. 8169), appear subject to the same objections under like conditions. Section 3135 provides: "If any trustee in any deed of trust, to secure the payment of a debt . . . shall or has become unable, by sickness or other disability, to perform or execute his trust, any person interested in the debt . . . secured by such deed of trust . . . may present his . . . affidavit, stating the facts, . . . to the circuit court; . . ." and in the event the court appoints a substitute trustee under Section 3137, said substitute trustee is "possessed of all the rights, powers and authority possessed by the original trustee, under the deed of trust . . . and shall do all . . . acts the original trustee had power to do, and with the same force and effect. . . ." As of the date of appointment the original trustee may not have possessed legal capacity to administer the trust created, but the Homans concede that it had authority to take and hold title to real estate and that a substitute trustee appointed under court proceedings (referring to Sec. 3135) would possess all the necessary authority to administer the trust created; and they state that the substitution clause of the deed of trust operated in the event "when, if ever," the trustee "was called upon to perform the duties of this trust," that they make no contention the deed of trust was void or the trust must fail; and they do not dispute that the original trustee subsequently acquired corporate power to administer trusts of like nature in toto and, thereafter, upon the forfeiture of its charter became disabled to so act. We think the similarity of the statutory provisions and the substitution clause (quoted supra) would result in the authority of a substitute trustee appointed under said statutory provisions being identical in so far as here involved with the authority of a trustee appointed under said substitution clause; and that the position taken by the Homans, in view of the admissions, may not be successfully maintained.
II. Carl O. Nelson was "field man" for the Farm Mortgage Holding Company. Although making the point that the appointment of an employee as substitute trustee by the owner of the secured debt is objectionable (Northcutt v. Fine (Mo.), 44 S.W.2d 125, 128(3); Mayfield v. Donovan, 17 Mo. App. 684, 690), the Homans, stating the conduct of a sale under a deed of trust by such substitute trustee is insufficient in itself to invalidate the sale (Cloud v. Kansas L. Trs. Co., 52 Mo. App. 318, 322; 41 C.J. 941, n. 18), stress such fact in connection with their contention that Nelson administered the trust with such partiality in behalf of the noteholder as to justify setting aside the sale. Mr. Homan and his attorney were present at the sale, and Homan, describing the sale, testified that Nelson read the notice, reached in his pocket, took out a book, opened it, read some figures and asked is that your bid, and a gentleman back in the crowd nodded his head; and that Nelson then said I am bid so much, repeating the figures he had read to this man, and that if no more bids were offered it was sold to the Farm Mortgage Company. The burden of the Homans' complaint is that the actions of Nelson chilled the bidding; that is, resulted in a sale of the property at an inadequate price. However, the record discloses that Mr. Homan, when questioned with reference to any fraud, testified to the effect the only fraud he could recall was the fact that Nelson conducted the sale as trustee. We have disposed of this. Notice was served on Nelson, as trustee, of the purpose of the Homans to redeem (consult Sec. 3063, R.S. 1929, Mo. Stat. Ann., p. 1892). The note owner's purchase was compatible with the Homans' notice to redeem. The bid was $3627.20, the amount of the principal, interest, taxes and costs. There is no affirmative proof of any inadequacy of price in this bid; and there is not a sufficient showing by clear, convincing and cogent evidence or circumstances in the instant record that injury has resulted to the Homans by reason of the manner in which Nelson conducted the sale to cause us to overturn the findings of the court nisi. [Consult Judah v. Pitts, 333 Mo. 301, 311, 312(4), 62 S.W.2d 715, 719(3), 720(8) and cases.]
The foregoing disposes of the real controverted issues for review. The Homans, without stressing, also complain of the award in the ejectment suit for monthly rents until restitution. We think there is substantial testimony of record to sustain an award for rents until restitution. The Farm Mortgage Holding Company concedes there is no rent due under the award, stating restitution occurred before any rent could accrue. We feel we are not called upon to further develop the point.
The judgments are affirmed. Cooley and Westhues, CC., concur.
The foregoing opinion by BOHLING, C., is adopted as the opinion of the court. All the judges concur.