Summary
In Lange v. McIntosh, 1937, 340 Mo. 247, 100 S.W.2d 456, where a trustee under a mortgage sold property to his wife who owned some of the notes which were secured by the mortgage, it was held that the sale could be set aside where the property was sold at a small fraction of its value and no other bidders were present.] * * *"
Summary of this case from In re Midland United Co.Opinion
January 5, 1937.
MORTGAGES AND DEEDS OF TRUST: Trustee's Sale: Inadequate Price. A trustee selling land under a deed of trust represents both debtor and creditor and must exercise fair discretion in doing whatever is for the best interest of the debtor and if necessary adjourn the sale to prevent a sacrifice of the property.
Where a trustee made such sale when no one was present except his wife who owned the notes secured and bid in the land for one-fifteenth of its value, the trustee was the active agent of his wife rather than representing the interest of both debtor and creditor.
A trustee's sale of land for one-fifteenth of its cash value is one which a court of equity will set aside on proper application.
Appeal from Taney Circuit Court. — Hon. Robert L. Gideon, Judge.
REVERSED AND REMANDED ( with directions).
Ruark Ruark for appellants.
(1) The trustee in a deed of trust is agent and trustee for all parties in interest and a court of equity requires at his hands strict impartiality and integrity in the performance of his duties. Hurst v. Trust Co., 216 S.W. 954; Langford v. Davis, 300 Mo. 508; Krug v. Bremer, 316 Mo. 891; Borth v. Proctor, 219 S.W. 72; Axman v. Smith, 156 Mo. 286. The trustee "should, in the performance of his duty, have no personal interest to subserve, nor any friends to accommodate." Long v. Long, 79 Mo. 656. Nor can a trustee shelter himself by a literal compliance with the terms of the mortgage. Cassady v. Wallace, 102 Mo. 575. (2) Inadequacy of price, standing alone, is usually not sufficient to warrant the setting aside of a trustee's sale, unless the inadequacy is so great as to shock the conscience of a court of equity; in which event it may be set aside upon this ground alone. Hardware Co. v. Brownlee, 186 Mo. 628; West v. Axtell, 322 Mo. 401, 17 S.W.2d 336; Vail v. Jacobs, 62 Mo. 130; Hanson v. Neal, 215 Mo. 275. However, where the price is inadequate, slight evidence of fraud, mistake, overreaching or indifference of trustee is sufficient to have the sale set aside, the parties restored to statu quo so that a new sale may be had. Polliham v. Revely, 181 Mo. 622; Middleton v. Baker, 262 Mo. 398; Montgomery v. Miller, 131 Mo. 595; Lunsford v. Davis, 300 Mo. 532; Duncan v. Cooperative Co., 221 Mo. 315; Stevenson v. Kilpatrick, 166 Mo. 262; Mueller v. Becker, 263 Mo. 165; Montgomery v. Miller, 131 Mo. 595; Vannoy v. Duvall Trust Co., 29 S.W.2d 695. (3) For the trustee to conceal from the mortgagor the fact that he or his wife, whose general agent he was, was the owner of the note in question, constituted a fraud warranting the setting aside of the sale where the land was bought in by the wife. Northcutt v. Fine, 44 S.W.2d 125; Long v. Long, 79 Mo. 656; Polliham v. Revely, 181 Mo. 622; 41 C.J. 378. "Under such circumstances, where fair dealing is not to be expected, equity will not stop to inquire for particular fraud." Polliham v. Revely, 181 Mo. 637. (4) When it appeared to the trustee that the owner of the land was not present, that the only bid was for $100 made by the creditor who was prepared to bid $300 or more, and that the land was worth fifteen or twenty times the amount of the bid, it became, and was, his duty to reject the bid and postpone the sale, failing in which, the sale will be set aside. Meyer v. Jefferson Ins. Co., 5 Mo. App. 245; Middleton v. Baker, 262 Mo. 398; West v. Axtell, 322 Mo. 401, 17 S.W.2d 336; Lunsford v. Davis, 300 Mo. 532; Hardware Co. v. Brownlee, 186 Mo. 629.
Chas. M. Grayston for respondents.
