Furst v. Loftin

224 S.E.2d 641 (1976) 29 N.C. App. 248 Mitchell FURST, Trustee, and Daniel Boone Complex, Inc. v. Dalton H. LOFTIN, Trustee, et al. No. 7515SC1011. Court of Appeals of North Carolina. May 5, 1976. *643 Newsom, Graham, Strayhorn, Hedrick, Murray & Bryson by Josiah S. Murray, III, Durham, for plaintiff appellees. Dalton H. Loftin, Hillsborough, in pro per. Manning, Fulton & Skinner by M. Marshall Happer, III, Raleigh, for defendant appellants Freeland. *644 BRITT, Judge. APPEAL OF DEFENDANTS FREELAND Did the trial court err in entering summary judgment against defendants Freeland? We hold that it did. At the outset we note that the trial court made extensive "findings of fact". We repeat again that in passing upon a motion for summary judgment pursuant to G.S. 1A-1, Rule 56, the court does not decide facts but makes a determination whether an issue exists which is germane to the cause of action. Kessing v. Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823 (1971); Moore v. Bryson, 11 N.C.App. 260, 181 S.E.2d 113 (1971). If findings of fact are necessary to resolve an issue as to a material fact, summary judgment is improper. Insurance Agency v. Leasing Corp., 26 N.C. App. 138, 215 S.E.2d 162 (1975). We also restate the rule that the party moving for summary judgment has the burden of clearly establishing, by the record properly before the court, the lack of a triable issue of fact and the movant's papers are carefully scrutinized while those of the opposing party are indulgently regarded. Singleton v. Stewart, 280 N.C. 460, 186 S.E.2d 400 (1972); Koontz v. Winston-Salem, 280 N.C. 513, 186 S.E.2d 897 (1972), rehearing denied, 281 N.C. 516 (1972). First, it appears that the trial court concluded that because defendants Freeland had assigned the note, deed of trust, and chattel mortgage to CCB, they had no right to require insurance coverage on the improvements on the subject property, declare the indebtedness in default, or direct that the deed of trust and chattel mortgage be foreclosed. We think the court erred in this conclusion. It is true that the instruments securing plaintiffs' indebtedness of $1,085,000 were assigned by defendants Freeland to CCB; but, the assignment was only as collateral for a loan of $250,000.00. The assignment specifically states that it is for collateral purposes and that upon the payment of the loan, the $1,085,000 note and deed of trust would be reassigned to defendants Freeland. The three instruments were reassigned to said defendants on 10 September 1974. It appears to be the general rule that in the absence of a statutory provision to the contrary, where the owner of a mortgage has pledged it as collateral security for a debt less than the face of the mortgage, he has an interest in it which entitles him to take proper steps to foreclose the mortgage. 55 Am.Jur.2d, Mortgages, § 1369, p. 1086. It further appears that this rule has been followed in this jurisdiction. Ball-Thrash & Co. v. McCormick, 162 N.C. 471, 78 S.E. 303 (1913); see e. g., Sineath v. Katzis, 219 N.C. 434, 14 S.E.2d 418 (1941). We have found no statute affecting the rule in North Carolina. We hold that defendants Freeland had the right to demand compliance with the insurance coverage provisions of the deed of trust, to declare the note in default upon failure of plaintiffs to comply with said provisions, and in the event of default to require the trustee to foreclose the deed of trust. The trial court concluded that defendants Freeland could not declare the $1,085,000 note in default for failure of plaintiffs to maintain insurance for the reason that no particular amount of insurance was ever specified by the Freelands or by CCB. We think the court erred in this conclusion. The pertinent provision of the deed of trust is as follows: "That the said party of the first part (DBC) will insure and keep insured the buildings and contents in the premises herein conveyed against loss by fire and windstorm during the existence of this indebtedness in an amount satisfactory to the holder of the note but not to exceed the unpaid balance thereon and will assign said insurance to the holder of the note. . .; and, should the party of the first part fail to cause such insurance to be issued and assigned as aforesaid or fail to pay any premium therefore (sic), then the said *645 holder of the Note is authorized to effect such insurance or to make such premium payments as may be due if he so elects, and such sums so paid shall be a lien against the said premises and immediately due and payable to the holder of the Note . . .." It will be noted that the amount of insurance would be an amount satisfactory to the holder of the note, not to exceed the unpaid balance thereon. As stated above, we think defendants Freeland were sufficient "holder(s) of the note" to exercise requirements regarding insurance coverage. The record discloses that on 23 April 1974 defendant Loftin received a letter from plaintiffs' counsel enclosing two insurance binders purportedly covering buildings on the subject property and contents; that defendant Loftin discussed the binders with defendant J. J. Freeland and he was satisfied with the amounts shown on the binders; and that defendant Loftin wrote plaintiffs' counsel, Mr. Redmon, informing him that Mr. Freeland did not object to the amount of coverage shown on the binders but that he was disgusted with the fact that he had not received the policies and receipts. (R.p.32) We hold that the evidence was sufficient to raise an issue whether defendants Freeland agreed to a particular amount of insurance coverage. The trial court concluded that the deed of trust foreclosure proceeding conducted by defendant Loftin at the direction of defendants Freeland was a "proceeding of a civil nature", subject to Rule 1 of the North Carolina Rules of Civil Procedure; and that the mailing of notice of default, addressed to Daniel Boone Complex, Inc., Hillsborough, N.C., by defendant Loftin on 2 July 1974, followed by the commencement of foreclosure proceedings on 24 July 1974, did not meet the requirements of notice provided for by the contract and rule of law. We think the court erred in this conclusion. The deed of trust specifically provides that if DBC should fail to perform any of the covenants and conditions required of it "after mailing notice of default addressed to Daniel Boone