CERTAIN-TEED PRODUCTS CORPORATION v. Sanders

141 S.E.2d 329, 264 N.C. 234, 1965 N.C. LEXIS 1161

• Court: Supreme Court of North Carolina
• Decided: April 14, 1965
• Docket: 284
• Status: Published

Opinion

Bobbitt, J.

Before considering directly the questions presented, it seems appropriate to advert to the following uncontroverted matters.

(1) The deed of trust to Sedberry, Trustee, duly recorded since 1959, was a valid first lien on the property described therein.

(2) Plaintiff did not seek a personal judgment against defendants Howze on their $10,908.84 promissory note to Institute. (Note: Defendants Howze made no payment on said $10,908.84 promissory note.)

(3) The foreclosure by Sedberry, Trustee, is attacked solely by plaintiff, allegedly the owner and holder of the $10,908.84 second lien promissory note.

(4) According to the terms of the $595.00 note secured by the deed of trust to Sedberry, Trustee, the entire unpaid balance, $145.00 plus interest, was past due and in default at the time of the alleged agreement between defendant Herbert Howze and Sanders and at the time of the foreclosure proceedings.

We consider first appellants’ contention, based on appropriate exception and assignment of error, that plaintiff’s action should have been nonsuited. The rules applicable in the consideration of the evidence when passing on a motion for nonsuit are well settled. 4 Strong, N. C. Index, Trial § 21. It is noted that a plaintiff must make out his case secundum allegata. His recovery, if any, must be based on the allegations of his complaint. Nix v. English, 254 N.C. 414, 421, 119 S.E. 2d 220, and cases cited.

The complaint attacks the foreclosure on the grounds considered below.

Plaintiff, relying on the alleged oral agreement between defendant Herbert Howze and Sanders, contends the debt secured thereby was not in default at the time the deed of trust to Sedberry, Trustee, was foreclosed.

With reference to the alleged agreement, defendant Herbert Howze, a witness for plaintiff, testified in substance as follows:

He had a conversation with Sanders “about (his) plan to build a house through the Institute for Essential Housing, on the lot.” On the occasion of such conversation, he offered to pay Sanders $20.00 to apply on the then unpaid balance of $145.00 and interest; that Sanders would not take the $20.00 so offered, stating he (Howze) would “probably . . . need this money for something else” and it would be all right for him to wait until the house was completed and then pay the entire balance. At one time, he referred to the conversation as having taken place “the latter part of 1961” before “they started to build the house.” Later, he testified that during the conversation he told Sanders “they had started the house.” Later, he testified the conversation was in December 1961 or in January 1962.

Howze testified further that, after said conversation, Sanders made no demand for payment; that, when construction was in progress, he (Howze) visited the lot about twice a week; and that he had no notice of the foreclosure prior to completion thereof.

Howze on cross-examination testified: His last payment to Sanders was made on October 9, 1961. His conversation with Sanders was “around the early part of February 1962.” He testified: “It was in February that I offered (Sanders) $20.00.”

While not pertinent in passing upon the motion for judgment of non-suit, it seems appropriate to say that Sanders’ testimony was in direct conflict with that of Howze.

It is noted: Howze testified to one conversation with Sanders concerning the matters referred to above. Too, apart from Howze’s testimony concerning such conversation, there is no evidence that Sanders, prior to completion of the foreclosure, had knowledge or notice that a house was being built on the lot.

Conceding the sufficiency of the evidence to support a finding that Sanders assured defendant Herbert Howze that he need make no further payments until the house was completed, the evidence discloses no consideration sufficient to support a contract enforceable in law. Craig v. Price, 210 N.C. 739, 188 S.E. 321; Woodell v. Davis, 261 N.C. 160, 134 S.E. 2d 160. The debt was and had been past due. There is no evidence defendant Herbert Howze made any promise of any kind to Sanders.

There was evidence neither defendants Howze nor the holder of their $10,908.84 note secured by the second lien deed of trust to McDaniel, Trustee, were given personal notice of the foreclosure sale. However, “(i)n the absence of a valid contract so to do, there is no requirement that a creditor shall give personal notice of a foreclosure by sale to a debtor who is in default.” Woodell v. Davis, supra, p. 163, and cases cited. Nor, under such circumstances, is there any requirement that personal notice of such sale be given to the holder of a second lien deed of trust.

We need not determine whether, under the circumstances, a failure to give personal notice to defendant Howze would constitute inequitable conduct as between Sanders and defendants Howze. Defendants Howze have not attacked the foreclosure. There is no evidence that Doggett Lumber Company (Doggett) or Institute or plaintiff had any dealings of any kind with Sanders prior to completion of the foreclosure.

