Summary
stating that waiver and estoppel are affirmative defenses
Summary of this case from Kan. City Live Block 124 Retail, LLC v. Kobe Kansas, LLCOpinion
May 7, 1940.
1. MORTGAGES: Foreclosure: Inadequate Price. A court of equity has inherent power to credit on a mortgage debt a fair value of the premises which the mortgagee has acquired on a foreclosure sale by fraud or unfair dealing.
Inadequacy of price on a foreclosure sale may be considered with other evidence but in the absence of fraud or unfair dealing it is not usually sufficient ground for setting aside a sale under a deed of trust.
2. MORTGAGES: Foreclosure: Fraud. Where there is fraud or unfair dealing surrounding a foreclosure sale under a mortgage the only course followed is to set aside the sale altogether.
But misfortune due to the monetary stringency of 1893 could not be made a source of equity jurisdiction in such case.
3. MORTGAGES: Foreclosure. Where real estate was sold for $200,000, and on a foreclosure sale under a deed of trust, for the balance of purchase money, the mortgagee bought it in for $47,500 subject to liens for more than $45,000, and where the seller offered to return the property to the purchaser upon payment of the indebtedness, under the circumstances the purchaser was not entitled to the aid of equity in defending a suit by the seller for the balance of the purchase money.
4. MORTGAGES: Foreclosure: Waiver: Estoppel. A waiver is an intentional relinquishment of a known right.
Mere silence, unless it is deceptive as where one is under a duty to speak, will not constitute a waiver.
In the correspondence between the mortgagor and the mortgagee regarding the payments due on the balance of the purchase money for which the property was mortgaged, there was no waiver or estoppel on the part of the mortgagee to assert his claim for the deficiency, after foreclosure.
The defense of waiver and estoppel in an action for a deficiency due after the foreclosure of a deed of trust cannot be sustained where they were not pleaded since they are affirmative defenses.
5. MORTGAGES: Foreclosure. In a suit for a deficiency due by a mortgagee after foreclosing the mortgage, where it was shown that the deed of trust was foreclosed as provided by its terms in accordance with the statutes, it was sufficient to prove a valid sale though the plaintiff did not introduce evidence of the proof of publication of the notice of foreclosure.
Appeal from Circuit Court of City of St. Louis. — Hon. Robert J. Kirkwood, Judge.
REVERSED AND REMANDED ( with directions).
Luther Ely Smith and Luther Ely Smith, Jr., for appellant.
(1) Plaintiff, as the holder of the notes secured by the deed of trust, is entitled, upon default and sale of the security, to a judgment against defendant, the maker of said notes, for the balance remaining due after the net proceeds of the sale have been credited on the notes. R.S. 1929, secs. 3063-3064; 3 Jones on Mortgages (8 Ed.), sec. 1583; Reed v. Inness, 102 S.W.2d 711; Masonic Home v. Windsor, 338 Mo. 877, 92 S.W.2d 713; Hewitt v. Price, 204 Mo. 31, 102 S.W. 647; Mercantile Co. v. Thurmond, 186 Mo. 410, 85 S.W. 333 (1905); Young v. Clifford, 61 Mo. App. 450. (2) Inadequacy of price, standing alone, unaccompanied by illegality, fraud or unfair dealing, does not constitute a defense to a suit for the balance due on the notes after crediting the debtor with the proceeds of the trustee's sale. Green Real Estate Co. v. Building Co., 196 Mo. 358, 93 S.W. 1111; Harlin v. Nation, 126 Mo. 97, 27 S.W. 330; Oakey v. Bond, 286 S.W. 27; Judah v. Pitts, 333 Mo. 301, 62 S.W.2d 715. (3) The price of $47,500 bid for the property by plaintiff was adequate. (a) Plaintiff bought the property subject to $45,528.32 in liens, making the cost of the property to plaintiff actually $93,028.32, instead of $47,500 or three-fourths of the estimated value of the property found by the trial court in its memorandum. Harlin v. Nation, 126 Mo. 97, 27 S.W. 330; Phillips v. Stewart, 59 Mo. 491; Keith v. Browning, 139 Mo. 190, 40 