Murphy v. Financial Development Corp.

• Decision Date: 24 May 1985
• Docket Number: No. 84-253,84-253
• Parties: Richard S. MURPHY and Beatrice K. Murphy v. FINANCIAL DEVELOPMENT CORPORATION et al.
• Court: New Hampshire Supreme Court

Page 1245

495 A.2d 1245

126 N.H. 536

Richard S. MURPHY and Beatrice K. Murphy v. FINANCIAL DEVELOPMENT CORPORATION et al.

No. 84-253.

Supreme Court of New Hampshire.

May 24, 1985.

Welts & White P.C., Nashua (Jack S. White and Robert V. McKenney, Nashua, on the brief), for plaintiffs.

Gregoire, Calivas, Morrison & Gray, Dover (Douglas C. Gray, Dover, on the brief and orally), for defendants Financial Development Corp. and Colonial Deposit Co.

Devine, Millimet, Stahl & Branch P.A., Manchester (Norman H. Stahl and Paul G. Mattaini, Manchester, on the brief), for New Hampshire Bankers Ass'n, as amicus curiae.

DOUGLAS, Justice.

The plaintiffs brought this action seeking to set aside the foreclosure sale of their home, or, in the alternative, money damages. The Superior Court (Bean, J.), adopting the recommendation of a Master (R. Peter Shapiro, Esq.), entered a judgment for the plaintiffs in the amount of $27,000 against two of the defendants, Financial Development Corporation and Colonial Deposit Company (the lenders).

The plaintiffs purchased a house in Nashua in 1966, financing it by means of a mortgage loan. They refinanced the loan in March of 1980, executing a new promissory note and a power of sale mortgage, with Financial Development Corporation as mortgagee. The note and mortgage were later assigned to Colonial Deposit Company.

In February of 1981, the plaintiff Richard Murphy became unemployed. By September of 1981, the plaintiffs were seven months in arrears on their mortgage payments, and had also failed to pay substantial amounts in utility assessments and real estate taxes. After discussing unsuccessfully with the plaintiffs proposals for revising the payment schedule, rewriting the note, and arranging alternative financing, the lenders gave notice on October 6, 1981, of their intent to foreclose.

During the following weeks, the plaintiffs made a concerted effort to avoid foreclosure. They paid the seven months' mortgage arrearage, but failed to pay some $643.18 in costs and legal fees associated with the foreclosure proceedings. The lenders scheduled the foreclosure sale for November 10, 1981, at the site of the subject property. They complied with all of the statutory requirements for notice. See RSA 479:25.

At the plaintiffs' request, the lenders agreed to postpone the sale until December 15, 1981. They advised the plaintiffs that this would entail an additional cost of $100, and that the sale would proceed unless the lenders received payment of $743.18, as well as all mortgage payments then due, by December 15. Notice of the postponement was posted on the subject property on November 10 at the originally scheduled time of the sale, and was also posted at the Nashua City Hall and Post Office. No prospective bidders were present for the scheduled sale.

In late November, the plaintiffs paid the mortgage payment which had been due in October, but made no further payments to the lenders. An attempt by the lenders to arrange new financing for the plaintiffs through a third party failed when the plaintiffs refused to agree to pay for a new appraisal of the property. Early on the morning of December 15, 1981, the plaintiffs tried to obtain a further postponement, but were advised by the lenders' attorney that it was impossible unless the costs and legal fees were paid.

At the plaintiffs' request, the attorney called the president of Financial Development Corporation, who also refused to postpone the sale. Further calls by the plaintiffs to the lenders' offices were equally unavailing.

The sale proceeded as scheduled at 10:00 a.m. on December 15, at the site of the property. Although it had snowed the previous night, the weather was clear and warm at the time of the sale, and the roads were clear. The only parties present were the plaintiffs, a representative of the lenders, and an attorney, Morgan Hollis, who had been engaged to conduct the sale because the lenders' attorney, who lived in Dover, had been apprehensive about the weather the night before. The lenders' representative made the only bid at the sale. That bid of $27,000, roughly the amount owed on the mortgage, plus costs and fees, was accepted and the sale concluded.

Later that same day, Attorney Hollis encountered one of his clients, William Dube, a representative of the defendant Southern New Hampshire Home Traders, Inc. (Southern). On being informed of the sale, Mr. Dube contacted the lenders and offered to buy the property for $27,000. The lenders rejected the offer and made a counter offer of $40,000. Within two days a purchase price of $38,000 was agreed upon by Mr. Dube and the lenders and the sale was subsequently completed.

The plaintiffs commenced this action on February 5, 1982. The lenders moved to dismiss, arguing that any action was barred because the plaintiffs had failed to petition for an injunction prior to the sale. The master denied the motion. After hearing the evidence, he ruled for the plaintiffs, finding that the lenders had "failed to exercise good faith and due diligence in obtaining a fair price for the subject property at the foreclosure sale...."