The agreement, if any, was between Sanders and defendants Howze. Obviously, it was not made for the benefit of Doggett or Institute or plaintiff. Defendants Howze, in their agreement of December 8, 1961 with Institute and in their deed of trust to McDaniel, Trustee, represented that they owned the lot free and clear of encumbrances. Probably, the disclosure of the alleged (oral) agreement would have resulted either in full payment to Sanders or in immediate discontinuance of negotiations between defendants Howze and Institute. Indeed, the delay in foreclosure, coupled with the failure to determine by search of the records that the deed of trust to Sedberry, Trustee, was the first lien, were the primary causes of plaintiff’s present plight.

“If the contract was not made for the benefit of the third party, he has no cause of action upon the contract to enforce it, or sue for its breach.” Trust Co. v. Processing Co., 242 N.C. 370, 379, 88 S.E. 2d 233; Land Co. v. Realty Co., 207 N.C. 453, 177 S.E. 335. “The real test is said to be whether the contracting parties intended that a third person should receive a benefit which might be enforced in the courts.” 17 Am. Jur. 2d, Contracts § 304; 17A C.J.S., Contracts § 519 (4) c.

.: Appellants contend further the foreclosure sale was invalid because the clerk did not confirm the sale or order that Sedberry, Trustee, execute and deliver a deed to Sanders, the purchaser. With reference to said contention, we consider first whether, under the provisions of G.S. Chapter 45, Article 2A, such confirmation or order was required as a prerequisite to consummation of such foreclosure in accordance with law.

It is noted: An allegation in the complaint and a recital in the judgment indicate that a preliminary report of the foreclosure sale (of March 5, 1962) by Sedberry, Trustee, was filed in the office of the clerk as required by G.S. 45-21.26. No upset bid was filed with the clerk. See G.S. 45-21.27.

This Court held “that the powers of supervision and control conferred upon the clerks of the Superior Court” by C.S. 2591, later G.S. 45-28, “did not arise . . . unless and until there had been the advanced bid specified in the statute paid into the hands of said clerk.” Lawrence v. Beck, 185 N.C. 196, 116 S.E. 424; Foust v. Loan Asso., 233 N.C. 35, 62 S.E. 2d 521, 22 A.L.R. 2d 975; In re Sermon’s Land, 182 N.C. 122, 108 S.E. 497; Pringle v. Loan Asso., 182 N.C. 316, 108 S.E. 914. G.S. 45-28 was repealed expressly by Chapter 720 (Section 5) of Session Laws of 1949. The 1949 Act is a comprehensive statute relating to sales under a power of sale in a mortgage, deed of trust or conditional sale contract. Its provisions constitute Article 2A of Chapter 45 of the General Statutes, being G.S. 45-21.1 through G.S. 45-21.33. It is expressly provided that Article 2A “does not affect any right to foreclosure by action in court, and is not applicable to any such action.” G.S. 45-21.2. (Note: G.S. Chapter 1, Article 29A, relates expressly to “Judicial Sales.”) If a trustee fails to report a foreclosure sale within the five days as directed by G.S. 45-21.26, the clerk is authorized to compel such report. G.S. 45-21.14; Gallos v. Lucas, 252 N.C. 480, 113 S.E. 2d 923. Otherwise, Article 2A confers no authority upon the clerk in respect of an initial foreclosure sale. Supervisory authority conferred by G.S. 45-21.27 relates to resales and does not arise until an upset bid has been filed with the clerk as provided therein. G.S. 45-21.29(h) provides: “When a resale of real property is had pursuant to an upset bid, such sale may not be consummated until it is confirmed by the clerk of the superior court. No order of confirmation may be made until the time for submitting any further upset bid, pursuant to G.S. 45-21.27, has expired.” (Our italics.)

Even so, plaintiff contends that, absent confirmation, the foreclosure is subject to attack on the ground the bid was inadequate and inequitable. G.S. 45-21.34 and G.S. 45-21.35, upon which plaintiff bases this contention, are provisions of Article 2B of Chapter 45. They are codifications of Sections 1 and 2, respectively, of Chapter 275, Public Laws of 1933.

G.S. 45-21.34, in part, provides: “Any owner of real estate, or other person, firm or corporation having a legal or equitable interest therein, may apply to a judge of the superior court, prior to the confirmation of any sale of such real estate by a mortgagee, trustee, commissioner or other person authorized to sell the same, to enjoin such sale or the confirmation thereof, upon the ground that the amount bid or price offered therefor is inadequate and inequitable and will result in irreparable damage to the owner or other interested person, or upon any other legal or equitable ground which the court may deem sufficient.”