(1) Where the judgment of the trial court is based on conflicting oral testimony, the appellate court, while not bound by the trial court's findings, will give them great deference, because of the superior opportunity of the chancellor to judge the weight to be given the testimony in connection with the appearance and demeanor of the witnesses, and his findings will not be disturbed unless clearly erroneous. Phillips v. Alford, 90 S.W.2d 1060; Cities Service Oil Co. v. Berenice Holding Co., 90 S.W.2d 131; First Natl. Bank v. Witherspoon Livestock Com. Co., 90 S.W.2d 453; Klaber v. Booth, 49 S.W.2d 181; Huffman v. Huffman, 217 Mo. 182, 117 S.W. 1; Hunnell v. Zinn, 184 S.W. 1154. (2) The fact that the trustee is interested in the note secured by the deed of trust either through relationship or business connections with the beneficiary, or the fact that the trustee is, himself, the beneficiary does not affect the validity of the mortgage nor disqualify the trustee from making the sale. Cassady v. Wallace, 102 Mo. 575, 15 S.W. 138; Schwarz v. Kellog, 243 S.W. 179; Cloud v. Kan. Loan Trust Co., 52 Mo. App. 318; Title Guar. Trust Co. v. Sessinghaus, 28 S.W.2d 1001, 325 Mo. 420. (3) While the trustee owes a duty to fairly represent both parties, he is appointed to protect the interest of the mortgagee. His primary duty is to the cestui que trust. Phoenix Trust Co. v. Holt, 279 S.W. 714, 312 Mo. 563; Brown v. Jennings, 124 S.E. 150. (4) There is no presumption of fraud against the trustee, even where he is an employee or interested party (except where he is also the purchaser) and plaintiffs must prove fraud by clear, convincing and cogent evidence or circumstances. Schwarz v. Kellog, 243 S.W. 179; Judah v. Pitts, 62 S.W.2d 715, 333 Mo. 301. (5) A mortgagor is presumed to know when a default has occurred in a mortgage and a like presumption extends to anyone who purchases the equity of redemption. The notice and advertisement required by the deed of trust is not for the purpose of giving notice to the mortgagor or owner of the equity of redemption but is only for the purpose of securing competitive bidding from the public. 41 C.J., p. 955, sec. 1397; Jopling v. Walton, 138 Mo. 485, 40 S.W. 99; Harlin v. Nation, 126 Mo. 97, 27 S.W. 330; Hurt v. Kelley, 43 Mo. 238; Oakey v. Bond, 286 S.W. 27; DeJarnett v. DeGiverville, 56 Mo. 440. (6) Lack of knowledge upon the part of the owner of redemption that a foreclosure is being made is not a sufficient ground for setting aside the sale. East Arkansas Lbr. Co. v. Rainer Connel Cotton Co., 24 S.W.2d 1001; Hardwicke v. Hamilton, 121 Mo. 465; Anderson v. Taylor, 227 S.W. 84. (7) While it is true that a trustee has the power under proper circumstances to adjourn the sale, the question whether such adjournment shall be made is one of the discretionary matters for the trustee to determine and his discretion will not be adjudged to be fraudulent if exercised in good faith. 19 R.C.L., p. 604, sec. 420; 41 C.J., p. 965, sec. 1412; Harlin v. Nation, 126 Mo. 97, 27 S.W. 330; Dunn v. McCoy, 150 Mo. 548, 52 S.W. 21.
In a suit filed November 26, 1932, plaintiffs sought to have set aside a deed of trust on forty acres of land and trustee's deed conveying same on sale under the deed of trust. In substance the petition alleged that those interested in the note and deed of trust knew, at the time of the execution and delivery of same, that the grantor in the deed of trust had obtained title to the land by duress. It further alleged that the foreclosure sale was not fairly conducted by the trustee, and prayed that the deed of trust and trustee's deed be set aside. In substance the answer denied the allegations of the petition. The court found the deed of trust and trustee's deed valid. Judgment for defendants and plaintiffs appealed.
In this court plaintiffs admit there was no evidence tending to show that defendants had notice of any fraud connected with the execution of the deed conveying the land to the grantor named in the deed of trust. However, they challenge the fairness of the sale under the deed of trust. The pertinent facts follow:
On April 8, 1932, Edna Ball, record owner and in possession of the land, executed a deed of trust on same to secure a loan of $300 by J.A. McIntosh, real estate and loan agent of Joplin, who was named trustee in the deed of trust. The note was due three years after date and payable to Rowena Rose, an employee in J.A. McIntosh's office. She assigned it to C.M. McIntosh, wife of J.A. McIntosh. The wife had an income from property of her own and furnished the money to make the loan.