S.W. 764; Markwell v. Markwell, 157 Mo. 326, 57 S.W. 1078; Oakey v. Bond, 286 S.W. 27; Reed v. Inness, 102 S.W.2d 711; Masonic Home v. Windsor, 338 Mo. 887, 92 S.W.2d 713; Hewitt v. Price, 204 Mo. 31, 102 S.W. 647; St. Louis City Charter, Art. XXI, Sec. 8. (a) The sale price of $47,500 arrived at by competitive bidding on property subject to liens aggregating $45,528.32, is the only sound basis for valuing the property. (c) The actual facts and history of the property show that the estimates of defendant's witnesses as to the value of the property are excessive. Cole v. Prudential Ins. Co., 73 P.2d 120. (d) The statement of the trial court in its memorandum that plaintiff "has received or has in its possession property and money aggregating a minimum sum of $276,875," is misleading and inaccurate, and is a false basis upon which to ground a judgment. (4) The existence of an economic depression at the time of the trustee's sale is no defense to an action for the balance due on the notes. Lipscomb v. Ins. Co., 138 Mo. 17, 39 S.W. 465; Reed v. Inness, 102 S.W.2d 711; Peterson v. K.C. Life Ins. Co., 339 Mo. 700, 98 S.W.2d 770. (5) The action of the trial court in denying plaintiff recovery for the balance due on the notes, because of the depression and conditions arising therefrom, invades the province of the Legislature in violation of Article III and Section 1 of Article IV of the Constitution of Missouri, and deprives plaintiff of its property without due process of law in violation of Section 30 of Article II of the Constitution of Missouri. The power to alter or modify existing contracts, if it exists at all, is a legislative, not a judicial, power, and the Legislature is the sole judge of the necessity for such action. From 1933 to 1937 at least six bills designed to relieve debtors from the effects of the economic depression were introduced in the Missouri Legislature, none of which was passed; facts which this court will judicially notice. State ex rel. Karbe v. Bader, 336 Mo. 259, 78 S.W.2d 835; State ex rel. Tolerton v. Gordon, 236 Mo. 166, 139 S.W. 403; State v. Adams, 323 Mo. 729, 19 S.W.2d 671; Utz v. Dormann, 328 Mo. 258, 39 S.W.2d 1053; Journal of the Senate, 57th General Assembly 1933, pp. 249, 283, 356, 386, 422, 486, 661, 685, 697, 717, 780, 1372-1373; Journal of the House, 57th General Assembly 1933, pp. 76, 145, 191, 443, 547 and 644; Journal of the House, 58th General Assembly 1935, pp. 190, 232, 980; Journal of the House, 59th General Assembly 1937, pp. 336, 405, 474; R.S. 1929, secs. 3060-3077, art. II; Mo. Const. Art. III, Secs. 1, 30, Arts. II, IV; Peterson v. K.C. Life Ins. Co., 339 Mo. 700, 98 S.W.2d 770. (6) The trial court cites no Missouri authority, legislative or judicial, to justify its ruling denying judgment for plaintiff. The decisions which the trial court quoted in its memorandum, from Tennessee, New York and Wisconsin, do not support the judgment below. N.Y. Civil Practice Act, sec. 108; Drach v. Horing, 221 Wis. 575, 267 N.W. 291; Wohl v. H.W. S.M. Tulegrin, Inc., 222 Wis. 306, 267 N.W. 278. (7) The defendant, by declining to complete its contract of purchase and by refusing to accept plaintiff's offer, even after the trustee's sale, to convey the property back to defendant upon the sole condition that defendant carry out its original contract with plaintiff, has failed to do equity and consequently has no standing in a court of equity to assert an equitable defense and has no claim to equitable relief. Dobbins v. City Bond. Mtg. Co., 343 Mo. 1001, 124 S.W.2d 1111; Lipscomb v. Insurance Co., 138 Mo. 17, 39 S.W. 465; Pueblo Real Estate, Loan Inv. Co. v. Johnson, 342 Mo. 991, 119 S.W.2d 274; McNatt v. Maxwell Inv. Co., 330 Mo. 675, 50 S.W.2d 1040; Betzler Clark v. James, 227 Mo. 375, 126 S.W. 1007; Young v. K.C. Life Ins. Co., 329 Mo. 130, 43 S.W.2d 1048. And nothing in plaintiff's reply or petition precludes plaintiff from urging the force and effect of said tender. Huber Mfg. Co. v. Hunter, 87 Mo. App. 60; Blackman v. McAdams, 131 Mo. App. 410.
