U.S. Supreme Court RICHMOND MORTG. & LOAN CORP. V. WACHOVIA BANK & T. CO. , 300 U.S. 124 (1937)

300 U.S. 124

RICHMOND MORTGAGE & LOAN CORPORATIONv. WACHOVIA BANK & TRUST CO. et al.No. 235.

Argued Jan. 4, 1937.Decided Feb. 1, 1937.

Appeal from the Supreme Court of the State of North Carolina. [ Richmond Mortg. & Loan Corp. v. Wachovia Bank & T. Co. 300 U.S. 124 (1937) ]

[Page 300 U.S. 124 , 127]

trustee, becomes the purchaser for a sum less than the amount of the debt and afterwards brings an action for the deficiency, the defendant may show, by way of defense and set-off, that the property sold was fairly worth the amount of the debt or that the sum bid was substantially less than the true value of the property, and thus defeat the claim in whole or in part. The provision is copied in full in the margin. [Footnote 2]

[Page 300 U.S. 124 , 129]

enforcement of the obligation remains or is substituted for the one taken away. [Footnote 4] The matter in dispute is whether the questioned enactment falls beyond the boundary of permissible regulation of the remedy for enforcement of the appellant's contract.

[Page 300 U.S. 124 , 130]

the sum bid be inadequate so that consummation of the sale would be inequitable, the mortgagor may apply to the superior court for an order enjoining such consummation, and the judge may direct a resale by a trustee or by a commissioner appointed for the purpose, upon terms he may deem just and equitable. These sections modifying the procedure under a power of sale so as to assimilate it to the procedure in strict foreclosure, have been sustained as constitutional by the state Supreme Court. [Footnote 5] The section with which we are concerned adds that if the mortgagee becomes the purchaser at the trustee's sale, and afterwards brings an action at law for a deficiency, the jury shall determine the actual amount needed by him to make him whole for his debt by finding the true or fair value of the property at the date of sale, the judgment being for the difference between that value and the amount of the debt remaining unpaid, or, if the value found equals the amount of the debt, for the defendant. The statute has no application if the purchaser at the trustee's sale be other than the mortgagee. The act alters and modifies one of the existing remedies for realization of the value of the security, but cannot fairly be said to do more than restrict the mortgagee to that for which he contracted, namely, payment in full. It recognizes the obligation of his contract and his right to its full enforcement but limits that right so as to prevent his obtaining more than his due. By the old and well-known remedy of foreclosure a mortgagee was so limited because of the chancellor's control of the proceeding. That proceeding, as has been said, has always been available to the mortgagee in North Carolina. Granting that by the alternative remedy of trustee's sale the mortgagee

[Page 300 U.S. 124 , 131]

might perchance obtain something more, or might obtain only that which was his due somewhat more expeditiously, than he could in chancery, it remains that the procedure to foreclose in equity is, and has been, the classical method of realization upon mortgage security and has always been understood to be fair to both parties to the contract and to afford an adequate remedy to the mortgagee. If, therefore, the Legislature of the state had elected altogether to abolish the remedy by trustee's sale, we could not say that it had not left the mortgagee an adequate remedy for the enforcement of his contract. But the Legislature has by no means gone so far. The law has merely restricted the exercise of the contractual remedy to provide a procedure which, to some extent, renders the remedy by a trustee's sale consistent with that in equity. This does not impair the obligation of the contract.

The judgment is affirmed. Footnotes

Footnote 1 210 N.C. 29, 185 S.E. 482.

Footnote 2 Section 3 of chapter 275, of the Public Laws of 1933:'When any sale of real estate or personal property has been made by a mortgagee, trustee, or other person authorized to make the same, at which the mortgagee, payee or other holder of the obligation thereby secured becomes the purchaser and takes title either directly or indirectly, and thereafter such mortgagee, payee or other holder of the secured obligation, as aforesaid, shall sue for and undertake to recover a deficiency judgment against the mortgagor, trustor or other maker of any such obligation whose property has been so purchased, it shall be competent and lawful for the defendant against whom such deficiency judgment is sought to allege and show as matter of defense and off-set, but not by way of counterclaim, that the property sold was fairly worth the amount of the debt secured by it at the time and place of sale or that the amount bid was substantially less than its true value, and, upon such showing, to defeat or off-set any deficiency judgment against him, either in whole or in part; Provided, this section shall not affect nor apply to the rights of other purchasers or of innocent third parties, nor shall it be held to affect or defeat the negotiability of any note, bond or other obligation secured by such mortgage, deed of trust or other instrument; Provided, further, this section shall not apply to foreclosure sales made pursuant to an order or decree of court nor to any judgment sought or rendered in any foreclosure suit nor to any sale heretofore made and confirmed.'

Footnote 3 Worthen Co. ex rel. Board of Com'rs v. Kavanaugh, 295 U.S. 56, 55 S. Ct. 555, 97 A.L.R. 905, and cases cited.

Footnote 4 Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 434, 238, 88 A.L.R. 1481, and cases cited, note 13.

Footnote 5 Woltz v. Deposit Co., 206 N.C. 239, 173 S.E. 587; Hopkins v. Swain, 206 N.C. 439, 174 S.E. 409; Miller v. Shore, 206 N.C. 732, 175 S.E. 133; Barringer v. Trust Co., 207 N.C. 505, 177 S.E. 795.