Central Financial Services, Inc. v. Spears

• Decision Date: 12 January 1983
• Docket Number: No. 53677,53677
• Citation: 425 So.2d 403
• Parties: CENTRAL FINANCIAL SERVICES, INC. v. Marshall SPEARS.
• Court: Mississippi Supreme Court

Page 403

425 So.2d 403

CENTRAL FINANCIAL SERVICES, INC. v. Marshall SPEARS.

No. 53677.

Supreme Court of Mississippi.

Jan. 12, 1983.

Bourdeaux & Jones, Thomas L. Webb, E. Gregory Snowden, Meridian, for appellant.

Leslie C. Gates, Meridian, for appellee.

Before SUGG, P.J., and BROOM and BOWLING, JJ.

SUGG, Presiding Justice, for the Court:

The question in this case is whether a mortgagee, who purchases the mortgaged property at a foreclosure sale must account to the mortgagor for the surplus arising from a sale of the property by the mortgagee within two weeks for two and one-half times the amount bid by the mortgagee at the foreclosure sale.

Marshall Spears borrowed $1250 from Central Financial Services, Inc. (CFS), and executed a promissory note and financial disclosure statement along with his wife, Ester Spears. They also executed a deed of trust covering certain real property described therein to secure the debt. The total amount secured was $1797.30 which included principal, interest, insurance and fees.

Spears gave his son $625 or half the amount of the principal and expected him to assist in paying back the loan. They could not agree on an arrangement so payments on the promissory note fell into arrears. CFS advertised the property for sale under the terms of the deed of trust, but stopped the advertisement when Spears paid the amount in arrears including cost of the foreclosure proceedings. Spears and his son still could not agree upon how they could make payments on the note, so once again it became delinquent. On October 12, 1979, after advertising the sale in accord with section 89-1-55 Mississippi Code Annotated (1972), the sale was conducted and CFS bid $1458.86, the amount of the indebtedness then due plus costs of foreclosure. There were no other bidders. Two days later, Spears was notified by an agent for CFS that he would have to vacate the premises. Spears claimed that this was the first time he was aware of the second sale and that he offered to pay the amount of the delinquency, but was told it was too late for that.

On October 24, 1979, CFS sold the property to Joe Stewart and Earl Aycock for $4,000. CFS then paid a $30 judgment lien on the property and realized a profit of $2481.14. Aycock and Stewart sold the property to Roger C. Henderson on February 19, 1980 for $6,500. Henderson then made improvements to the property.

On March 11, 1980, Spears filed a bill of complaint in the Chancery Court of Lauderdale County which named CFS, Thomas B. Bourdeaux, Trustee, Joe Stewart, Earl Aycock and Roger Henderson as defendants. The bill prayed that the second foreclosure sale be set aside, alleging violation of Spears' constitutional rights, inadequate sale price and prayed for an injunction and other relief. The demurrer of the defendants was sustained and Spears appealed to this Court.

The appeal was submitted on March 3, 1981, and, in an unpublished opinion we held, "On the face of the complaint, taking as true Spears' allegation that the fair market value was $7,000, the consideration of $1458.86 was so grossly inadequate as to shock the conscience of this Court," We reversed and remanded for a trial on the merits because of the gross inadequacy of consideration alleged on the face of the complaint. Miss., 394 So.2d 1391.

The chancellor dismissed the case as against the trustee, Aycock, Stewart and Henderson, but found that the sale price at the second foreclosure sale was so inadequate that it shocked the conscience of the court. He determined from the evidence presented that the property had a fair market value of $6,000 at the time of the sale and ordered CFS to respond in damages based on the difference between fair market value and the price paid at the foreclosure sale. CFS appealed. Spears did not cross-appeal so the dismissal of the action against the trustee, Aycock, Stewart and Henderson is not at issue.

We have reviewed our cases involving adequacy of consideration as a ground for setting aside a foreclosure sale. ¹ These cases do not address the issue involved in this case but do lay down the general rule that mere inadequacy of price ² is not sufficient to set aside a foreclosure sale unless the price is so inadequate as to shock the conscience of the court. These cases, except Federal Credit Co. v. Boleware, ³ do not involve a resale by the mortgagee of property purchased by it at a foreclosure sale. We also note that most of the cases cited in footnote 1 involved sales during a time of economic depression and, as stated in Hardin v. Grenada Bank, supra, many of the sales were deemed adequate because the entire country "was in the throes of a depression."

In this case, the chancellor found that the sale price was so inadequate it shocked his conscience. This finding is amply supported by the evidence because CFS bid only $1458.86 at the foreclosure sale and twelve days later sold the property for $4,000. We hold that a sale of mortgaged property within twelve days of the foreclosure sale at a price two and one-half times the bid of the mortgage is so inadequate, it would be "impossible to state it to a man of common sense without producing an exclamation at the inequality of it." ⁴ The chancellor did not set the sale aside; instead, he fashioned a remedy with which we agree in principle.

CFS was in compliance with the statutory law pertaining to the advertisement and sale of real property under deeds of trust. However, the sale of the property by CFS twelve days later resulted in a windfall to it of approximately $2,500. We deem this windfall to be unjust. If CFS had bid $4,000 at the foreclosure sale it would have been entitled to recover the amount of its indebtedness plus the expense of the sale, with the surplus being payable to Spears. Certainly a sale twelve days later for $4,000 enabled CFS to recover $2500 more than it risked in the transaction it made when it advanced $1250 to Spears.

We agree with the chancellor that the sale price was so inadequate that it shocks the conscience of this Court. However, we are of the opinion that the decree should be modified to reduce the amount of recovery against CFS.

The chancellor ordered the difference between the fair market value, which he fixed at $6,000, and the amount bid by CFS be returned to Spears. CFS should not be required to suffer any pecuniary loss, which it would do under the decree of the chancellor. There is no evidence of any conspiracy between appellant and its vendees to...