Lashly, Lashly, Miller Clifford, Jacob M. Lashly and Louis B. Sher for respondent.
(1) This court will affirm a judgment, order or decree appealed from where it is sustainable on any legal ground or theory disclosed by the record regardless of the ground or reason assigned by the trial court to be the basis of its ruling or action. Hinton v. McDowell, 199 S.W. 256; McEwen v. Sterling State Bank, 222 Mo. App. 660, 5 S.W.2d 702; Sessinghaus v. Knoche, 137 Mo. App. 323, 118 S.W. 104; Burman v. Vezeau, 231 Mo. App. 1109, 85 S.W.2d 217. (2) The evidence shows that plaintiff-appellant has waived or is estopped to assert any deficiency claim it may have originally had, if any, against defendant-respondent. Stuhlbarg et al. v. West Norwood B. L. Co., 60 Ohio App. 285, 20 N.E.2d 725; Witherell v. Kelly, 195 App. Div. 227, 187 N.Y.S. 43; Betchtel v. Baglieto, 13 Cal.App.2d 495, 57 P.2d 192; Bank of America Natl. Trust . Savs. v. Stotsky, 194 Wn. 246, 77 P.2d 990; Pfeiffer v. Mo. State Life Ins. Co., 177 Ark. 1013, 8 S.W.2d 505; Wyrick v. Cumberland Trust Co., 17 Tenn. App. 293, 66 S.W.2d 1045; Crawford v. Woodward, 191 So. 311; Fite v. Thweatt, 46 Ga. App. 82, 166 S.E. 682. (a) The defense of waiver or estoppel is available to defendant-respondent for the purpose of sustaining the judgment appealed from, even although defendant's amended answer does not specifically plead either of these defenses. And this is so, for the reason that plaintiff-appellant failed to make any objection in the trial court to the introduction of evidence showing waiver or estoppel grounded upon the theory that neither of these defenses was pleaded in defendant's amended answer. Cape Girardeau Term. Railroad Co. v. St. L. Gulf Ry. Co., 222 Mo. 461, 121 S.W. 300; Williams v. Everett, 200 S.W. 1045; Wilkinson v. Lieberman, 327 Mo. 420, 37 S.W.2d 533; Took v. Wells, 331 Mo. 249, 53 S.W.2d 389; St. Louis Perfection Tire Co. v. McKinney, 212 Mo. App. 335, 245 S.W. 1100; Spangler-Bowers v. Benton, 229 Mo. App. 919, 83 S.W.2d 170; Porter v. Equitable Life Assur. Soc., 71 S.W.2d 766; Colley v. Natl. Live Stock Ins. Co., 185 Mo. App. 616, 171 S.W. 663; Coleman v. Central Mut. Ins. Assn., 52 S.W.2d 22. (b) Affirmative pleading is unnecessary where (as here) facts constituting the defense of waiver or estoppel appear in plaintiff's case. Oneill v. St. Louis, 292 Mo. 656, 239 S.W. 94; Brown v. MacArthur Bros. Co., 236 Mo. 41, 139 S.W. 104; McKittrick v. Arkansas Mo. Power Co., 339 Mo. 15, 93 S.W.2d 893; Grafeman Dairy Co. v. Northwestern Bank, 315 Mo. 849, 288 S.W. 368; Ornellas v. Moynihan, 16 S.W.2d 1011. (c) The defense of waiver or estoppel is not open to the objection made by plaintiff-appellant, namely, that "even if plaintiff's president had stated that plaintiff would not collect the balance due on the notes, such a statement would have been without authority and without consideration, and would not be binding on plaintiff." Sparks v. Despatch Transfer Co., 104 Mo. 531, 15 S.W. 419; Bambrick v. Campbell, 37 Mo. App. 463; Bank of American Natl. Trust Savs. v. Stotsky, 194 Wn. 246, 77 P.2d 990; Davis v. Consolidated Coal Co., 41 Wn. 480, 84 P. 22; McDowell v. Fed. Land Bank, 156 Miss. 820, 127 So. 288; Christensen v. Hamilton Realty Co., 42 Utah, 70, 129 P. 412; Mitchell v. Deisch, 179 Ark. 831, 18 S.W.2d 369; Bloom v. Vehon Co., 341 Ill. 200, 173 N.E. 272. (3) Plaintiff-appellant was not and is not