The master also ruled that Southern was a bona fide purchaser for value, and thus had acquired legal title to the house. That ruling is not at issue here. He assessed monetary damages against the lenders equal to "the difference between the fair market value of the subject property on the date of the foreclosure and the price obtained at said sale."

Having found the fair market value to be $54,000, he assessed damages accordingly at $27,000. He further ruled that "[t]he bad faith of the 'Lenders' warrants an award of legal fees." The lenders appealed.

The first issue before us is whether the master erred in denying the motion to dismiss. The lenders, in support of their argument, rely upon RSA 479:25, II, which gives a mortgagor the right to petition the superior court to enjoin a proposed foreclosure sale, and then provides: "Failure to institute such petition and complete service upon the foreclosing party, or his agent conducting the sale prior to sale shall thereafter bar any action or right of action of the mortgagor based on the validity of the foreclosure."

If we were to construe this provision as the lenders urge us to do, it would prevent a mortgagor from challenging the validity of a sale in a case where the only claimed unfairness or illegality occurred during the sale itself--unless the mortgagor had petitioned for an injunction before any grounds existed on which the injunction could be granted. We will not construe a statute so as to produce such an illogical and unjust result. State v. Howland, 125 N.H. 497, 500, 484 A.2d 1076, 1078 (1984).

The only reasonable construction of the language in RSA 479:25, II relied upon by the lenders is that it bars any action based on facts which the mortgagor knew or should have known soon enough to reasonably permit the filing of a petition prior to the sale.

The master could not have found that this was such an action, because the only unfairness referred to in his report involves the amount of the sale price. Thus, his denial of the lenders' motion to dismiss was proper.

The second issue before us is whether the master erred in concluding that the lenders had failed to comply with the often-repeated rule that a mortgagee executing a power of sale is bound both by the statutory procedural requirements and by a duty to protect the interests of the mortgagor through the exercise of good faith and due diligence. See, e.g., Carrols Equities Corp. v. Della Jacova, 126 N.H. 116, 489 A.2d 116 (1985); Proctor v. Bank of N.H., 123 N.H. 395, 464 A.2d 263 (1983); Meredith v. Fisher, 121 N.H. 856, 435 A.2d 536 (1981); Lakes Region Fin. Corp. v. Goodhue Boat Yard, Inc., 118 N.H. 103, 382 A.2d 1108 (1978); Wheeler v. Slocinski, 82 N.H. 211, 131 A. 598 (1926). We will not overturn a master's findings and rulings "unless they are unsupported by the evidence or are erroneous as a matter of law." Summit Electric, Inc. v. Pepin Brothers Const., Inc., 121 N.H. 203, 206, 427 A.2d 505, 507 (1981).

The master found that the lenders, throughout the time prior to the sale, "did not mislead or deal unfairly with the plaintiffs." They engaged in serious efforts to avoid foreclosure through new financing, and agreed to one postponement of the sale. The basis for the master's decision was his conclusion that the lenders had failed to exercise good faith and due diligence in obtaining a fair price for the property.

This court's past decisions have not dealt consistently with the question whether the mortgagee's duty amounts to that of a fiduciary or trustee. Compare Pearson v. Gooch, 69 N.H. 208, 209, 40 A. 390, 390-91 (1897) and Merrimack Industrial Trust v. First Nat. Bank of Boston, 121 N.H. 197, 201, 427 A.2d 500, 504 (1981) (duty amounts to that of a fiduciary or trustee) with Silver v. First National Bank, 108 N.H. 390, 391, 236 A.2d 493, 494-95 (1967) and Proctor v. Bank of N.H., supra 123 N.H. at 400, 464 A.2d at 266 (duty does not amount to that of a fiduciary or trustee). This may be an inevitable result of the mortgagee's dual role as seller and potential buyer at the foreclosure sale, and of the conflicting interests involved. See Wheeler v. Slocinski, 82 N.H. at 214, 131 A. at 600.

We need not label a duty, however, in order to define it. In his role as a seller, the mortgagee's duty of good faith and due diligence is essentially that of a fiduciary. Such a view is in keeping with "[t]he 'trend ... towards liberalizing the term [fiduciary] in order to prevent unjust enrichment.' " Lash v. Cheshire County Savings Bank, Inc., 124 N.H. 435, 438, 474 A.2d 980, 981 (1984) (quoting Cornwell v. Cornwell, 116 N.H. 205, 209, 356 A.2d 683, 686 (1976)).

A mortgagee, therefore, must exert every reasonable effort to obtain "a fair and reasonable price under the circumstances," Reconstruction &c. Corp. v....