McPherson v. Davis

Mayes, I., delivered the opinion of the court. The substantial averments of the bill of complaint filed in this cause, in so far as they affect a decision in the case, are: In 1905, on the 11th day of March, W. J. Johnson executed to the C. 0. Kelly Banking Company a deed in trust to cover an indebtedness of about $500. The trust deed was given on a certain tract of land then owned by Johnson, and J. A. Davis was made the trustee therein. Later in the same year, to wit, on the 26th day of June, Johnson gave a second deed in trust on the same property to the firm of McPherson & McNeill to-cover an- indebtedness of $2,500. One T. A. Massey was named as trustee in this second deed in trust. Later McPherson &■ McNeill transferred this deed in trust to O. S. McPherson, and S. L Dodd was appointed as substituted trustee therein in place of Massey. Both deeds in trust are admitted to be valid liens on the property in controversy, and having priority in the order named. W. J. Johnson died on the 28th of April, 1906. [222] Neither of the mortgages being paid at maturity, by oral agreement between the holder of the senior and junior mortgages, a sale was advertised by both trustees to take place on the same day, to wit, the 14th day of September, 1906; the holder of the junior mortgage not desiring to purchase the debt of the senior mortgagee and obtain an assignment of same. On the 14th day ■of September the trustee under the first deed in trust, Davis, duly appeared for the purpose of making sale under his trust deed in accordance with the advertisement to that effect; but S. L. Dodd, substituted trustee in the junior mortgage, being then engaged in the trial of a cause in court and unable to be on hand, requested Davis to make sale under both deeds in trust, but Davis declined to act for the trustee in the junior mortgage In any way. In pursuance of the advertisement made by him, ■and acting for the senior mortgagee, Davis ■ proceeded to sell, and McPherson, the holder of the junior mortgage, bid in the property at $1,510. After bidding in the property McPherson declined to pay the full amount of his bid to the trustee, but claimed the right -to pay over only such sum as would fully satisfy the first mortgage and retain the overplus to be credited on bis own mortgage, and tendered only so much of the amount bid •as was sufficient to satisfy the first mortgage. Davis declined to allow this to be done, whereupon S. L. Dodd, trustee in the •second mortgage, proceeded to. malee a sale under the second •deed in trust, and McPherson again bid in the property, this time for the sum of $10. In short, McPherson was the only bidder at both sales, and Dodd, trustee in the junior mortgage, •executed a deed to McPherson of the property in question under the sale under the second mortgage. After all of the above transactions, and after the refusal of McPherson to pay the full •amount of his bid, Davis, trustee in the first mortgage, undertook to make a resale of the property, which he did late in the •afternoon, after all bidders had dispersed,, and at this third sale ■one Lowenberg, with full knowledge of all the facts, bid in the property for the sum of $1,000, and a deed was made to him by Davis of the property in question. [223] The bill contains many charges of fraud; but we do not deem it necessary to take notice of these charges, since the settlement of this case must turn upon other features. The bill concludes with a prayer for the cancellation of the deed made by Davis to Lowenberg, and that, upon full satisfaction of the first deed in trust by complainant, the deed made to complainant by S. L. Dodd, trustee in the second mortgage, be declared the true title to the property. The bill further prays for an accounting from J. A. Davis, trustee, for all sums of money that have come into his hands over and above a sufficient sum to pay and satisfy the first mortgage. After this prayer the bill then prays that, if complainant is mistaken in the relief prayed for, then that the court appoint a commissioner to take an account of the sum due on both deeds in trust, and the property ordered to be sold for the purpose of paying same in order of priority. There are other features of the prayer, but it is not necessary to set out same. An answer was filed by defendants, denying all fraud, and at .the same time interposing a demurrer to the bill. The chief issues raisd by the demurrer are: (1) That there is no equity shown in the bill; (2) that the prayer of the bill is vague and uncertain, subject to much repetition, uncertainty, and prolixity. The chancellor sustained the demurrer and dismissed the bill. As to last ground of demurrer there is much force in the contention ; but we do not think that a dismissal of the bill can be justified on this account. It seems to have been the object of complainant not to fail to ask for every kind of relief possible to