Appliance Buyers Credit Corp. v. Mason

SHARP, J. Defendants’ motion for nonsuit was based upon the premise that a deficiency judgment under G.S. 45-21.38 cannot be predicated upon a private sale even though the conditional sales contract under which the mortgaged personalty was sold provided for such a sale. This proposition was decided adversely to defendants’ [569] contention in Financial Services Corporation v. Welborn. ante, 563, 153 S.E. 2d 7, where it was held that a stipulation in a chattel mortgage or conditional sales agreement authorizing the creditor to sell the personal property described therein at private sale violates no statute or public policy of this State. Such an authorization, however, does not relieve the mortgagee, in talcing possession of and selling the property, from the duty of acting in the utmost good faith. “In selling the property at private sale for the satisfaction of his mortgage debt, it (is) his duty to sell it at a fair and reasonable valuation, and failing to do so, he (becomes) liable to the mortgagor for such failure.” Zadek v. Burnett, 176 Ala. 80, 57 So. 447. The conditional vendor, or his assignee who sells at a private sale, owes the duty to the conditional vendee “to deal justly with his equitable right and to use diligence to obtain the best price available for the property in making such a sale.” Dearborn Motors C. Corp. v. Hinton, 221 Miss. 643, 74 So. 2d 739. Accord, Universal C. I. T. Credit Corp. v. Byers, 299 S.W. 2d 559 (Mo. Ct. App. 1957), 14 C.J.S., Chattel Mortgages § 381 (1939). “A mortgagee who sells at private sale is responsible and accountable for at least the fair and reasonable value of the property. . . .” 14 C.J.S., Chattel Mortgages § 393 (1939). Plaintiff’s evidence tends to show that the “basic” sales price of the eight golf carts was $5,615.00 on September 27, 1962; that the “time price differential” was $555.89; and that sometime between October 15, 1963, and September 15, 1965, plaintiff sold the carts to B & H Auction & Salvage Company for $2,045.00. Whether this latter sum represented the fair value of the property at the time Mason surrendered possession of the carts, the evidence does not disclose. The question presented by this appeal, therefore, is this: When a mortgagee takes possession of mortgaged property under the provisions of a chattel mortgage or conditional sales agreement, sells it at private sale under a power therein given, and when thereafter, in his suit for a deficiency judgment, the mortgagor alleges that the property was not sold for its fair market value, upon whom is the burden of proving that allegation? The answer is that, where the sale is to a person other than the mortgagee or one in privity with him, the burden rests upon the mortgagor. Pryor v. Associates Discount Corp., 191 So. 2d 234 (Ala. Ct. App. 1966);Zadek v. Burnett, supra; Universal C.I.T. Credit Corp. v. Byers, supra; Waltner v. Smith, 274 S.W. 526 (Mo. Ct. App. 1925); Bird v. Davis, 14 N.J. Eq. 467; Harrison v. Hall, 239 N.Y. 51, 145 N.E. 737; Credit Corp. v. Frazier, 118 Ohio App. 429, 192 N.E. 2d 506; First Discount Corporation v. Daken, 75 Ohio App. 33, 60 N.E. 2d 711; Ashley & Rumelin v. Lance, 88 Ore. 109, 171 Pac. 561; Tacker v. Mitchell, 3 Tenn. App. 495. Cf. [570] Harbour-Longmire Co. v. Reid, 124 Okla. 77, 79, 254 Pac. 29, 30 (which contains this inconsistent statement as dictum: “Where the rights of third persons or junior or inferior lienholders intervene, and the sale is attacked, the burden is upon the mortgagee to show that the property sold for its fair market value and . . . the only remedy the aggrieved party has is in cases where he can show that the property was not sold for its reasonable market value.”) (Italics ours.) and Kolbo v. Blair, 379 S.W. 2d 125 (Tex. Civ. App. 1964) (where the mortgagees sold to themselves). The rule has been variously stated as follows: “The mortgagee has the burden of proving such a breach of the mortgage as will justify the sale; but the burden of proving matters in defense, such as fraud in the foreclosure and sale of the mortgaged property by the mortgagee, or the value of the chattels possessed by the mortgagee, is on the mortgagor.” (Emphasis added.) 14 C.J.S., Chattel Mortgages § 390 (1939). “The burden of proving that the mortgagee failed to use reasonable diligence in securing a fair price, where the sale is to a person other than the mortgagee or a person in privity with him, and that he therefore acted in bad faith, is upon the person attacking the sale.” 15 Am. Jur. 2d, Chattel Mortgages § 223 (1964). If the mortgagor can prove that the mortgaged goods “were sold unfairly, or at an under price, he will be permitted to do so, and will be allowed their full value.” Jones on Chattel Mortgages § 708 (5th Ed. 1908). “The mortgagor has the burden of pleading and proving that the property was sold for less than its reasonable value.” Pryor v. Associates Discount Corp., supra. Accord, Zadek v. Burnett, supra; Harrison v. Hall, supra. “The burden of proof ... is upon the mortgagor to show that the mortgagee or his assignee failed to act in good faith and did not use every reasonable means to obtain the full value of the mortgaged property.” Universal C. I. T. Credit Corp. v. Byers, supra. In Ashley & Rumelin v. Lance, supra, plaintiff sought a deficiency judgment after a private sale of property under a power contained in a chattel mortgage. The answer, the court said, permitted defendant “to show, if he could, that the sale had not been seasonably made, or fairly conducted, or that a greater sum of money had been received than was admitted by the plaintiff, and hence the proper credit was not made on the promissory note.” Accord, Credit Corp. v. Frazier, supra. In Waltner v. Smith, supra at 527, the court said: “The burden of showing that plaintiff (mortgagee) failed to act in good faith and did not use every reasonable means to obtain the full value of the mortgaged property was in the defendant (mortgagor).” In their answer, defendants have alleged that plaintiff accepted [571] the return of the carts in full satisfaction of their debt and that the value of the carts then exceeded the debt. Either of these allegations, if proven, is a defense which will defeat plaintiff’s action. As to each, however, the burden of proof rests upon defendants. The judgment of nonsuit was, therefore, erroneous. Reversed.