Foxworth v. Murchison National Bank

This is an appeal from an order requiring the appellant, Murchison National Bank, to comply with what is alleged to have been its bid upon the sale, under foreclosure, of the property of one O.G. Minshew.

On March 15, 1920, O.G. Minshew gave to Planter's Bank of Marion, a note for $4,500, payable March 15, 1921, secured by a real estate mortgage upon a certain house and lot in the City of Marion. (Details of the note do not otherwise appear in the record.) The note was renewed from time to time. On September 1, 1924, Minshew gave the bank, in partial renewal of the $4,500 note, a note for $2,250, payable December 1, 1924. This note, with the mortgage, was assigned by the Planters' Bank to the National Park Bank of New York, as collateral security. On September 29, 1924, Minshew gave the bank, in renewal of the balance due on the $4,500 note, a note for $3,347, payable March 1, 1925. This note, with others, was assigned to the Murchison National Bank of Wilmington, N.C., as collateral security.

The $2,250 note, which had been assigned to the National Park Bank not having been paid at maturity, December 1, 1924, that bank, on December 19, 1924, instituted the main action for foreclosure. The parties defendant were Minshew, the Murchison Bank, Planters' Bank, Bank of Aynor, and O.J.C. Rose; each of the defendants other than Minshew was made a party as claiming an interest in the mortgaged premises junior to the lien of the plaintiff Park Bank. The Murchison Bank answered, setting up its note for $3,347, which had been assigned as stated, claiming that that note, as well as the $2,250 note which had been asigned to the Park Bank, was secured by the mortgage which Minshew had given to the Planters' Bank to secure the original $4,500 note of which both notes were renewals, and that it was entitled to participate pro rata with the Park Bank, in the proceeds of the sale under foreclosure.

On January 26, 1925, a consent decree of foreclosure was passed, fixing the date of sale on March 2, 1925, by the probate Judge of Marion County. It established the priority of the Park Bank mortgage over the claims of all of the defendants except the Murchison Bank. As to its claim to participate pro rata with the Park Bank in the proceeds of sale, the question was reserved for future determination; the contest as to this matter, between the two banks, was practically transferred to the fund arising from the sale. The sale was duly advertised and was had at the appointed time, March 2, 1925.

In all of the proceedings up to the point of the sale, the Murchison Bank was represented by L.M. Gasque, Esq., an honored member of the Marion bar. He was present at the sale, looking after the interests of his client. A spirited bidding ensued between the attorneys for the Park Bank and Mr. Gasque, attorney for the Murchison Bank. Mr. Gasque's bid of $6,500 was the last and highest bid, and the property was knocked down to him at that figure and charged to L.M. Gasque, attorney.

Subsequently, as will be explained in greater detail, the Murchison Bank denied the authority of Mr. Gasque to bid in the property for it, and declined to comply with the bid.

Thereafter the petitioner, W.S. Foxworth, who had been, perhaps then was, president of the Planters' Bank, with commendable appreciation of the situation, paid to the Park Bank the amount that was due to it on the $2,250 note and mortgage, and took an assignment of them from the Park Bank. He is the party now interested, in the place of the Park Bank.

After repeated but unavailing efforts to induce the Murchison Bank to ratify the act of Mr. Gasque and to comply with the bid, on or about April 13, 1925 (the petition is not dated in the record), Foxworth presented a petition setting forth the above situation, to his Honor, Judge Mann, asking for a rule upon the Murchison Bank. to show cause why it should not comply with said bid. His Honor, Judge Mann, issued the rule to show cause, dated April 15, 1925, requiring a return at Marion, on April 27th. At the appointed time the matter was heard by his Honor, Judge Mann, upon the petition of Foxworth, the report of sales by the probate Judge, the return of the Murchison Bank, what is denominated the "return of L. M. Gasque" (although the rule did not require a return by him), accompanied by a mass of correspondence between Mr. Gasque and the Murchison Bank.

The gist of the return of the Murchison Bank is found in the following paragraph of the return:

"And it specifically alleges that it had no notice of proposed sale, was not consulted with reference thereto, did not directly or indirectly authorize him or any one else to bid for it, and that, if said Gasque did bid upon the said property at the sale thereof, as alleged, he did so at his own risk, it is not bound thereby, and has not directly or indirectly sanctioned, approved, or ratified the alleged action of the said Gasque in that behalf, that while it does not question the good faith of its said attorney, it alleges that he was without authority in the premises, and it is not bound by this action in that particular."

