Houston v. National Mutual Building & Loan Ass'n

Whitbield, C. J., delivered the opinion of the court. It is settled law in this state that a mortgagee cannot purchase directly or indirectly at a sale under his mortgage, unless the mortgage confers such right, or the mortgagor consents to such purchase. Byrd v. Clarke, 52 Miss., 623. Counsel for appellees earnestly insists that the mortgagor and those claiming under him have no absolute option to avoid such voidable sale, but only an option conditioned upon the existence of fraud or unfairness in the sale. He cites some Texas cases and a few-other cases to support that view. The reasoning of these cases is that, unless the mortgagee is permitted to buy at his own sale, the property might at some time be sacrificed — might be sold for less than the debt — and that thus there would result injury and loss both to the mortgagor and the mortgagee. The complete response to this is that the'rule is a broad and universal one, based upon public policy, and not one which looks at all to the interest of the mortgagor or mortgagee in any par — 39 — tieular case. It is bottomed on the fundamental principle that no man shall be placed in a position where there shall arise a conflict between interest and integrity. 2 Jones Mortg., sec. 1877, says: “It is not necessary, in order to avoid the sale, to show that there was any actual fraud or unfairness in the transaction, when a mortgagee has violated the principle that a trustee can never be a purchaser. There might be fraud or unfairness, and yet this could not be proved. To guard against this uncertainty, and to place the trustee beyond the reach of temptation, the law allows the cestui que trust to set aside such gale at his option, without showing that he has been in any way injured. A mortgage with a power of sale confers a trust cbupled with an interest, but the rule applies with the same force as in the case of a naked trust. Without the agreement or consent of the mortgagor, he can acquire no title by a purchase, directly or indirectly, at his own sale under the power.” In Thornton v. Irwin, 43 Mo., at pages 163, 164, the court áay: “The doctrine that trustees, agents, administrators, guardians, attorneys, or others whose connection with any other person is such as to establish a confidential relation between them concerning his property, or give them special knowledge and opportunities in regard to it, cannot without, and often cannot with, his full knowledge and consent, become the purchaser of Such property, is well settled in the jurisprudence of England and of the United States. It is also well established by the civil law, and affirmed in those European states whose laws are founded upon it. The leading case in England is that of Fox v. Mackreth, 2 Brown Ch., 400, heard twice before Lord Chancellor Thurlow in 1788, and reviewed in the house of lords; and the doctrine of that case is affirmed and extended in all the authoritative cases since that time. Among the important cases in the United States where the question is involved are Davoue v. Fanning, 2 Johns. Ch., 252; Michoud v. Girod, 4 How., 503 (11 L. Ed., 1076); and Gardner v. Ogden, 22 N. Y., 327 (78 Am. Dec., 192). Chancellor Kent, in Davoue v. — 40 — Fanning, gives a very able review of the English cases and those at that time decided in this country, and leaves but little to be said upon the question. lie states the true ground of the position, and, in criticising some remarks of Lord Roselyn in another case,' says: 'The objection to most of these observations is that they do not place the question on the true principle. However innocent the purchase may be in the given case, it is poisonous in its consequence. The cestui que trust is not bound to prove, nor is the court bound to judge, that the trustee has made a bargain advantageous to himself. The fact may be so, and yet the party not have it in his power distinctly and clearly to show it. There may be fraud, as Lord Hardwicke observed, and the party not able to prove it. It is to guard against this uncertainty and hazard of abuse, and to remove the trustee from temptation, that the rule does and will permit the cestui que trust to come, at his own option, and without showing actual injury, and insist upon having the experiment of another sale.’ In Michoud v. Girod the interposition of the third person to bid for the trustee was treated as itself a badge, of fraud, and Judge Wayne remarks: 'The rule of equity is, in every code of jurisprudence with which we are acquainted, that a purchase by a trustee or agent of the particular property of which he has the sale, or in which he represents another, whether he has an interest in it or not, per interpositam personam, carries fraud on the face of it.’ In giving the reason of the rule, he says.: 'The general rule stands upon our great moral obligation to refrain from placing ourselves in relations which ordinarily excite a conflict between self-interest and integrity. It restrains all agents, .public and private; but the value of the prohibition is most felt, and its application is more frequent, in the private relations in which the vendor and purchaser may stand toward each other. The disability to purchase is a consequence of that relation between them which imposes on the one a duty to protect the interest of the other, from the faithful discharge of which duty his own personal interest may withdraw him. In — 41 — this conflict of interest the law wisely interposes, and it makes no difference in the application of the rule that a sale was at public auction, bona fide, and for a fair price, etc. The inquiry in such a case is not whether there was not fraud in fact . . . The rule, as expressed, embraces every relation in which there may arise a conflict between the duty which the vendor or purchaser owes to the person with whom he is dealing, or on whose account he is acting, and his own individual interest.’ ” To the same effect is Roberts v. Fleming, 53 Ill., 196, and Thomas v. Jones, 84 Ala., 302 (4 So., 270). The running comment in Hyde v. Warren, 46 Miss., 28, 29, does not approve the cases which are cited. On the contrary, the court expressly refrains from expressing any opinion on the point. Counsel next insists that this is not a sale by the mortgagor to the mortgagee, because George J. Peet purchased at the sale. But Peet was a mere nominal purchaser. It perfectly appears that he bought for the appellee on July 3, 1895, and conveyed to it on July 13, 1895. He paid nothing on his bid. He bid $1,075, out of which $43 were deducted for the expenses of the sale, and the balance was credited on the indebtedness of the mortgagor to the mortgagee. It is perfectly obvious that Peet was a mere conduit of the title for the mortgagee. In such case the law is exactly the same as if the mortgagee had bid in his own name in the first instance. This is expressly decided in Roberts v. Fleming, supra, at page 200, and also in Thornton v. Irwin, supra. Indeed, it needs no decision to maintain so manifestly proper a conclusion. "Qui facit per alium facit per seT Counsel for appellees next insists that appellant is barred by unreasonable delay in filing the bill. If we were to deal with this question apart from the statutes of limitations, then no hard and fast rule can be laid down as to what is a reasonable time within which the mortgagor, or one claiming under him, should file the bill to avoid the sale and redeem. Each case must be determined upon its own peculiar facts. 2 Jones — 42 — Mortg., sec. 1885; 11 Am. & Eng. Eney. Law (2d ed.), p. 225, note 4, and the authorities. In the section cited from Jones Mortg., thirteen years is held to be too long; and in the passage cited from the Encyclopaedia twenty years is held to be too long. In this case it is shown conclusively that Mrs. David and her husband, the mortgagors, did not know until the latter part of 1900, or the first part of 1901, that the appellee was the real purchaser at the foreclosure sale on July 1, 1895, and that the appellant did not obtain the deed conveying the mortgagor’s equity of redemption until some three or four months before the bill was filed. It cannot be held, under the facts of this case, that the delay has been unreasonable, apart from the statute of limitations, especially in view of the fact that the appellant offered to do equity by paying the full amount— principal and interest — due on the mortgage debt to the mortgagee. The mortgagee cannot sustain any possible injury. If it does not get the property, it is because of its own willful folly in becoming the purchaser at its own sale. But stale claims are Unknown in this state, and hence a consideration of the effect of laches, wholly disconnected from any element of estoppel, in barring a bill to redeem, is, with us, useless. There is no element of estoppel here, whatever. Helm v. Yerger, 61 Miss., 44, points out the difference between mere laches and estoppel in cases of this sort. The cases of Westbrook v. Munger, 61 Miss., at page 336, and Hill v. Nash, 73 Miss., at page 862 (19 So., at page 710), are conclusive that, so far as mere laches is concerned (there being no element of estoppel in the case), no lapse of time short of the period that would bar the bill to redeem under § 2732 of the code of 1892 (ten years), will bar the right to file the bill. We said in Hill v. Nash, supra: “Finally it is contended by counsel for appellant that as ten years, lacking only four days, intervened between the death of N. P. Bagan, the father, and the date of the institution of the suit, a court of equity, in the exercise of its own inherent powers, independently of the statute of limitation, may and should — 43 — refuse relief, on the ground of discouraging stale claims or gross laches, or unexplained acquiescence in the assertion of an adverse right. Much and excellent authority is cited by counsel in support of this proposition, but it has been decided that there is no such thing as a stale claim, properly so called, in this state; and, by positive law, the statute of limitations is to be applied in our courts of equity as in our courts of law. With us no claim is barred until the limitation of the statute has accrued. Code, § 2731.” Counsel for appellees next insists that, even if the sale is voidable at the instance of the mortgagor, the appellant could have no right to maintain this bill, derived from his quitclaim deed from the mortgagor executed after the foreclosure sale; and he very earnestly contends that when the rule is announced that in cases of a voidable sale the mortgagor, or any person claiming under him, may avoid the sale, it is only meant that any person claiming under him at the date of the sale, and having at the time of the sale an existing interest in the property, may avoid the sale, and not one who acquires an interest Under the mortgagor after the sale, and with notice of the sale. He cites many authorities, among which is Wade v. Thompson, 52 Miss., 367. Counsel misconceives this case. That was a contest between rival claimants of the title in ejectment, and not a bill filed to avoid a sale and to redeem. The case of Wormell v. Nason, 83 N. C., 32, does not support the contention. On the contrary, it expressly declares, on page 36, that the mortgagor, or any one claiming under him, as assignee or creditor, may file the bill to avoid the sale; and the court held that since the creditors were not prejudiced by the sale, and the administrator was not acting or professing to act in their interest, he could not, as administrator, on those facts, maintain such a bill. But the court expressly said that there might be cases in which even an administrator might file such a bill. The case of McCall v. Mash, 89 Ala., 487 (7 So., 770; 18 Am. St. Rep., 145), is