Harmon v. Dothan Nat. Bank , 186 Ala. 360 ( 1914 )

SOMERVILLE, J. —

Plaintiff mortgagor seeks to recover damages from defendant mortgagee under his trover count on the theory that an unfair foreslosure sale of the mortgaged chattels is void or voidable at the suit of the mortgagor, and that such a sale is an unlawful conversion of the property. Under his count in general assumpsit for money had and received, he seeks to recover from defendant mortgagee the difference between what the chattels actually sold for and their reasonable value.

Under the theory of mortgages prevailing in this state, nothing can be clearer than the proposition that after default the legal title of the mortgagee is perfect. Indeed, foreclosure adds nothing to the legal title, and its only office and value is to cut off the equity of redemption. The mortgagee’s legal title carries, of course, the right of possession, and, in the case of chattels, possession taken by the mortgagee after default leaves in the mortgagor no interest except an equity of redemption — which is cognizable and enforceable only in a court of equity.

If it were conceded that an injury to the equity of redemption (as by fraud, unfairness, or negligence in the manner of its extinction by foreclosure under the power of sale, such as would authorize a court of equity to set aside the foreclosure upon an application to redeem) would support an action at law on the ease for damages for the loss thereby inflicted on the mortgagor, It is clear that the mortgagor’s loss of title and right of possession after default excludes any right of action in trover for a conversion, no matter what the mortgagee may do with the property.—Draper v. Walker, 98 Ala. 310, 313, 13 South. 595; Marks v. Robinson, 82 Ala. 69, 2 South. 292; Holman v. Ketchum, 153 Ala. 360, 45 South. 206; Snead v. Scott, 182 Ala. 97, 62 South. 36, 39; Heflin v. Slay, 78 Ala. 180. As stated by a leading text-writer, “a sale of the entire property by the mortgagee, entitled to possession, before foreclosure, does. not amount to a conversion of it for which the mortgagor ,, may maintain an action in the nature of trover.”—Jones on Chat. Mortg. § 435. So, it is said by Mr. Freeman: “In case the mortgagee acts wrongfully and unfairly, in thus disposing of the property, the mortgagor had no remedy at law, but must resort to a bill in equity in the nature of a bill to redeem. So far as legal rights and obligations are concerned, after forfeiture the mortgagee may treat the property as his own, and deal with it as he may choose, without incurring liability at law.” Note to Wygal v. Bigelow, 42 Kan. 477, 22 Pac. 612, 16 Am. St. Rep. 495, 501. To the same effect is the text of Jones on Chat. Mortg. §§ 793, 801.

It is evident that, Avhen foreclosure sales are characterized by courts as wwa-lid by reason of unfairness or irregularity, no more can be intended than that they are invalid as foreclosures, and that they are therefore not effective to cut off the equity of redemption. See Kelsey v. Ming, 118 Mich. 438, 76 N. W. 981; Murray v. Erskine, 109 Mass. 587. See, also, Jones on Chat. Mortg. § 791; 16 Am. St. Rep. 501, note.

In this state it is settled that a mortgagee who has exercised a power to sell at private sale is chargeable in equity upon a bill for accounting and redemption, with the reasonable value of the property sold, regardless of the price actually received.—Zadek v. Burnett, 176 Ala. 80, 57 South. 447. The same doctrine has been recognized in an action at law by the mortgagee to recover a deficiency judgment on the mortgage debt after the foreclosure by private sale under the power, and such an action may be defeated in Avhole or in part by pleading and shoAving that the reasonable value of the property sold was in excess of the price received and credited.—Johnson v. Selden, 140 Ala. 418, 37 South. 249, 103 Am. St. Rep. 49.

This doctrine, founded on sound policy, is applicable, as the authorities all clearly show, only to private sales under the power. See Freeman’s Note to Johnson v. Selden, supra, 103 Am. St. Rep. 56, par. IV; Jones on Chat. Mortg, §§ 707, 708, 773; 7 Cyc. 107b.

It furnishes no support, however, for an independent recovery by the mortgagor in an action at law. As held by practically all the authorities Avhich proceed, as Ave do, upon the theory of an absolute legal title in the mortgagee after default and possesion taken by him, and under distinct systems of procedure for law and equity, the mortgagor’s only remedy is by bill in equity for redemption, with an accounting for the reasonable value of the property, if injured or destroyed, or for any reason unavailable for redemption.

This remedy was open to the mortgagor in this case, and by it he might have obtained full and ample redress for every wrong injuriously affecting his purely equitable rights.