On May 13, 1925, his Honor filed an order adjudging that the return of the Murchison Bank was insufficient, and requiring it "to comply with the bid of its attorney, L.M. Gasque, Esq., by forthwith paying into the hands of the Judge of Probate of Marion County the sum of $6,500, with interest from March 2, 1925, at the rate of seven per cent. per annum."

From this order the Murchison Bank has appealed upon exceptions which fairly raise the questions herein considered and others which it is not deemed necessary to pass upon.

The evidence in this matter, upon which the Court is called upon to pass, presents a regrettable controversy; but nothing in it, or in what we may have to say, can be construed into the slightest reflection upon the integrity of a faithful officer of the State, and a member of the bar of this Court of the very highest character. No one can doubt but that he was actuated by the utmost loyalty to the interests of his client; the bank in its return concedes as much; but, if the bank sees fit not to respond to what may be considered an "imperfect obligation," and insists upon its legal rights, this Court would be untrue to itself and unjust to Mr. Gasque, if it did not fully accord such legal rights.

Reviewing the evidence, largely in correspondence between Mr. Gasque and the Murchison Bank, we find the following facts, which appear not to be at all controverted:

The foreclosure proceedings were begun on December 19, 1924; apparently the copies of summons and complaint intended for the Murchison Bank were mailed to that bank and service accepted; for the bank on December 24th enclosed the acceptances of service to Mr. Gasque, with the request that he take the necessary steps to answer the complaint, and calling his attention to their claim to participate pro rata with the Park Bank. On December 25th, Mr. Gasque acknowledged receipt of the papers, stating:

"I will prepare the answers in both cases [referring to another foreclosure also] and follow them to a termination, looking after your interest in same."

On December 31st, he notified the bank of the service of the answer.

On January 24, 1925, he notified the bank that, after a reference, the Minshew case had terminated in a decree of foreclosure. He did not in this letter notify the bank of the date of sale fixed in the foreclosure decree. The letter contained the following exceedingly significant statement:

"I am informed that a subsequent mortgagor (mortgagee?), to wit, Mr. Lide, will in all probability protect your mortgage as well as (that of?) the Park National Bank. In this matter I shall keep you posted."

That was the last communication Mr. Gasque made to the bank until after the sale of March 2d, although the date of the sale had been fixed in the decree of foreclosure, the sale had been duly advertised, and he had left the bank under the impression that Mr. Lide, a junior mortgagee, would in all probability, in order to protect himself, make the property bring enough to pay both banks, in which event it would of course be unnecessary for the bank to bid at all, of which probability he engaged to keep the bank posted. It does not appear that Mr. Gasque made any effort at all to confirm the information of the probability that Mr. Lide would do as he expected, until the morning of the sale, when he learned that Mr. Lide was not going to run the property up. He then made an effort to reach an agreement with the attorneys for the Park Bank, but was unable to do so, the attorneys stating that each one must look out for himself. It was then too late to confer with the bank and learn what they wished done in the unfortunate emergency created by the failure of Mr. Gasque in the meantime to communicate with them. The bank was entitled to know when the sale was to take place; it was entitled to know whether Mr. Lide was intending to carry out the expectations of Mr. Gasque; it was entitled to the exercise of its own conception of what was to its interest, in view of the fact, which was known to Mr. Gasque, that it had other collateral than the Minshew note. When Mr. Gasque had from January 24th to March 2d, to acquaint the bank with conditions, during which period not a word or a line passed from him to the bank, it is too late to claim that on the morning of the sale, after he had ascertained that Lide did not intend to run the property up as he expected that he would do, and after he had failed to come to a modus agendi with the attorneys for the Park Bank, an emergency arose in which he, on account of the emergency, was justified in acting as he thought best for the interest of his client. He may have been entirely right in so acting in the emergency, if the emergency had been of the bank's creation; but it was not so.

On March 3d, the day after the sale, Mr. Gasque notified the bank of the result of the sale. The letter is a weak statement of his claim now that he bid the property off under express or implied authority from the bank, for it. It is rather an acknowledgment of his want of authority, and an effort to have the bank confirm what he had done without it. He writes:

"The situation now is that I have bid off this property, and believing same to be worth the full amount I bid it off at, you can take title to the property and pay the Park National Bank the amount due them, and dispose of the property and get the difference to be applied to your note. In the meantime I desire to know whether or not you confirm my purchase at the sale for you of this property, for, if not, it being the only way I could protect you, I will have to either let it sell again," etc.