entitled to a deficiency judgment against defendant-respondent because appellant failed to prove a vital condition precedent to a deficiency judgment, namely, a prior valid foreclosure sale, or otherwise stated, that notice of the foreclosure sale was given in the manner prescribed by statute (R.S. 1929, sec. 3077, as amended by Laws 1931, p. 174), or as provided for in the deed of trust conferring power of sale upon the trustee named therein upon default of the debtor (defendant-respondent). No presumption of regularity prevails as to trustee's sales under powers granted by deeds of trust. R.S. 1929, secs. 3076, 3077, as amended Laws 1931, p. 174; Powers v. Kueckhoff, 41 Mo. 430; Snell v. Harrison, 104 Mo. 158, 16 S.W. 152; Hurst v. Trust Co. of St. Louis, 216 S.W. 959; Swearengin v. Swearengin, 202 S.W. 558; Winbigler v. Sherman, 175 Cal. 270, 165 P. 943; Pawlak v. Gruszecki, 124 Misc. 447, 208 N.Y.S. 409; Warren v. Virginia-Carolina Joint St. Land Bank, 214 N.C. 206, 198 S.E. 624; Scott v. Security Title Ins. Co., 9 Cal.2d 606, 72 P.2d 147; Reader v. Dist. Court, 94 P.2d 861; Sullivan v. Hardin, 102 S.W.2d 1113; Bingaman v. Securities Inv. Corp., 129 Neb. 788, 262 N.W. 859; Travelers Ins. Co. v. Herman, 154 Md. 171, 140 A. 69; Thomas v. Matthews, 94 Ohio St. 32, 113 N.E. 669.
This is an action for the balance due on three promissory notes originally secured by a deed of trust which had been foreclosed. The amount claimed, $32,840.13, is not in dispute. It is the deficiency or unpaid balance after crediting the notes with the net proceeds derived from the sale.
Plaintiff was the owner of a one-half city block of land in St. Louis on the north side of Chestnut Street extending from 19th Street to 20th Street. The land was vacant and unimproved. It was sold to defendant in September, 1927, for $200,000. The down payment was $25,000 cash and the balance was evidenced by notes due serially up to five years after the date of the sale, secured by a deed of trust on the land. Defendant failed to pay the two principal notes maturing on May 1 and November 1, 1932 for $25,000 and $50,000 respectively, and an interest note due on the latter date. It also defaulted in the payment of taxes. The property was foreclosed and plaintiff, the owner of the notes, bought in the property for $47,500, subject to liens for unpaid taxes.
The foreclosure sale was held in April, 1933. This suit was filed the following month. The principal defense pleaded by defendant was that it was unable to refinance its obligation because of the emergency existing in financial circles growing out of the business depression and, further, that the depression prevented competitive bidding at the sale of the property so that it was not sold at its true value. Defendant prayed that the cause be transferred to the equity side of the court and that the court credit the mortgage debt with the fair value of the premises. Evidence was introduced to show that the sum of $141,000 was the fair value. In its reply plaintiff offered to convey the property back to defendant upon payment of the balance due and reimbursement for the taxes paid.
The trial court found for defendant and dismissed plaintiff's action. In its memorandum the court found that because of the depression it would be inequitable to hold the price received at the foreclosure sale to be conclusive of defendant's liability. Plaintiff has appealed.
