Hrovat v. Bingham

• Decision Date: 13 December 1960
• Docket Number: No. 7833,7833
• Citation: 341 S.W.2d 365
• Parties: Henry G. HROVAT and Norma Gene Hrovat, Plaintiffs-Respondents, v. Mikie Lou BINGHAM, Defendant-Appellant.
• Court: Missouri Court of Appeals

Page 365

341 S.W.2d 365

Henry G. HROVAT and Norma Gene Hrovat, Plaintiffs-Respondents, v. Mikie Lou BINGHAM, Defendant-Appellant.

No. 7833.

Springfield Court of Appeals, Missouri.

Dec. 13, 1960.

Powell & Jones, Dexter, for defendant-appellant.

Henson & Henson, Poplar Bluff, for plaintiffs-respondent.

RUARK, Judge.

This is an appeal by the defendant from an adverse judgment in an ejectment suit. The facts are that in 1955 defendant Mikie Lou Bingham's predecessor in title gave a mortgage deed of trust to P. C. Hays as trustee, to secure to the Poplar Bluff Loan & Building Association the payment of a note for $3,200 in monthly installments of $35. The deed of trust was in the usual form with acceleration clause and power of sale and, in addition, contained what is known as the 'landlord and tenant clause' (more of that later). The defendant purchased such property for a total consideration of $4,250, cash $1,160, and subject to such loan. She thereafter made extensive improvements, and the property at time of foreclosure was reasonably worth from $7,000 to $12,000. The contractor who made the improvements testified to a value of $10,000. It was testified that on October 30, 1958, the mortgagee wrote to Mrs. Bingham stating that her account was five months delinquent and that unless substantial payment was made before November 10 foreclosure proceedings would be started. Mrs. Bingham says she never got the letter, although she does not contend her payments were not delinquent. First publication of notice of sale in the name of the trustee was made on November 21. This called for sale on December 13 following.

On November 21, 1958, the day of the first publication of notice of foreclosure, the mortgagee wrote the defendant a letter as follows:

'Dear Borrower:

'We have this week paid the premium on your fire and extended coverage insurance on your home property as shown on the enclosed receipt notice from Clevlen Ins. Agcy.

'The premium notice gives the expiration date of your new policy, amount of coverage, policy number, property covered and amount of premium. Pleas check this receipt for any possible error, and keep same for your files.

'Your insurance premium has been charged against your Insurance and Tax Account No. 1767 as per agreement in your loan contract with the Association. When you make your next monthly loan payment we will record the insurance charge in your loan book.

'It has been a pleasure to serve you.'

No notice of sale (other than the regular publication aforementioned) was given to the defendant owner, the record mortgagor, or to the holder of a junior mortgage. Defendant testified she knew nothing about the foreclosure. She had left her home (the premises involved) on the Thursday prior to December 13 and was visiting in Kennett on that day. The notice of sale was prepared by the manager of the Loan & Building Association and the newspaper office personnel. Hays, the trustee, was used regularly by the Loan & Building as trustee. However, he had not been actually and specifically requested to make the sale, did not insert the notice of sale, and did not know anything about it until he read it in the paper. He was requested or reminded on the day of the sale and he did appear and conduct the sale on December 13.

The deed of trust and the notice called for sale 'at the West Front Door of the Court House.' There were in fact a sort of vestibule, the front door, a short flight of stairs, and an inner door. The sale was actually held just inside the outer door. There were present ten to fifteen people in this place. The trustee read the notice (the notice was not read outside the front door), and one J. L. Raulston became the highest bidder and purchaser for $3,650. Defendant offered to prove that it was 70 feet from the east side of the street to the door and that at the time of the sale people were walking along the street. This offer was refused.

On December 18, 1958, (five days after the sael) Raulston entered into 'Articles of Agreement for Warranty Deed,' whereby he contracted to sell the newly bought residence to the Hrovats for the sum of $7,000, payable $500 in cash paid, $4,500 on the following January 1, and a second deed of trust for $2,000. The Hrovats are the plaintiffs in this ejectment suit. Their written contract of purchase did not specifically provide that the Hrovats would take possession, although it did specify that in case of default in payment as provided by the contract the seller could re-enter and take possession. Over the objection of the defendant, the plaintiffs testified to a separate parol agreement with Raulston that they should take possession immediately.