This proposition of confirmation of his authority contained a renunciation of the bank's claim to prorate with the Park Bank:

"You can take title to the property and pay the Park National Bank the amount due them, and dispose of the property, and get the difference to be applied to your note."

The bank had notified him at the very beginning of their claim to participate pro rata in the proceeds of sale, and he had engaged to protect that claim as far as he could. It is clear that, if the bank had accepted his proposition to confirm his bid, pay the money in Court, allow the Park Bank to receive the full amount of its claim and the remainder paid to the Murchison Bank, the latter's claim to prorate would have "melted into thin air."

If this proposition had been made to the bank by Mr. Gasque, before the sale, is it reasonable to suppose that it would have been accepted? If he imposed this condition after the sale, it is only reasonable to assume that he made his bid with this condition in view, which is quite different from the position now taken, that the bank is bound to confirm his bid without any conditions.

On March 5th, the bank answered Mr. Gasque's letter of the 3d, stating that as they appeared to have ample security to cover the debt of Planters' Bank they preferred not to buy unless there was a very decided advantage to them in doing so and very good prospects for an immediate sale; a very reasonable position. The bank did not positively decline; they certainly did not positively accept; but asked for full information as to the value of the property, the prospect of a prompt resale, and the amount due to the Park Bank.

Much is made of this letter in argument as an implied ratification of Mr. Gasque's action. We do not see it in this light at all. In neither of Mr. Gasque's letters of the 3d and 7th is there the slightest claim that the bank was bound by this action. Both of them are but solicitations and inducements to the bank to confirm. Why the necessity of confirmation, if the bank was already committed? The bank was in this position: It had no information of the date of the sale. It had been led to believe that Mr. Lide was going to run the property up. It had had no information, which had been promised, to the contrary. It had given Mr. Gasque no authority to bid off the property for them, had had no reason to think that he contemplated such action; on the contrary, the impression created by him was that it would not be necessary. They were not in the real estate business in a city in another State. They had, as they thought, ample security outside of the Minshew note. What objection could possibly be raised to their entertaining the proposition of Mr. Gasque and refraining from action until they were satisfied that it was to their advantage to accept it, we cannot conceive, or how this can be considered as a ratification of a plainly unauthorized act.

On March 7th the bank wrote Mr. Gasque declining to comply with his proposition. On the same day, Mr. Gasque replied to the bank's letter of the 5th, stating that the amount due the Park Bank was $3,187,27; describing the property; estimating its value normally at $6,000 to $8,000, but evidently of the opinion that, on account of local financial stringency, it would not be possible to immediately realize even the smaller figure; that the bank upon complying would have an equity of at least $2,000, by "of course having to hold it for a while." In that letter he made no claim that the bank was in any wise legally bound to take care of his bid; again renewed his proposition that the bank renounce its claim to participate pro rata in the proceeds of sale and continued:

"But if not confirmed by you (upon the terms he proposed), I will have to have it resold, or let some one take it and pay the Park National Bank and expenses on same, which would be an easy matter with the equity in it, therefore I will be glad for you to send me a check for this amount, to wit, $3,187.27. And I will have the deed made to you and placed on record; but if you do not want to do this, I am inclosing a release and waiver of your right under it, which I will thank you to sign and return to me so I can dispose of it in another way."

Accompanying that letter, was the form of release which Mr. Gasque proposed for the bank to sign. It was an acknowledgment that at the sale, Mr. Gasque, in bidding off the property, was acting as the agent of the bank, a fact that the bank has never acknowledged. It contained also a release of all interest of the bank in the proceeds of sale, the difference between the amount of the bid and the Park Bank's debt going to the receiver of the Planters' Bank which had assigned all of its interest in the second renewal note to the Murchison Bank, which bank was at least entitled to a second lien upon the proceeds of sale. His first proposition was that the bank should renounce its claim to participate pro rata in the proceeds of sale. This proposition denied not only that possible right, but to any part of the proceeds after paying the Park Bank's debt.

On March 9th, the bank replied to Mr. Gasque's letter of the 7th, calling his attention to his former advice that they were entitled to participate pro rata in the proceeds of the sale, and expressing the apprehension, which appears well founded, that the Park Bank, under Mr. Gasque's proposition, was "being given the right of way over" them in the matter, and asking for further information.