the only case that we have seen that — 44 — appears to sustain the contention of counsel for the appellees. And the whole case proceeds upon the idea that the equity of redemption cannot be conveyed or transferred by a quitclaim after a voidable sale, and that no bill could be maintained to avoid such sale by one who purchased the equity of redemption from the mortgagor, and obtained a quitclaim deed purporting to convey the equity of redemption, after such voidable sale. Whether this decision was based upon some statute does not appear. The reasoning seems to be that whilst' the equity of redemption constitutes a beneficial estate in the land, and may be.conveyed as any other interest in the land prior to the foreclosure sale, yet, after a foreclosure sale, though voidable, it can no longer be so conveyed, because the equity is barred by the foreclosure, and, being barred, no right of redemption exists. But this case obviously confuses a valid sale with a voidable sale. So long as the sale remains voidable, it is liable to be avoided upon a bill filed for that purpose; and, whenever thus avoided, the statm quo, as to the right to redeem, is put just where it was ante the voidable foreclosure sale. The court conceded in this case that the mortgagor, or any person claiming under him in privity, may disaffirm the sale and redeem in a reasonable time. How it can reconcile this concession with the position that those claiming under the mortgagor in privity cannot file such a bill within a reasonable time after the sale, it is impossible for us to understand. The misconception of the court is obvious. It is idle to speak of the right of those in privity with the mortgagor to file a bill within a reasonable time after the sale, and yet say that the right to redemption is cut off by even such voidable sale. The fallacy of the reasoning is in holding that a voidable sale can ever, at all, have the effect of finally and conclusively cutting off the right of redemption, and changing such equity of redemption, which was an interest in the land, into a mere right to disaffirm. Such voidable sale has no such conclusive effect, obviously. So far as the equity of redemption is concerned, a voidable sale is no — 45 — sale at all, leaving such equity wholly unaffected, if the option to avoid it is seasonably exercised. It is in direct conflict with 84 Ala., 302 (4 So., 270), which supports our view, and the view of all other authorities we have seen. The court in that case says, at page 304, 84 Ala., and page 271, 4 So.: “But the rule is clearly settled to be otherwise where the mortgagee, when unauthorized, purchases at Ms own sale. Not that the sale, so long as it is permitted to stand, is ineffectual to cut off the equity of redemption; for such is, undoubtedly, its legal effect. But the court, construing the transaction as a fraud on the rights of a cestui que trust by the trustee, will set aside the sale at the request of the injured party, who files his bill to redeem within a reasonable time, offering to do equity. When the sale is thus set aside, the complainant’s equity of redemption is restored to its original status, subject only to the lawful charges incident to redemption, but otherwise it is completely disembarrassed of the sale.” This is the sound view, manifestly, and a multitude of authorities support this view, as can be seen by reference to 11 Am. & Eng. Enc. Law (2d ed.), pp. 214-224, inclusive — the text and the authorities in the notes. See, specially, sec. 3, p. 216, and authorities cited in it. The case of Boarman v. Catlett, 13 Smed. & M., at page 153, expressly sanctions the same view, the court saying: “The right extends to the judgment creditor, where the judgment constitutes a lien, and to an assignee.” See specially, also, Dickinson v. Burrell, L. R., 1 Eq., 337; McMahon v. Allen, 35 N. Y., 403; Marvin v. Inglis, 39 How. Prac., 329— all cited at close of note to Marshall v. Means, 56 Am. Dec., 451. And see specially, also, the note and authorities in Horn v. Bank (Ind. Sup.), 21 Am. St. Rep., at pages 240, 246, 247 (s.c., 25 N. E., 558; 9 L. R. A., 676). Counsel'for appellees next contends that this is a bill to remove clouds from title, but this is an entire misconception of the bill. Counsel finally contends that the appellant obtained by his — 46 — quitclaim, deed only the assignment of a bare right to file a bill in equity for alleged fraud committed upon the assignor, and that this assignment is void, as against public policy, and as savoring of the character of maintenance. Sections 2433 and 2438 of the code of 1892, and the case of Cassedy v. Jackson, 45 Miss., 397, dispose of this contention adversely to this view. This is not a mere right to file a bill to set aside a deed for fraud. It is unlike Crocker v. Bellangee, 6 Wis., 645 (70 Am. Dec,, 489), and the other cases on that line cited in note to Marshall v. Means, 56 Am. Dec., at page 449. Crocker’s case is cited in McCall v. Mash, 89 Ala., 487 (7 So., 770; 18 Am. St. Rep., 145), also. Under the law in this state appellant got all the estate and right his assignors had, and could-file this bill, since they could have done so. We also think that the prayer of the bill that the appellees be required to pay the complainant the money it has received from Katharine and W. H. De Loach, the innocent purchasers for value without notice, and that such purchasers be required to make the further payments for the fifty-two feet off the east end of said lots sold to W. H. and Katharine De Loach, co-defendants herein, by appellees, to complainant, should be granted. The mortgagee gets his debt, with all interest, and is not prejudiced. Its sale, being avoided, is as to it avoided in tolo; the rights of the innocent purchasers being fully protected. A proper accounting should also he had. Decree reversed, and remanded to he proceeded with in accordance with this opinion.