Actions instituted under G.S. 45-21.34 before the time (ten days) for upset bid had expired to restrain consummation of such foreclosure include Woltz v. Deposit Co., 206 N.C. 239, 173 S.E. 587; Whitaker v. Chase, 206 N.C. 335, 174 S.E. 225; Barringer v. Trust Co., 207 N.C. 505, 177 S.E. 795. In Smith v. Bryant, 209 N.C. 213, 183 S.E. 276, according to the record on file in this Court, the action was instituted October 31, 1933, to restrain the trustee from executing a deed to the purchaser pursuant to a foreclosure sale he had conducted on October 21, 1933.

In Whitford v. Bank, 207 N.C. 229, 176 S.E. 740, the factual situation under consideration was as follows: A foreclosure sale had been conducted by the trustee in accordance with the power of sale conferred in a deed of trust executed by plaintiffs. No upset bid was filed. The trustee consummated the sale by the execution and delivery of a deed to the purchaser. Nothing in the record indicates the clerk confirmed the sale or directed the execution of such deed. Subsequently, the plaintiffs instituted the action -to cancel and set aside the trustee’s deed on the ground, inter alia, the amount of the purchaser’s bid was inadequate and inequitable. This Court, in opinion by Schenck, J., said: “Chapter 275, Public Laws of 1933, has no application to this case, since the sale had been made and confirmed and the deed from the trustee to the purchaser had been of record for approximately three months before the institution of this action . . .” It seems clear this Court considered the word “confirmation,” as used in said statutory provision, to mean final consummation in accordance with law.

In Loan Corporation v. Trust Co., 210 N.C. 29, 185 S.E. 482, the action was to recover a deficiency judgment. Section 3 of Chapter 275, Public Laws of 1933, now G.S. 45-21.36, was directly involved. However, the following from the opinion of Connor, J., is in full accord with the decision in Whitford v. Bank, supra, viz.: “In sections 1 and 2 of the Act it is provided that where real property has been offered for sale by a mortgagee, or by a trustee under the power of sale contained in a mortgage or deed of trust, and the sum bid at such sale is inadequate, and for that reason the consummation of the sale would be inequitable, because it would result in irreparable damage to the mortgagor or grantor in the deed of trust, or to any other person having a legal or equitable interest in the property, the mortgagor, or the grantor, or any other interested person, at any time before the consummation of the sale, may apply to a judge of the Superior Court for an order enjoining the consummation of the sale, and that in such case the judge of the Superior Court may enjoin the consummation of the sale, and may order a resale of the property by the mortgagee, by the trustee, or by a commissioner appointed by him for that purpose, upon such terms as he may deem just and equitable.” (Our italics.)

In our view, “confirmation,” as used in G.S. 45-21.34 refers only to a foreclosure sale where confirmation is required for consummation in accordance with law. Where a foreclosure sale is conducted in accordance with the provisions of Article 2A of Chapter 45 of the General Statutes, and no upset bid is filed as provided in G.S. 45-21.27, there is no legal requirement that the clerk either confirm the sale or direct the execution of a trustee’s deed as a prerequisite to legal consummation of such sale by the trustee.

Evidence relating to the basis of plaintiff’s claim and the status and value of the property on March 5, 1962, the date of the foreclosure sale, is summarized below.

Mr. Grier, an officer of Doggett, testified that Doggett, under its arrangements with Institute and with plaintiff, furnished the materials (Certain-teed) and construction services; that the first materials were delivered to the job on January 24, 1962; that construction was stopped “shortly after the first of April 1962” when Doggett first learned of the Sanders mortgage; and that, at that time, “the outside of the house was completed, the rough plumbing was in and the rough wiring was in.” Mr. Grier testified he saw Sanders and offered “to reimburse him his expense, $300.00,” if he would deed the house back to Howze; and that Sanders, in reply’, stated' “that the lot was worth about $1,200 and that’s what he wanted.” (Note: The complaint alleges that “Sanders offered to sell said property back to the defendants Howze for the price of $1,250.00.”)

Mr. Grier testified that the Institute paid Doggett $3,604.31 for the materials and labor it had furnished to the Howze lot; and that “. . . we sent in an estimate of the work completed on the house and were reimbursed for that.”

There was testimony that Institute, prior to June 1962, was plaintiff’s wholly owned subsidiary, and at that time was absorbed by plaintiff, the parent company.