The evidence shows that respondent was one of the subsidiary corporations of the Frank estate. The Frank estate with its subsidiary and associate corporations owned a number of pieces of property. These properties were mortgaged. There were four or five pieces which were large properties. The conclusion is evident that one of the business pursuits of the Frank estate and its subsidiary and associate corporations was the buying and holding of real estate. At the time respondent purchased the land it lay across the street from property which was later taken by the city for the creation of Aloe Plaza, a small park in front of Union Station. The land involved here then became part of the business property which faces the entrance to the station. The purchase of unimproved, non-income paying real estate, as in this case, may well have been for the purpose of speculation. Had times been good this purchase may have proven a highly profitable venture.
Respondent argues that a court of equity has inherent power, without the aid of a statute, to credit on the mortgage debt the fair value of the premises where the mortgagee has acquired the premises at a foreclosure sale at a grossly inadequate price under depressed economic conditions.
In support of this contention respondent relies on the following cases which grew out of the depression: Better Plan Building Loan Assn. v. Holden, 114 N.J. Eq. 537, 169 A. 289 (1933; Court of Chancery, New Jersey); Union Joint Stock Land Bank v. Knox County, 20 Tenn. App. 273, 97 S.W.2d 842 (1936); Dry Dock Sav. Inst. v. Harriman Realty Corp., 150 Misc. 860, 270 N.Y.S. 428; 280 N.Y.S. 981 (1935; Sup. Ct. N.Y., Appellate Division); Stewart v. Eaton, 287 Mich. 466, 283 N.W. 651, l.c. 657 (1939); Suring State Bank v. Giese, 210 Wis. 489, 246 N.W. 556 (1933). The decisions in these cases are not apposite here either because the foreclosures involved were under decrees of courts of equity so that the relief asked was included within the power of the court to conduct its own sales or for the reason that special statutes gave the court power to grant such relief. One case turned on the ground of fraud and another on a jurisdictional question.
To invoke the aid of equity there must be fraud, unfair dealing or mistake in the trustee's sale. The fraud must be proved by proper evidence. Inadequacy of price may be considered in connection with other evidence but in the absence of fraud or unfair dealing it, in itself, is not usually a sufficient ground for setting aside a sale under a deed of trust. [Masonic Home of Mo. v. Windsor, 338 Mo. 877, 92 S.W.2d 713.] Where it is so gross and manifest as to shock the conscience of the court then it may become an evidence of fraud. [Holmes v. Fresh, 9 Mo. 201; McDonnell v. De Soto Savings Bldg. Assn., 195 Mo. 250, 75 S.W. 438; House v. Clarke (Mo.) 187 S.W. 57; Judah v. Pitts, 333 Mo. 301, 62 S.W.2d 715.]
This court has heretofore considered the same contention now made by respondent in the case of Hewitt v. Price, 204 Mo. 31, 102 S.W. 647. That was a suit for the deficiency after a sale under an ordinary deed of trust. We held that a chancellor had no power to fix a fair value on the land foreclosed and impose that amount as the purchase price, in order to fix the mortgagor's liability. Where the sale is fairly conducted the amount bid must stand. [See New York Store Merc. Co. v. Thurmond, 186 Mo. 410, 85 S.W. 336.] The Kansas City Court of Appeals has also considered the same argument and has held that so long as the sale stands the sum for which the property was sold was the basis for measuring the deficiency. [Reed v. Inness (Mo. App.), 102 S.W.2d 711.]
Where there is fraud or unfair dealing surrounding the sale, then the only course followed in this State is to set the sale aside altogether. [Stephenson v. Kilpatrick, 166 Mo. 252, 65 S.W. 773.] We have held that misfortune due to the monetary stringency of 1893 could not be made a source of equity jurisdiction. [Lipscomb v. New York Life Ins. Co., 138 Mo. 17, 39 S.W. 465.] We also decided that to foreclose during the depression was not a wrongful act. [Peterson v. Kansas City Life Ins. Co., 339 Mo. 700, 98 S.W.2d 770.]