On March 10th, Mr. Gasque replied to the bank's letter of the 9th, stating his fear that he was mistaken in the matter of prorating, and, by way of ultimatum, insisting that the bank either send the money of the Park Bank's debt, or sign the form of release which he had forwarded.

On March 13th, the bank replied to Mr. Gasque's letter of the 10th, reiterating its contention as to prorating, and stating that, although it had probably sufficient other collateral to protect its claim, there appeared no reason why, if it was entitled to any part of the proceeds of sale, it should release it, adding:

"Under the circumstances we would rather have taken our chances and accepted whatever might have been realized from the sale. It does not seem to us that the property should have been bid in for our account without some previous understanding. * * * We feel that we should have been consulted before this purchase was made."

On March 14th, Mr. Gasque replied to the bank's letter of the 13th, saying:

"I note what you state, especially that part of your letter referring that you ``should been consulted before this purchasewas made. The turn matters now seem to take, Ifeel sure that I should have done this (italics added), but relying upon what is customary," etc.

He reiterated the proposition that the bank release its interest in the proceeds of sale entirely, or send check.

On March 17th, the bank replied to Mr. Gasque's letter of the 14th, saying:

"While we appreciate your acting in the way which you thought for our best interest, we cannot feel that you should have gone to the extreme of purchasing this property without communicating with us. * * * If you had written or telephoned us that you expected to make this bid, we would have advised strongly against that action."

On March 19th, Mr. Gasque replied to the bank's letter of the 17th, practically repeating what he had previously written; reviewing his proposition that the bank release all interest in the proceeds of sale, release him from the obligation of his bid, or ``put up this amount of money." He closed by saying:

"Please advise whether you will follow this plan or release my bid, and if not I shall proceed to have it advertised for another sale, which, while embarrassing to me as an attorney, will not cause the other parties to lose anything."

Whether he meant that the deficiency upon resale would be made up by the bank or by himself is not entirely clear.

In the meantime, Foxworth had had an assignment executed by the Park Bank of the interest of that bank in the judgment of foreclosure, and on March 24th he wrote to the Murchison Bank, suggesting a composition of the outstanding differences.

On March 25th, the bank replied to Foxworth's letter of the 24th, reiterating its position in the matter, and expressing a willingness to send its representative to Marion for a conference. No attention appears to have been paid to this letter, and on or about April 13th hostilities were opened by the presentation of the petition and the issuance of the rule to show cause dated April 15th.

That Mr. Gasque had no express authority to bid off the property for the bank is conceded; that he had no implied authority, by reason of the fact that as attorney he had been representing the bank in the foreclosure proceedings, is concluded by the unanimous line of authorities upon this subject. Savery v. Sypher, 6 Wall., 157; 18 L.Ed., 822.Bauman v. Eschallier, 184 F., 711; 107 C.C.A., 44.Beardsley v. Root, 11 Johns. (N.Y.), 464; 6 Am. Dec., 386. Fisher v. McInerney, 137 Cal., 28; 69 P., 622, 907; 92 Am. St. Rep., 68; 2 R.C.L., 1011. Averill v. Williams, 4 Denio (N.Y.), 295; 47 Am. Dec., 252. Fosterv. Wiley, 27 Mich., 244; 15 Am. Rep., 185; Note, 132 Am. St. Rep., 179. Fisher v. Knox, 13 Pa., 622; 53 Am. Dec., 503. Mayer v. Blease, 4 S.C. 10. Gilliland v. Gasque,6 S.C. 406. Ex Parte Jones, 47 S.C. 393;25 S.E., 285. Dixon v. Floyd, 73 S.C. 202; 53 S.E., 167; 6 C.J., 156. LeConte v. Irwin, 19 S.C. 554; 3 A. E. Ency. L., 329. Cauthen v. Cauthen, 76 S.C. 226; 56 S.E., 978.

The evidence of ratification, after the sale, of Mr. Gasque's action is as conspicuous in its absence as the evidence of his express or implied authority. His letters, as has been seen, were importunities that the bank confirm his action; and there is not a particle of evidence tending to show their agreement to do so. The only circumstance upon which the respondent can place the least reliance, is that, in the first letter to Mr. Gasque after the sale, the bank expressed its possible willingness to accede to his request, if upon an investigation with full information that the property was worth $6,500 and could be promptly resold, it should be considered to their advantage to do so. Mr. Gasque's letter of March 7th placed the value of the property at from $6,000 to $8,000, and intimated very plainly that it could not be resold even at the lower figure, and not at all without waiting for better financial conditions. Before this letter was received, however, the bank, on the same day as Mr. Gasque's letter was written, positively declined to buy. From that time on the bank was consistent in its declination.