On September 7, 1932, Christ Lange, who deeded the land to Edna Ball on November 9, 1931, filed suit in the Circuit Court of Newton County against Edna Ball and others alleging that he deeded the land to her under duress of all the defendants, and prayed the court to determine title to the land. Defendants were not served with process and had no notice of the suit. However, lis pendens was filed.
Alarmed by said suit, Edna, Ball, on October 10, 1932, conveyed the land, subject to said deed of trust, to Christ Lange and Justin Ruark, an attorney of Newton County.
In substance Lange testified that on October 15, 1932, he told J.A. McIntosh while in Joplin that he (Lange) and Ruark owned the land; that he inquired if McIntosh would accept payment of the $300 note; that McIntosh told him he would, and stated that the first installment of interest had been due seven days; that McIntosh inquired when he would pay the note and he told him as soon as he could; that he did not know there could be foreclosure on default in the payment of interest.
McIntosh testified that Lange said he would pay the note "tomorrow or next day"; that shortly he (McIntosh) heard Edna Ball had moved to Kansas; that on October 20, 1932, he went to the land, found doors and windows removed from the house and no one in charge of the property. He reported conditions to his wife, who ordered foreclosure under the deed of trust. The land was properly advertised for sale on November 18, 1932. On said date McIntosh and wife went to Neosho, the county seat of Newton County, and at two P.M. at the usual place the trustee read the notice of sale and proceeded to sell the land. Other than persons passing, there was no one present at the sale except Mrs. McIntosh. On her bid of $100 the trustee sold the land, and conveyed same to her. She would have bid $300 and costs of sale for the land.
Lange and Ruark had no actual notice of the sale. However, the newspaper giving notice was regularly mailed to Ruark's office.
There was evidence tending to show the value of the land to be from $2000 to $2500. On November 28, 1932, the land was sold by Mrs. McIntosh to Pontius and wife for $1500.
It is clear that McIntosh, in selling the land, was the active business agent of his wife rather than a trustee representing the interests of both the creditor and debtor. In selling the land for $100 he gave no consideration to the debtor. Indeed, the sale was almost a gift to the wife. In Meyer v. Jefferson Ins. Co., 5 Mo. App. 245, 248, 250, it is said: "Where there are no bidders whatever, there can be no sale; and where, in a sale under a deed of trust, the only bidder is the creditor, represented by the trustee, and property is sold for one-fifth of its cash value, there can hardly be a sale which a court of equity will not set aside on proper application."
Furthermore, in Graham v. King, 50 Mo. 22, we ruled that "the office and duties of a trustee are matters of personal confidence, and he must exercise a just and fair discretion in doing whatever is right for the best interest of the debtor. He must in person supervise and watch over the sale, and adjourn it, if necessary, to prevent a sacrifice of the property."
Furthermore, in Vail v. Jacobs, 62 Mo. 130, 133, we ruled as follows: "But even if the evidence warranted us in making the concession that the trustee was actually present at the sale, we could not then consent to an affirmance of the judgment dismissing the plaintiff's petition. And for these reasons: The property was sacrificed. The testimony tends very strongly to produce the belief that the house and lots were worth from $5000 to $8000, and yet they were struck off to Nagus, the assignee of the notes, the only bidder at the sale, for $1000. . . . He (trustee) should, if present at the sale, and finding that the property was about to be sold for a little over a tithe of its value, have postponed the sale, and awaited a more auspicious moment. It was his `clear duty' to have done this."
Under all the facts and circumstances in evidence, including the fact that the land sold for one-fifteenth of its value, a court of equity should not approve the sale.
The judgment is reversed and the cause remanded with directions to enter judgment setting aside the foreclosure sale and trustee's deed, and reinvesting title to the land in plaintiffs, subject to the deed of trust, which is reinstated, and directing the trustee to return the $100 paid for the land, and taxing the costs of the publication of the notice of sale against the land. All concur.