be obtained, and in this we think he has succeeded. Turning to the main features of the bill, we hardly think it can be doubted that complainant has shown an abundant equity. The trustees have created so many complications that the rights of the various parties can only be worked out through a court of equity. It is undoubtedly true that a junior mortgagee in a valid mortgage is entitled in equity to the balance remaining in the hands of the trustee after sale under a prior mortgage; but because this is^ true it does not relieve him from paying into the hands of the first trustee the full amount of his bid, should he [224] become the purchaser at the sale under the first mortgage. The junior mortgagee, being purchaser, cannot assume to adjudicate the validity of his own claim, as well as the amount,thereof, and compel the trustee making the sale to accept a less amount than the bid for the property. It is the duty of the first trustee to collect the entire amount of the bid, by whomsoever made, and after satisfying his own mortgage to^ pay over the surplus to the party entitled to same; but the trustee has a right to1 protect himself from liability by compelling a settlement as between the parties claiming the surplus as to which is entitled to same, and if he assumes to adjudicate this for himself, and pays the amount of the surplus to the wrong party, he would be liable therefor. All the complications that have occurred would have been avoided if the junior mortgagee had paid off the debt of the senior mortgagee. Since McPherson failed to pay the full amount of his bid, there was no sale to him, and Davis rightfully refused to make him a deed to the property. The facts shown by the bill make a second sale of the property by Davis, whereat Lowenberg became the purchaser, also an invalid sale. In the first place, Lowenberg was notified of all the facts; and, in the second place, 'it is shown that the sale was made late in the evening, after all bidders had dispersed. Both these things would invalidate Lowenberg’s title. The mortgagors had rights to be protected, as well as the mortgagees; and one of those rights was that the sale should take place under such circumstances as gave all bidders a fair chance to be present and bid on the property, so that the best value might be obtained therefor. The rights of the mortgagors were disregarded by the second sale, as were also the rights of the junior mortgagee. Under the facts of this case a second sale by the first mortgagee could only take place after a readvertisement. It may not be true that in every case there must be a new advertisement in order to have a resale; but it is certain that in every case the resale must be immediate and before dispersement of bidders. The sale under the junior mortgage by S. L. Dodd cannot be [225] sustained ,under the facts of this case, and the deed conveyed no title. In the first place McPherson, the purchaser, knew and caused all the trouble. The amount paid was grossly inadequate to the value, and the bill shows that the sale did not take place as advertised. The mortgagors had the right to obtain the greatest possible amount for the property to the end that as much of the debt of this second mortgage might be absorbed by the surplus as possible. This whole transaction was a nullity, and the various deeds constitute a cloud on the title, which should be canceled by the court. After a consideration of the whole case made by the bill, we conclude that, after decreeing a cancellation of the deeds in question, the court should appoint a commissioner to ascertain the amounts due on both deeds in trust, and order the property to be sold to satisfy same, applying the proceeds of sale in the order of priority of the mortgages, paying the surplus, if any, to* mortgagors. If the facts shall show that Lowenberg has paid in the $1,000, to the trustee, which sum was bid at the second sale of the property by Davis, whereat he became the purchaser, and that Davis has applied so much thereof as was necessary to the discharge of the first mortgage, then Lowenberg shall be subrogated in all respects to the right of the first mortgagee in the sum realized by the sale of the property as above ordered, to the extent of the claim. All surplus then remaining shall then be first applied to second mortgage debt, and, if then there be a surplus, it shall be paid to the mortgagors. The court should further require an accounting from Davis of all money that may have been received by him from Lowenberg, and should require repayment to Lowenberg of all that may remain in his hands of the purchase money paid by Lowenberg for the property. The whole cost of enforcing the rights of the parties in the chancery court should be taxed against McPherson, complainant, since his own acts caused all the difficulties. This, of course, does not include the cost of this appeal in this court. B&versed mud .remanded.