As to the pleadings: The petition in ejectment is of the standard variety. It did not allege any notice or demand for possession. The amended answer admits that defendant is in possession and denies the plaintiffs are entitled thereto. For further answer defendant pleads the execution of the mortgage and her purchase subject thereto. She states that thereafter she gave a junior mortgage to one Horne; that the foreclosure was without notice to either herself or Horne; that out of the proceeds of the foreclosure the first mortgage was paid; that the sale was held inside and near the west door of the courthouse, instead of the outside, and was not publicly announced outside; that the bid received at foreclosure was grossly inadequate in respect to the market price; that plaintiffs are not bona fide purchasers for value; that within one week after the sale defendant learned of it and that J. L. Raulston, the purchaser at the foreclosure sale, verbally agreed to reconvey the property to her for $4,650 but that he thereafter refused to do so; that defendant has at all times been, and is, ready and willing to reimburse Raulston for the full amount of his bid upon his reconveying the property to her; that the sale was fraudulent and void.

The prayer of the answer is simply for judgment and costs. It does not seek any affirmative relief nor pray the intervention of a court of equity. The action is, as we see it, strictly one at law. ¹

The appellant's contentions fall into two groups, viz: The sale was fraudulent and void because (a) the trustee did not sign the notice and was not requested to make the foreclosure until the day before the sale, (b) the sale was not conducted in the proper place, to-wit, outside the courthouse door, (c) under the circumstances the defendant was entitled to actual notice of the intended foreclosure, (d) when taken in conjunction with the foregoing facts the consideration was grossly inadequate. She also attacks the right of plaintiffs to maintain the action because (1) no demand was made for possession and (2) the plaintiffs did not have a possessory interest.

The general rule is that if the holder of the mortgage has no right or power to foreclose, then the sale under an attempted foreclosure is void and no title is conveyed, but if the holder does have the right to foreclose, and if there is a legitimate attempt to foreclose by a trustee acting within the apparent scope of authority, then the sale is not void and legal title passes even though the power of sale may have been improperly exercised. ² Even though the proceedings were defective and irregular, the trustee's deed conveys legal title and (we prefer to limit this to a generality) the mortgagor can take advantage of the irregularity only by appealing to a court of equity. ³

In this case the defendant has not sought the intervention of a court of equity. She willingly tried the case to a jury, and neither the mortgagee, the trustee, nor the purchaser at the foreclosure sale is made a party. Although we do not question the right of a defendant in an ejectment suit to plead equitable defenses, ⁴ it would appear that by the nature of the pleadings and the conduct of the proceedings, the fact this is an action wholly at law, we are, in determining the rights which passed by foreclosure, limited to a consideration of (a) whether the foreclosure was absolutely void, in which event no title would have passed ⁵ and the owner could hold possession and test the validity in a later proceeding, ⁶ or (b) whether it was fraudulent in law as to the defendant and the plaintiffs took or are changed with knowledge of such fraud so that they are not bona fide purchasers. For the purpose of this opinion we will assume, as the defendant contends, (without, however, in any way deciding) that the plaintiffs, because they had not paid the full purchase price, took only in the same right as their vendor, J. A. Raulston, the purchaser at the foreclosure sale. In considering whether plaintiffs are bona fide purchasers we will, for purposes of this opinion, charge them with such actual knowledge as is shown to have been had by Raulston and such constructive knowledge as the record required them or Raulston to take into account.

It has been said that the purchaser at a foreclosure sale buys under the doctrine of caveat emptor, but an examination of the cases shows this to be a limited caveat. The purchaser is required to take notice of everything in the recorded chain of title ⁷ and the conditions upon which the trustee's power to act depends. ⁸ But he is not chargeable with knowledge of a mistake, secret instructions, or some 'off the record' agreement between the holder and the beneficiary. ⁹ Under normal conditions the recitals in the recorded record are prima facie (although not conclusive) as to a compliance with the conditions of the mortgage. ¹⁰

Taking up now the defendant's contentions in regard to the invalidity of the foreclosure sale:

The mortgage did not 'reguest' the trustee to foreclose. We will agree that where the deed of trust provides for a request, such is necessary. ¹¹ But it would appear that the provision in the deed of trust, 'at the request of the Association,' is primarily for the benefit of the mortgagee...