An exception may, perhaps, be recognized where a mortgagee in possession after default sells the chattels at unauthorized private sale for an amount in excess cf the mortgage debt. There is such an intimation in Draper v. Walker, 98 Ala. 310, 314, 13 South. 595, 597, where it is said that, “if the purchase price received by the first mortgagee exceeded the amount of his debt, the surplus, ex sequo et bono, belonged to the holder of the equity of redemption, for which assumpsit would lie.” But we have not such a case before us, and need not consider it.

The only other theory upon which plaintiff might recover in assumpsit would require proof of defendant’s receipt of a purchase price at the foreclosure sale in excess of the mortgage debt, and on the undisputed evidence there was no such surplus.

It is to be noted that the decisions in those states which regard the mortgagee’s interest as a lien merely, or which have abolished the distinction between legal and equitable forms and procedure, are not safe guides elsewhere. An example will be found in Wygal v. Bigelow, 42 Kan. 477, 22 Pac. 612, 16 Am. St. Rep. 495.

Since the foregoing opinion was written and adopted, the writer has examined the dissenting opinion filed by Justice Mayeeld.

The criticism upon the majority opinion seems to be founded primarily on the assumption that it denies any remedy at all to mortgagors who complain of unfair foreclosure sales, and upon the further assumption, also, that the common-law theory of mortgages has been abandoned by the law courts of this state; that trover is an equitable action, and hence will lie for injuries to purely equitable rights; that every foreclosure sale which may be deemed unfair is utterly void, both in law and equity; that every public foreclosure sale, however, regular and free from actual fraud, may be impeached before a jury in common-law action' for damages; and especially that, in such an action, the mortgagee is liable because of his failure to make the property bring its fair value.

The conclusion reached by Justice Mayfield in this case is founded essentially on the hypothesis that the foreclosure sale in question was a nullity, and of no effect whatever.

I notice briefly these several propositions:

1. The remedy in equity by bill for redemption, or bill in the nature of a bill for redemption, is well established by the authorities, and it is vain to deny either its existence or its efficiency.—16 Am. St. Rep. 501, note; 7 Cyc. 117. The rights involved are peculiarly of equitable cognizance. “A court of equity, in which each party can be compelled to do equity, is the appropriate forum for the consideration of all other questions than fraud in the execution of the [mortgage] conveyance.”—Kelly v. Mobile, etc., Ass’n, 64 Ala. 501, 503. “After the law day * * * nothing remains in the mortgagor but the equity of redemption, of which, as between mortgagor and mortgagee, courts of law do not take notice.”—Toomer v. Randolph, 60 Ala. 356; Harris v. Miller, 71 Ala. 26, 33; Lomb v. Pioneer Co., 106 Ala. 591, 17 South. 670; Foster v. Carlisle, 148 Ala. 259, 42 South. 441; Holman v. Ketchum, 153 Ala. 360, 45. South. 206.

2. In a long and unbroken line of decisions this court has declared over and over again that the common-law theory of mortgages prevails in courts of law, and that in such courts the mortgagee is regarded as the absolute owner of the mortgaged property after condition broken.—Welsh v. Phillips, 54 Ala. 309, 25 Am. Rep. 679; Toomer v. Randolph, 60 Ala. 356, 360; Farris v. Houston, 74 Ala. 163; Lomb v. Pioneer Co., 106 Ala. 591, 599, 17 South. 670; High v. Hoffman, 129 Ala. 359, 361, 29 South. 658; Foster v. Carlisle, 148 Ala. 259, 42 South. 441; Holman v. Ketchum, 153 Ala. 360, 45 South. 206. And it has been twice specifically held, in accordanee with this theory, that the mortgagor cannot maintain trover against the mortgagee for a conversion of chattels after condition broken.—Draper v. Lewis, 98 Ala. 310, 13 South. 595; Snead v. Scott, 182 Ala. 97, 62 South 36. This rule, of course, is subject to the condition that the mortgage debt has not been tendered before demand or possession taken by the mortgagee.—Maxwell v. Moore, 95 Ala. 166, 10 South. 444, 36 Am. St. Rep. 190.

. 3. It is true that trover is frequently referred to as an equitable action; but it is obvious that equitable principles are applied only to the quemtum of damages recoverable, and not to the gravamen of the action. This is explained in Williams v. Crum, 27 Ala. 468, where it is said: “In ascertaining the damages in many actions of trover, it is allowable to mitigate them, by investigating and determining what (for want' of a phrase of greater accuracy) is called the equity of the case.” It clearly appears, also, from the discussion in McGowan v. Young, 2 Stew. & P. 160, 171. That the plaintiff in trover can recover only upon a title conferring the right to immediate possession, is' the fixed rule of our decisions.'—Rees v. Coats, 65 Ala. 258; Draper v. Walker, 98 Ala. 310, 13 South. 595.

