Summary
In Langley the holder of first and second deeds to secure debts sold the property conveyed under the power of sale in the first security deed for $8,000 less than the fair market value.
Summary of this case from United States v. Golf Club CompanyOpinion
41442.
SUBMITTED JULY 8, 1965.
DECIDED SEPTEMBER 9, 1965.
Complaint. Fulton Civil Court. Before Judge Webb.
Paul C. Myers, for plaintiff in error.
Charles T. Bass, contra.
Where the holder of first and second deeds to secure debt sells the property conveyed under the power of sale in the first security deed and is unsuccessful in having the sale confirmed and institutes an action against the maker of the notes secured by the second security deed, the defendant can assert by answer and cross action the failure of the plaintiff to fairly exercise the power of sale in the first security deed and may recover a sum which is the difference between the fair market value of the property at the time of the sale under power and the amount of indebtedness under both security deeds if the fair market value of the property at the time of the sale under power exceeds the combined indebtedness under both deeds. The answer and cross action of the defendant were not contradicted by uncontroverted evidence and the court erred in granting a summary judgment in favor of the plaintiff who sought a judgment on the notes secured by the second security deed.
SUBMITTED JULY 8, 1965 — DECIDED SEPTEMBER 9, 1965.
Stanley M. Stone sued Raleigh O. Langley, III, to recover the balance principal due of $2,888.41, plus interest and attorney's fees, evidenced by a note, a copy of which was attached to the petition. The defendant Langley answered, admitting the execution of the note but denying the indebtedness alleged and by cross action sought to recover $2,200 from plaintiff Stone for reasons alleged in the answer and cross action. It was alleged in the answer and cross action that Stone sold by warranty deed to Langley certain real estate in Fulton County, subject to a loan deed from J. N. Cathcart to Southern Federal Savings Loan Association of Atlanta; that Stone had previously acquired the property subject to the loan deed; that Langley executed a second loan deed to Stone, subject to the one first above described; that after he deeded the property to Langley subject to the first loan deed he had assigned to him the note and deed subject to which he bought the property and sold it under the power of sale contained in the deed and sold the property at public sale to himself, he being the only bidder, for $4,000; that the real property described in the first loan deed and all others at the time of the sale by Stone at public outcry had a fair market value of $12,000; that the balance due on the first loan deed at the time Stone acquired it was $7,000; that at the time of the sale under power by Stone the balance due on the second loan note, on which suit was brought, was approximately $2,800, making a total indebtedness of $9,800; that the acts of the plaintiff Stone in purchasing the first loan deed and note and in buying the property in for $8,000 less than the fair market value constituted payment, release and discharge of the note sued on and of all indebtedness to the plaintiff by reason of the real estate transaction; that the plaintiff is estopped to sue upon the second loan note because of the facts above stated and because he has rendered it impossible for the defendant to utilize said real estate for the payment of the indebtedness sued upon; that the issue as to the market value of the property at the time of the plaintiff's sale under the power in the first loan deed was adjudicated in case #B-9077 in Fulton Superior Court between plaintiff and defendant in which case a confirmation of the sale under power by plaintiff was denied; that plaintiff breached his duty to defendant by selling said property at $8,000 below its fair market value. The defendant prayed judgment against the plaintiff for $2,200 and costs. Plaintiff filed a motion for a summary judgment which was granted. The only evidence introduced at the hearing on motion for summary judgment was the order of Fulton Superior Court refusing to confirm the sale under power made by the plaintiff under the first loan deed. Raleigh O. Langley, III, excepts to the grant of a summary judgment against him.
1. The answer and cross action set forth a good defense and grounds for cross action. In the absence of evidence conclusively disproving the facts alleged in the answer and cross action the allegations therein must be taken as true. Cotton States Mutual Ins. Co. v. Martin, 110 Ga. App. 309, 310 ( 138 S.E.2d 433).
2. Powers of sale must be fairly exercised. Code Ann. §§ 37-607, 37-608. The fact that Code Ann. § 37-608 prohibits an action for a deficiency judgment unless a sale under power is confirmed by the superior court, irrespective of the difference in the value of the property and the balance due does not negative the right of an injured party to recover for the breach of duty on the part of one selling under a power of sale in such a case as this. An injured party could rescind the sale and tender the amount owed on the property or affirm the sale and sue for a breach of the duty to conduct the sale fairly. If the plaintiff's equity of redemption was all the assets he had, it would be impossible for him to tender the amount owed before he could get relief. In affirming the sale and suing for a breach of the said duty the defendant here would be entitled to recover the full difference between the fair market value of the property at the time of the sale and his indebtedness to the seller if the fair market value exceeded the amount of the indebtedness. It was so specifically ruled in Motor Contract Co. v. Johnson, 61 Ga. App. 735 ( 7 S.E.2d 320). As is the case here, relief from having to pay the deficiency under the first loan note would not provide the defendant with a complete remedy. To deny him the right to the relief he here seeks would be to rob him of the use of the full value of his equity of redemption in the event the fair market value of the property exceeded the amount of the first loan or exceeded the amounts of both loans. The statement in Sullivan v. Federal Farm Mortgage Corp., 62 Ga. App. 402, 406 ( 8 S.E.2d 126) that "[W]here the property is in fact worth more than the balance due on the debt, the debtor's damage is at least in the amount of the alleged balance due on the debt" does not require a ruling contrary to that we have made because that statement was made to fit the facts of that case where there was no effort to collect more than the balance due on the note involved in the sale under the power.
We have not been cited any authority or reason why the defendant in this case may not recover if he can prove the allegations of his answer and cross action.
Any other rule would be an open invitation to fraud in cases of second loans. The holder of first and second loans could sell under power in the first and fail or refuse to secure an order of confirmation and get the benefit of a foreclosure no matter how iniquitous, unfair and fraudulent insofar as a fair exercise of a power of sale is concerned.
The fact that the order of the superior court refusing to confirm the sale under power stated: "It having been stipulated in open court that said sale was conducted in form and manner according to law" does not preclude the defendant from showing that the sale was unfairly conducted. If the stipulation means what the plaintiff claims, it means, to wit, that if the sale was fairly made there would have been no occasion for the court to pass on the issue. It is obvious that the stipulation means simply that there were no technical defects in the sale as to advertisement, time when and place where made, etc. At any rate the law of this case is that the sale was not fairly conducted.
3. The defendant contends that there was a merger of legal and equitable titles in the plaintiff. This contention is not meritorious because the two titles were never in the plaintiff at the same time.
The court erred in granting plaintiff's motion for summary judgment.
Judgment reversed. Jordan and Deen, JJ., concur.