Harmon v. Dothan Nat. Bank

• Decision Date: 12 February 1914
• Court: Alabama Supreme Court
• Parties: HARMON v. DOTHAN NAT. BANK.

64 So. 621

186 Ala. 360

HARMON v. DOTHAN NAT. BANK.

Supreme Court of Alabama

February 12, 1914

Appeal from Circuit Court, Houston County; H.A. Pearce, Judge.

Trover and assumpsit by Rush Harmon against the Dothan National Bank. Judgment for defendant, and plaintiff appeals. Affirmed.

The original complaint was in trover for the conversion of certain personal property alleged to belong to plaintiff, and claiming the sum of $2,000 as damages. A complaint was added by way of amendment for that sum had and received by defendant for use of plaintiff. The evidence showed, without dispute, that plaintiff executed to defendant a mortgage on February 1, 1909, by which he granted, bargained, sold, and conveyed to defendant the chattels in question, and 393 acres of land; the land being subject to a prior mortgage for $2,500.

The defeasance clause of the mortgage is as follows: "If default is made in the payment of any obligation herein secured, or the grantor shall in any way dispose or part with possession of any of said property, if said mortgagee or his assigns shall see fit to do so, it is authorized, before or after maturity of said debt, at any time to take possession of said property, *** to sell said personal property and real estate at public outcry or private sale, and to so sell the same before or after taking possession, and whether in possession at time of sale or not, and with or without notice of the time and place and terms of sale at its election, and in case it gives notice to determine what kind it will give to make said sale as and where it shall deem best to it for cash or on credit, to become purchaser at any such sale of either the real or personal property sold, to make deeds of all such sales, and accept the amount bid, and waive the right to question its adequacy"--followed by the usual provisions as to the disposition of the proceeds of the sale.

The amount secured by the mortgage, including a subsequent advance, was about $1,500. The mortgagee advertised a foreclosure sale of the mortgaged property on December 9 1909, to be held on December 10, 1909, on which latter date pursuant to the advertisement, the land and certain of the chattels were sold under the power and mortgage. The land brought $300, the sawmill, being subject to an unpaid purchase-money lien of $250, brought $100, and the other chattels sold in a lump brought $300. At the conclusion of the evidence the trial court directed a verdict for defendant, and there was verdict and judgment accordingly.

Espy & Farmer, of Dothan, for appellant.

A.E. Pace and W.R. Chapman, both of Dothan, for appellee.

SOMERVILLE J.

Plaintiff mortgagor seeks to recover damages from defendant mortgagee under his trover count on the theory that an unfair foreclosure 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 case 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 So. 595; Marks v. Robinson, 82 Ala. 69, 2 So. 292; Holman v. Ketchum, 153 Ala. 360, 45 So. 206; Snead v. Scott, 62 So. 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 P. 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, when foreclosure sales are characterized by courts as invalid 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, 57 So. 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 whole or in part by pleading and showing that the reasonable value of the property sold was in excess of the price received and credited. Johnson v. Selden, 140 Ala. 418, 37 So. 249, 103 Am.St.Rep. 49.

This doctrine, rounded 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 which proceed, as we do, upon the theory of an absolute legal title in the mortgagee after default and possession 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 of the mortgage debt. There is such an intimation in Draper v. Walker, 98 Ala. 310, 314, 13 So. 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 aequo et bona, 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 P. 612, 16 Am.St.Rep. 495.

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

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 a 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...