Pledge, Sale on default. Equity Jurisdiction, To redeem from sale of personal property by pledgee.
In a suit in equity by a corporation to set aside a sale by the defendant on default of bonds of the plaintiff of the face value of $1,500 pledged to the defendant to secure the payment of a note of the plaintiff for that amount, it appeared that by the terms of the note the defendant was authorized to sell the bonds, "either at public or private sale," or otherwise at his option on the non-payment of the note, and to purchase at any such sale, that the defendant had recovered judgment against the plaintiff in an action on the note, and thereafter had sold the bonds held as collateral at public auction and bought them himself for $15. The plaintiff contended that the sale was not made in good faith. There was evidence on which it could be found that demand had been made for the payment of the note before its maturity and that the defendant then was informed by the plaintiff, that it would be unable to take care of its note by reason of the foreclosure of its property by the trustees under the mortgage securing its bonds, that the bonds held as collateral were retained by the defendant until more than a year after the maturity of the note, that notice in writing was given to the plaintiff of the time and place of the sale of the bonds, which was to be held two months after the notice, that no reply to this notice was received and no effort was made by the plaintiff to protect its interests, that the defendant endeavored before the sale, but without success, to get an offer for or quotation on the bonds, and that he gave notice of the sale to several persons who he thought might be interested, including one of the trustees who were in possession of the plaintiff's property under the foreclosure. There was nothing to show that there was any market value of the bonds. No place of sale was specified in the note and the bonds were sold at the defendant's office in a town near Boston. There was no newspaper advertisement of 'the sale and only one person other than the defendant and the auctioneer was present thereat. The trial judge found that the sale was made in good faith without intention to take advantage of the plaintiff and in the exercise of reasonable care, and made a decree dismissing the bill. On appeal it was held that the findings of the judge were warranted by the evidence and were not plainly wrong.
RUGG, C. J.
This is a suit in equity whereby the plaintiff seeks to set aside the sale of certain bonds formerly held by the defendant as collateral security for a note of the plaintiff and to redeem the bonds. The defendant owned a note of the plaintiff for $1,500, which fell due on or about June 25, 1915. He held as collateral security for the note bonds of the plaintiff of the face value of $1,500, which were secured by a mortgage indenture upon real estate. According to the terms of the note, the defendant was authorized to sell the bonds "either at public or private sale," or otherwise, at his option on the non-payment of the note, and to purchase at any such sale.
On or about April 10, 1915, more than two months before the maturity of the defendant's note, the plaintiff having failed to pay coupons upon its bonds, the trustees under the indenture took possession of the real estate and other property of the plaintiff and conducted its business until January 5, 1918; and on October 6, 1915, the defendant brought suit on his note, and the defendant therein, the plaintiff here, although entering an appearance, made no contest as to its liability and the defendant recovered judgment accordingly. The bonds held as collateral were sold by the defendant at public auction on July 31, 1916, and were bought by him for $15. The plaintiff contends that this sale ought to be set aside because it alleges that it was a mere device and pretence and not conducted in good faith and hence not valid.
The case was heard by a judge of the Superior Court, who found that the sale was made in good faith without intent to take advantage, after careful and ample notice to the plaintiff of the time and place of sale, with due solemnity by a licensed auctioneer, and in the exercise of reasonable care. A decree was entered dismissing the bill.
The familiar rule is that upon an appeal in equity it is the duty of this court to examine the evidence and decide the case according to their judgment, giving due weight to the findings made, but that, since the trial court has had the advantage of seeing the witnesses and weighing their testimony in the light of their appearance, his finding will not be reversed unless plainly wrong. Lindsey v. Bird, 193 Mass. 200. A mortgagee, lienor or holder of collateral in making sale of security under a power is bound to exercise good faith and reasonable diligence in an effort to secure a fair price for the property and thus not only to assure his own rights but also to protect the interests of those whose claims are subsidiary or junior to his own. Bon v. Graves, 216 Mass. 440,446.
There was evidence tending to show that demand was made for the payment of the note before its maturity and the defendant was advised by the plaintiff that it would be unable to take care of the note by reason of the foreclosure by the trustees under the mortgage. There was some correspondence between the parties at about the time of the action and judgment on the note. The collateral was not sold until more than a year after the maturity of the note. On June 1, 1916, written notice was given to the plaintiff of the time and place of the sale, which was not to take place until July 31 following, substantially two months later. No reply was made to this notice and no effort was made by the plaintiff to protect its interests. The defendant endeavored before the sale, through two brokers engaged partly at least in dealing in such securities, to get an offer or quotation on the bonds, but without success. He gave notice of the sale to several people whom he thought might be interested, including one of the trustees in possession of the plaintiff's property. Whatever may have been the ultimate value of the property secured by the bonds, there is nothing to show that there was any general market for the bonds. The property was in the hands of trustees under a mortgage indenture. The value of the property and its prospects of future success in the nature of things were extremely uncertain. The facts that the bonds were sold at the defendant's office in a town near Boston instead of through stockbrokers, and that there was no newspaper advertisement of the sale, and that there was only one person present other than the defendant and the auctioneer, in connection with all the other circumstances, are not enough to require a finding of want of good faith or of reasonable prudence in conducting the sale. Mere inadequacy of price is not enough to set aside a foreclosure sale. The place of sale was not specified in the agreement, and that it was not in Boston cannot be said of itself to be conclusive of bad faith or want of prudence. The evidence need not be recited in further detail. The findings of the judge are supported by the testimony and are not plainly wrong. The case is governed in principle by Jennings v. Moore, 189 Mass. 197, Guinzburg v. H. W. Downs Co. 165 Mass. 467, Farmers National Bank of Annapolis v. Venner, 192 Mass. 531.
In view of the conclusion here reached, the defendant does not insist upon his exceptions but waives them.
Decree affirmed with costs of appeal. Defendant's exceptions waived.