The defaults of the respondent were the subject of much negotiation between the parties before the sale. The sale was fairly conducted. There were several bids. The price of $47,500 bid for the property was adequate, especially considering that the property was bought subject to liens for $45,528.32, making the cost to the appellant the total sum of $93,028.32. As purchaser it took the property subject to the liens. [Scott v. Shy, 53 Mo. 478.] The appellant has offered to return the property to respondent upon payment of the indebtedness. We find no evidence of fraud, misconduct or unfairness. In view of all the circumstances of this case, we hold that the respondent is not entitled to the aid of a court of equity. "However strongly our sympathies may be enlisted for the unfortunate victim of hard times, they cannot furnish a basis for equity jurisdiction, and such courts cannot and ought not to be made the instruments of speculation in the future values of property even for the benefit of the unfortunate." [Lipscomb v. New York Life Ins. Co., supra.] However we are conscious of the fact that under other circumstances a depression or a general financial collapse might well make a course of dealing unfair which under normal conditions would be fair.
Respondent argues that appellant has waived its right to assert a deficiency claim or is estopped from doing so.
It appears that beginning in April, 1932, there were conferences and correspondence, which continued up to the foreclosure, about respondent's defaults on the balance of the purchase price and taxes. The negotiations culminated in these letters.
Respondent wrote to appellant as follows:
"We have given continued and serious consideration to the subject, and find ourselves in no better position today, than when we last talked with you, to pay accrued taxes and interest.
"We appreciate profoundly your desire to continue title in us on the basis of our paying the taxes and interest, and regret beyond words that we find ourselves in the position not to accommodate your fair request.
"We would like to save you the cost and effort of foreclosing, and as previously stated will work with your worthy counsel, Mr. Luther Ely Smith for whom we have high esteem, in turning over Deed or any other papers he desires to facilitate transfer back to you.
"Holding ourselves in readiness to cooperate, and with personal regards from us all, beg to remain etc."
To this appellant answered:
"We feel that, under all the conditions prevailing, it is much better for us to take title to the property by foreclosure, and are therefore taking the necessary steps.
"We regret very much that you feel you are unable to retain this piece of property, as we have endeavored to make it as easy as possible.
"We also thank you for your offer of cooperation in our regaining the title."
The president of appellant company did testify that at the time of this exchange of letters he personally had no intention of seeking a deficiency judgment. He was asked: "Q. When did the idea of having a deficiency claim against this maker company occur to you?" He answered: "Not until after the sale. We didn't know how much the property was going to be sold for." It is self-evident that a deficiency could not be established until after the sale. When the deficiency was established appellant's board of directors had this proceeding commenced.
A waiver is an intentional relinquishment of a known right. Nowhere in the correspondence do we find the subject of a deficiency judgment even mentioned. The evidence does not show that it was discussed by the parties. There was no assurance or agreement that a deficiency judgment would not be sought. A waiver must be shown by some positive act or by some positive inaction inconsistent with the right in question. Mere silence, unless it is deceptive as where one is under a duty to speak, will not constitute a waiver. We find no waiver in this case. Nor is appellant estopped to assert its claim for a deficiency. The evidence does not show any admission, statement or act which is inconsistent with the claim it has asserted. The respondent was not induced to take any position to its injury.
The defenses of waiver and estoppel cannot be sustained for the additional reason that they were not pleaded. They are affirmative defenses and must be specially pleaded. [Neville v. D'Oench, 327 Mo. 34, 34 S.W.2d 491.] This general rule is applicable here because no waiver or estoppel is disclosed in appellant's own evidence.
Appellant did not introduce in evidence the proof of publication of the notice of foreclosure. It did, however, show that the deed of trust was foreclosed as provided by its terms which were in accordance with the statute. The evidence was sufficient to prove a valid sale.
In view of our rulings on the points discussed, it is unnecessary to consider the other matters presented.
The judgment dismissing plaintiff's petition is reversed and the cause remanded with directions to enter judgment as prayed. All concur.