It is suggested in the circuit decree that the Murchison Bank should not be allowed "to blow hot and cold," by disaffirming the authority of Mr. Gasque and at the same time claiming the benefit of his bid. The proceeding is against the bank, not against Mr. Gasque, and we see not the slightest evidence in the record before us tending to show that the bank is making any claim against him. For all that appears to the contrary, the bank is fighting off an attack against itself, in which Mr. Gasque and the Park Bank had joined forces; they appear to be satisfied with a judgment declaring their return sufficient and perhaps would consent to a resale of the property, under the circumstances exonerating Mr. Gasque from personal liability, if the Park Bank would extend the same consideration. In this proceeding they simply ask to be relieved from an obligation which they did not assume, did not desire to assume, and gave no authority to Mr. Gasque or any one else to assume for them. Whether Mr. Gasque may be held personally liable under the principles announced in the case of Long v. McKissick, 50 S.C. 218;27 S.E., 636, at the suggestion of either the Park Bank or the Murchison Bank, is a matter foreign to this proceeding.

Even if the bank were here insisting that Mr. Gasque is personally liable, we see no inconsistency in so doing. If their position is sound, Mr. Gasque was unauthorized to bid in the property for them and was as a stranger to them.

It has been suggested also that the bank must be held to have ratified the action of Mr. Gasque, unauthorized though it may have been, by its failure to give notice to the Park Bank or its attorneys or Mr. Foxworth, of the disavowal of Mr. Gasque's action.

The position is reasonable, fair, and supported by the authorities, that a principal who seeks to disavow the action of his agent, must not only notify the agent but also a third party who may suffer injury by the failure to do so Mr. Mechem thus states the rule:

"Where a person assumes in good faith to act as agent for another in any given transaction, but acts without authority, whether the relation of principal and agent does or does not exist between them, the person in whose behalf the act was done, upon being fully informed thereof, must within a reasonable time disaffirm such act, at least in cases where his silence might operate to the prejudice of innocent parties, or he will be held to have ratified such unauthorized act." Mechem, Agcy. § 157.

"While it may be considered as evidence of a ratification, it (silence or delay) is not conclusive, and it is held that it cannot be conclusive unless the rights of innocent third persons have been prejudiced thereby, or, in other words, unless the case contains this element of equitable estoppel. * * * If the acquiescence, silence, or delay on the part of the principal has caused third persons, in reliance thereon, to forego some right or act to their prejudice, he should be held to have ratified the act of the agent. Cases of this kind indirectly contain the element of estoppel, and some of the decisions are expressly based wholly or in part upon this ground." 31 Cyc., 1277.

In Bement v. Armstrong (Tenn.Ch.App.), 39 S.W., 899, it is held that, where the agent authorized only to sell goods, purchased goods from a third party, if the principal would repudiate his act, he must give reasonably prompt notice to such third party, although he may have promptly disavowed the act to the agent.

"But where a person in good faith assumes to act as the agent of another, but without authority in fact, in any particular transaction, the latter, upon being fully informed thereof, must, in cases where his silence might prejudice the assumed agent or innocent third parties, disavow the act within a reasonable time, or he will be held to have ratified it." Robbins v. Blanding, 87 Minn., 246; 91 N.W., 844.

The third party who relies upon such a ratification assumes the burden of showing lack of notice and injury. It is incredible that under the circumstances the Park Bank, its attorneys and Mr. Foxworth were not informed of the failure of the bank to comply with the bid of Mr. Gasque. In his petition Mr. Foxworth avers that "repeated demands upon the defendant Murchison National Bank, to comply with its bid have been made, but it has failed and refused to comply." This was in the petition presented about April 13th. Prior to this Mr. Foxworth, in his letter to the bank dated March 24th, states that he had had Mr. Gasque's version of the matter. In the bank's letter of the 25th, they go fully into the explanation of their declining to recognize Mr. Gasque's authority: "Our position is that we feel that we should have been consulted before this property was purchased for our account." So far from sustaining the burden of showing that they had no notice of the disavowal, the evidence is conclusive that they did.

The order of his Honor, Judge Mann, will be incorporated in the report of the case.

The judgment of this Court should be that the order appealed from be reversed, and that the rule be discharged.