Referring to his conversation with Mr. Grier, Sanders testified, inter alia, as follows: “. . . I asked him why he built a house on a lot that I owned. He said he didn’t know I owned it. I said, ‘Well, do you not, when you build a house that way, have the record looked up to see whether it’s free and clear or not?’ He said, ‘The company I do business with carries insurance.’ ” No question was asked Grier as to why construction was commenced without first making a search of the title or obtaining a report thereon.

Concerning values: Grier testified that, when construction stopped around April 1, 1962, the house and lot, in his opinion, “were worth $4,600.” “Since that time,” he testified, “somebody has increased the value of it by $2,400.” (Note: Appellants offered evidence tending to show that, pursuant to work begun on September 7, 1962, the house was completed and made ready for occupancy at a cost to defendant Lynn S. Challis of “around $2500.00.”) In Grier’s opinion, at the time of trial, the house and lot were worth $7,000.00.

Mr. English, employed by Institute as a supervisor, testified he inspected the Howze lot the latter part of January 1962 and again the latter part of March 1962; that, in his opinion, the fair market value of the lot, including labor and materials, was “around $3,000” at the time of the January inspection and “conservatively $5,000.00” at the time of the March inspection. He testified that in his opinion the fair market value of the house and lot at the time of trial was “approximately $5,500 to $6,500.”

The only testimony as to the value of the lot alone at the time of the foreclosure sale was the testimony of Sanders to the effect the fair market value thereof was “$1,250.00.” Sanders testified the property was worth “somewhere around $2500.00” when he sold it to defendant Lynn S. Challis, his daughter.

Plaintiff’s allegations and evidence in respect of the inadequacy of the bid must be considered in the light of well established legal principles stated by Barnhill, J. (later C. J.), in Foust v. Loan Asso., supra, as follows:

“Mere inadequacy of the purchase price realized at a foreclosure sale, standing alone, is not sufficient to upset a sale, duly and regularly made in strict conformity with the power of sale. Weir v. Weir, 196 N.C. 268, 145 S.E. 281; Roberson v. Matthews, 200 N.C. 241, 156 S.E. 496; Hill v. Fertilizer Co., 210 N.C. 417, 187 S.E. 577.

“Even so, where there is an irregularity in the sale, gross inadequacy of purchase price may be considered on the question of the materiality of the irregularity. Hill v. Fertilizer Co., supra, and cases cited.

“Speaking to the subject in Weir v. Weir, supra, Stacy, C.J., says: ‘But gross inadequacy of consideration, when coupled with any other inequitable element, even though neither, standing alone, may be sufficient for the purpose, will induce a court of equity to interpose and do justice between the parties. Worthy v. Caddell, 76 N.C. 82, 70 A. & E. (2 Ed.) 1003; note: 42 L.R.A. (N.S.) 1198’; Bundy v. Sutton, 209 N.C. 571, 183 S.E. 725; Roberson v. Matthews, supra.”

■ Here, no alleged irregularity in the foreclosure is supported by evidence. Moreover, Sanders was under no legal obligation to plaintiff or its predecessors in interest except to conduct and consummate the foreclosure sale in accordance with law.

It should be noted that the complaint does not allege fraudulent conduct or facts sufficient to constitute fraud.

In view of the basis of decision, we do not discuss serious questions as to the sufficiency of the issues and as to whether the verdict supports the judgment. However, it is noteworthy that all issues relate solely to features of plaintiff’s attack on appellants’ positions and that answers thereto do not establish or relate to whether plaintiff has the status and rights it asserts.

With some reluctance, we reach the conclusion that appellants’ motion for nonsuit should have been granted. Under this decision, it appears that Sanders (excluding costs of litigation) will reap where he did not sow. Yet, it appears he was willing to negotiate a settlement of the confused situation caused in large measure by (1) the failure of defendant Herbert Howze to disclose the existence of the Sanders deed of trust to Doggett or Institute and (2) the failure of Doggett or Institute to check the title or obtain a report thereon. Moreover, if plaintiff should prevail, the value of its security would be substantially enhanced by the expenditures made by defendant Lynn S. Challis in com pleting the house. (Note: The evidence indicates this action was instituted after defendant Lynn S. Challis had completed the house.)

Since the parties decided to “square off" and stand on their asserted legal rights, the decision must be in accord with established legal principles without regard to consequences. For the reasons stated, the verdict and judgment are set aside, and the cause is remanded with direction that judgment of involuntary nonsuit be entered.

Reversed.