4. It is not the law in this state that every unfair foreclosure sale under power is void at law. The legal validity of such a sale depends upon a substantial compliance with the terms of the mortgage.—Wood v. Lake, 62 Ala. 489; Speakman v. Vest, 166 Ala. 235, 240, 51 South. 980. “At law, in the absence of actual fraud, if the sale has been regular’, it is valid.”—Harris v. Miller, 71 Ala. 26, 33. The actual fraud here referred to is defined as “any artifice or deception used to cheat or deceive. This definition would, however, seem to embrace only actual or positive frauds. But fraud, as understood and denounced in equity, includes all acts, omissions, or concealments which involve a breach of a legal or equitable duty, trust, or confidence justly reposed, which are injurious to another, or by which an * * * unconscientious advantage is taken of another.”—Kennedy v. Kennedy, 2 Ala. 571, 593.

In a court of law a power of sale is merely part of a legal contract to be executed according to its terms. In a court of equity it is quickened with the elements of a trust, and the donee of the power is charged as a quasi trustee with the duty of fairness and good faith in its execution, to the end that the mortgagor’s property may be disposed of to his pecuniary advantage1 in the satisfaction of his debt.

Any breach of duty as such trustee is cognizable in equity, “and subjected the sale so made, upon the reasonable and appropriate action of the complainants, to a rescission on account of such fraud.”—Randolph v. Vails, 180 Ala. 82, 60 South. 159, 163.

5. It is obvious that, if any mortgagee who, without actual fraud, and in accordance with the terms of his mortgage, has sold the mortgaged property by foreclosure sale can be compelled to defend his sale before a jury on the issue of bona fides in making it, or of the adequacy of the price received, at the hazard of being adjudged a tort-feasor and mulct 'in damages therefor, the commercial value of this form of security will be substantially destroyed.

6. Stripped of invective, the charge against this foreclosure sale is that it was made for the purpose of cutting off the mortgagor’s equity of redemption, and thus acquiring an absolute title to his property, and that the mortgagee purchased $5,000 of property for $700. Hence it is concluded that a jury may declare the sale a nullity in an action at law for damages.

It is to be observed that the sale was conducted in a manner expressly authorized by the mortgage, by the terms of which the mortgagor voluntarily waived practically all of the formalities and methods upon which he might otherwise have insisted. This court has no authority to declare his contract void, and substitute another in its place, however unwise and improvident it may have been.

No fraud is charged other than the mortgagee’s purpose to cut. off the equity of redemption and secure a title to the property. But, inasmuch as this is one of the essential incidents of foreclosure as ordained by law, its entertainment and pursuit by a mortgagee cannot, in the absence of oppression be regarded as a vice or a fraud.—Hunter v. Mellen, 127 Ala. 343, 348, 28 South. 468; Security Loan Ass’n v. Lake, 69 Ala. 456, 44 Am. Rep. 528. Certainly the mortgagee need not, before approaching the auction block, cleanse his heart of all covetousness, as the pious Mussulman cleanses his body before entering a mosque. There is no evidence in the record upon which to ground a charge of fraud or irregularity in this sale, unless fraud is to be inferred from the fact alone that the property brought a grossly inadequate price as compared with its apparent value. It is proper to observe, just here, that defendant’s mortgage on the land was’ subordinate to a prior outstanding mortgage for $2,500, upon which defendant had paid $206 interest shortly before foreclosure; and also that the sawmill was subject to a prior lien of $250, which defendant had also paid. The evidence shows, also, that only one mule was included in the chattels sold under the power, instead of four, as asserted. So that $850 must be deducted from the approximate valuation of $2,000 placed upon the personalty sold, and the net result is that about $1,150 of property sold for $400.

But it has been repeatedly held by this court, and must now be regarded as settled law, that gross inadequacy of the price paid by the purchaser at a foreclosure sale will not of itself, even in a court of equity, invalidate or affect the sale.—Ward v. Ward, 108 Ala. 278, 19 South. 354; Hunter v. Mellen, 127 Ala. 343, 348, 28 South. 468; Windes v. Russell, 150 Ala. 625, 43 South. 788.

It results that the plaintiff was not entitled to recover in this action, and the general affirmative charge was properly, given for the defendant.

Affirmed.

Anderson, C. J., and McClellan, de Graffenried, and Gardner, JJ., concur. Mayfield and Sayre, JJ., dissent in separate opinions.