Complex, Inc., Hillsborough, N. C. certified mail, return receipt requested, and such default shall continue for 20 days", then defendants Freeland had the option of declaring the entire indebtedness due and payable immediately. The record discloses that defendants Freeland and Loftin complied with these provisions before instituting foreclosure proceedings. We reject plaintiffs' contention and the trial court's conclusion that the foreclosure of the deed of trust under the power of sale contained therein is an action or proceeding subject to the Rules of Civil Procedure. (It will be noted that the foreclosure in this case antedated the 1975 amendments to Article 2A of G.S. Chapter 45.) Defendants Freeland assign as error the failure of the court to grant their motion for summary judgment. We find no merit in this assignment. It appears that the primary question involved in this case is whether plaintiffs failed to provide insurance coverage as required by the deed of trust. While evidence submitted by plaintiffs tend to show that they did, evidence presented by defendants tend to show that they did not. We think material issues of fact exist and that neither plaintiffs nor defendants Freeland are entitled to summary judgment. Therefore, the summary judgment against defendants Freeland is reversed and this cause is remanded to the superior court for further proceedings not inconsistent with this option. APPEAL OF DEFENDANT LOFTIN For the reasons set forth above, we hold that the trial court erred in granting summary judgment against defendant Loftin. The remaining question is whether the court erred in denying defendant Loftin's motion for summary judgment. We hold that it did not. "The powers of a trustee are either mandatory or discretionary. A power is mandatory when it authorizes and commands the trustee to perform some positive act." Woodard v. Mordecai, 234 N.C. 463, *646 471, 67 S.E.2d 639, 644 (1951). The deed of trust in question provides that in the event of default, and on application of the cestui que trust or the then holder of the note, "it shall be lawful for and the duty of" the trustee to institute foreclosure proceedings. Thus it appears clear that the powers vested in defendant Loftin were mandatory. Even so, the trustee in a deed of trust owes a duty to the debtor as well as to the creditor. In Mills v. Building and Loan Ass'n., 216 N.C. 664, 669, 6 S.E.2d 549, 552 (1940), it is said: "The trustee for sale is bound by his office to bring the estate to a sale under every possible advantage to the debtor as well as to the creditor, (Citation.) and he is bound to use not only good faith but also every requisite degree of diligence in conducting the sale and to attend equally to the interest of the debtor and the creditor alike, apprising both of the intention of selling, that each may take the means to procure an advantageous sale. (Citation.) He is charged with the duty of fidelity as well as impartiality, of good faith and every requisite degree of diligence, of making due advertisement and giving due notice. (Citations.) Upon default his duties are rendered responsible, critical and active and he is required to act discreetly, as well as judiciously, in making the best use of the security for the protection of the beneficiaries. (Citation.)" Applying the rule stated in Mills, the question then arises, did defendant Loftin act in good faith and did he exercise the judgment of a reasonable and prudent person in determining that there had been default under the deed of trust? This creates an issue of fact and on his motion for summary judgment, defendant Loftin, as movant, had the "laboring oar". Singleton v. Stewart, supra. At the trial of this cause, assuming that evidence will be presented substantially as indicated in the present record, defendant Loftin will be entitled to an issue as to whether he acted in good faith and as a reasonable and prudent man in concluding that there had been default by plaintiffs. At that time, the burden of proof will be on plaintiffs and should they fail to make out a prima facie case on the issue, defendant Loftin will be entitled to a directed verdict. Therefore, the summary judgment against defendant Loftin is reversed and this cause as to him is remanded to the superior court for further proceedings not inconsistent with this opinion. * * * * * * Judgment reversed and cause remanded. PARKER, J., concurs. CLARK, J., dissents. CLARK, Judge (dissenting): In making the foreclosure sale under the power of sale in a deed of trust it is the duty of the trustee to exercise due diligence and to act in good faith for the best interests of the parties, both grantees and beneficiaries. But in this case we are concerned with the duty of the trustee in determining default, which is controlled by the terms of the deed of trust, a contract between the parties. Under these terms the trustee could act only when authorized by the creditors. The creditors had the option of declaring the entire indebtedness due and payable; they did so and directed the trustee to foreclose. The trustee then had the duty to foreclose. The grantors attempted to enjoin the foreclosure, obtained a temporary restraining order, but in the hearing before Judge Brewer to continue the restraining order on 28 August 1974, the court found ". . . there is no competent evidence . . . which would support an order continuing the restraining order." The trustee sold the property two days later on 30 August 1974. Two days before sale the grantors were unable to offer to the court competent evidence that there was no default. I find nothing in the record to indicate that any competent evidence was submitted to the creditors or the trustee at any time which would justify cancellation of the foreclosure sale. *647 In my opinion the plaintiffs were required (1) to provide insurance as required by the deed of trust, and (2) to submit satisfactory proof to the creditors that they had effected this insurance. All of the proof establishes that the insurance coverage was cancelled, and there was no competent evidence that prior to foreclosure sale on 30 August 1974 the plaintiffs had in effect the required insurance coverage and offered satisfactory proof of such to the creditors. I would grant all of defendants' motions for summary judgment. See Kidd v. Early, 289 N.C. 343, 222 S.E.2d 392 (1976).