Jones v. . Pullen

20 S.E. 624, 115 N.C. 465

• Court: Supreme Court of North Carolina
• Decided: September 5, 1894
• Status: Published

Opinion

Shepherd, C. J.:

On a previous investigation of this case, we were of the opinion that the decision in Joyner v. Farmer, 78 N. C., 196, would amply sustain the action of his Honor in denying the plaintiffs the relief prayed for. The delay of the plaintiffs of over five years after the sale and their surrender of possession (there being no fraud, and the price being reasonable) were sufficient under the principle of the above-mentioned case to bar the plaintiffs of their alleged right of election to set aside the sale. Our attention, however, has been called to the more recent case of Bruner v. Threadgill, 88 N. C., 361, in which it is said that “ in the absence of affirmation the right of a mortgagor to avoid a sale under a power where the mortgagee has indirectly become the purchaser, is not barred by his laches for a shorter period than the statutory limitation of ten years.” The Code, § 158. As the mortgagee had a right.to enter under his legal title, the entry in this case would not alone be sufficient evidence of affirmation, and nothing further appearing the principle of Bru-ner’s case would seem to apply. This renders it necessary to further investigate this case in the light of the other facts found by the referee, and in this we have had the aid of a second argument by counsel on each side. There is no question, according to our authorities, that if a mortgagee, with power to sell, indirectly purchases at his own sale, the mortgagor may elect to avoid the sale, and this without reference to its having been fairly made, and for a reasonable price. This is an inflexible rule, and it is “ not because there is, but because there may be fraud.” Gibson v. Barbour, 100 N. C., 192; Froneberger v. Lewis, 79 N. C., 426; Cole v. Stokes, 113 N. C., 270; Dawkins v. Patterson, 87 N. C., 384. If, however, the mortgagee with the power of sale deals directly with the mortgagor and purchases of him the equity of redemption, quite another principle applies. In such a case there is, by reason of the trust relation, a presumption of fraud, but the mortgagee so purchasing may rebut this presumption by showing that the transaction was free from fraud or oppression, and that the price was fair and reasonable. The doc-brine is fully discussed in McLeod v. Bullard, 86 N. C., 210, and need not be elaborated in this opinion. If the presumption of fraud is rebutted the plaintiff has no election to set aside the sale, and a Court of Equity will grant him no relief.

Now, if this be the rule applicable to a direct purchase of the equity of redemption, why should it not also apply to a case like the one before us, where the mortgagor has by his deed expressly authorized the mortgagee to become the purchaser? If the mortgagee can directly purchase, if the transaction is fair, why can he not, when the transaction is fair, purchase as the highest bidder at the sale, when expressly authorized to do so? In 1 Jones on Mortgages, 1888, p"rovi-■sions of this kind are said to be in general use where there is no statute authorizing the mortgagee to purchase at his own sale, and cases are cited which deny that the privilege should be strictly construed, and the author remarks that it is generally held that “ under such a provision the Court will not interfere with a purchase by the mortgagee unless there be some other objection which would invalidate a purchase by .anyone else under the same circumstances.”

On the other hand, while the right to purchase is fully Tecognized, there are numerous authorities to the effect that the mortgagee so purchasing “ will be held by a Court of Equity to the strictest good faith and the utmost diligence in the execution of the power for the protection of the rights of the mortgagor, and his failure in either particular will give occasion to allow the mortgagor to redeem.”

In Fox v. Mackrith, 1 White & Tudor’s L. C, 244, note, it is said: “ The mortgagor may indeed dispense with the restraint by authorizing the mortgagee to sell to himself, if he is the highest bidder. This results from the right of every man to waive a rule intended for his benefit. But such transactions will, notwithstanding, be closely scrutinized, and may be set aside if the sale is not conducted with entire frankness, and in a way to obtain the market value.”

In Gibson v. Barbour, 100 N. C., 192, after denying the right of a trustee like a mortgagee to purchas'e at his own sale, and remarking that “ a Court of Equity will not tolerate the attlmpt and give efficacy to what is done, when opposed by competent parties in interest,” the Court proceeds as follows: “ The cases to which the brief of counsel calls our attention are in no degree hostile to this universally accepted rule. That of Dexter v. Shepard, reported in 117 Mass., 480, simply decides that a trustee, expressly authorized under the deed to purchase at his own sale, and so might the Court, directing a commissioner interested in the trusts to make a sale, give him authority to bid, as a means of securing himself against loss, as was done in McKay v. Gilliam, 65 N. C., 130., although the fact does not appear in the report, and so we think this may be allowable with the general consent of all who could otherwise make objection to the sale.”

These remarks seem to recognize the right of the mortgagee to purchase under the circumstances of this case, and the numerous authorities cited by Mr. Jones from Courts of the highest respectability, such as New York, Massachusetts and Alabama, as well as the “ reason of the thing,” in our opinion, fully establish the proposition. In passing, we will observe that Howell v. Pool, 92 N. C., 450, cited by counsel, does not distinctly pass upon this question. Although we adopt this view, it is nevertheless true that the mortgagee is still the agent or trustee of the mortgagor, and while he may purchase under such a provision, we are of the opinion that the exercise of such authority should be watched with a most jealous eye by the Courts. Indeed, we think it more consistent with the principles of equity, as enunciated by this Court, to place such a purchaser within the rule declared in McLeod’s case, supra, that is to say, that being still a trustee, although with power to purchase, there is a presumption of fraud, and that it lies upon him to rebut such presumption. If he does this, we see no reason why he should not hold the land as if he had purchased the equity of redemption directly from the mortgagor.

The mortgagor, in effect, says : “You may sell my land to the highest bidder, and if you act fairly and purchase at a reasonable price you may yourself become the purchaser.” If this agreement is honestly carried out, why should the mortgagor have the right to repudiate it, and especially in the present case, when he has surrendered the possession after such sale, and the defendant has occupied the land for over five years.

The referee finds that “the sale was fairly and honestly conducted, in conformity to the terms of the mortgage and trust deeds, and there was no effort to suppress the bidding. The land brought a fair price. There were no circumstances of fraud or undue advantage taken.” The right to purchase having been conferred upon the mortgagee, we think our case is not within the principle that the mortgagor may avoid the sale, even though it be fair and the price reasonable.

Under this view, the defendant had a right to acquire the equity of redemption by virtue of the sale under the mortgage and, this being so, the principle-of Taylor v. Heggie, 83 N. C., 244, does not apply. The equity of redemption was conveyed subsequently by the mortgagors to Mr. Haywood, in trust, it seems, to secure the payment of the mortgage debt, though the trust provided that it shall be subject to the mortgage, and, as the mortgagee had the right to purchase at his own sale under the mortgage, the fact that the trustee joined him in the sale, by virtue of the trust, and also joined in the execution of the deed to Wynne (who afterwards conveyed to the defendant), cannot affect the result. Inasmuch as the legal title passed to Wynne, we have not deemed it necessary to pass upon the supposed difficulty of the mortgagee (when a direct purchaser) executing a deed to himself. This may be done upon the well-settled principle that the donee of a power may execute a deed in that capacity to himself. Whether the mortgage should contain an express power of this kind is not before us, but it-has been held to be necessary by several Courts, and this view seemed to be entirely sound. All that it is necessary, however, to decide in the present case, is that, where the legal title has passed through a third person to the mortgagee with power to purchase, the power will be so far recognized as to place such purchaser within the principle of McLeod v. Bullard, supra.

Affirmed.