Case ID: nc_204/html/0599-01.html
Source: Caselaw Access Project
Author: {"author": "\n      OlaeksoN, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

FIRST NATIONAL BANK OF DURHAM, Trustee (JEFFERSON E. OWENS, Substituted Trustee), v. ALEX. THOMAS and Wife, ROMA THOMAS, and I. W. WOOLLEY and Wife, ELLIE WOOLLEY.
    (Filed 3 May, 1933.)
    Parties A a — Trustee may not bring action for reformation of deed of trust -without joinder of holders of notes secured thereby.
    An action for the reformation of a deed of trust for mutual mistake of the parties in the stipulation of the amount of the indebtedness may not be maintained by the trustee without the joinder of the holders of the mortgage notes, the notes being made payable to bearer and being negotiable, C. S., 2976, 29S2, and in an action brought by the trustee alono the defendant’s demurrer ore tonus on the ground that plaintiff was not the real party in interest, C. S., 446, 511, should have been sustained, and the provisions of O. S., 449, do not alter this result, the statute not being applicable to the facts of the case.
    Appeal by defendants I. W. Woolley and wife, Ellie Woolley, from Coiuper, Special Judge, at Special September Term, 1932, of Meck-lenburg.
    Error.
    We tliink tliat for the determination of tbe present appeal the prayer of plaintiff sufficiently sets forth the facts: “The plaintiff prays the court that it receive affirmative relief to the effect that the said deed of trust to. it as trustee and recorded in said registry in Book 738, page 74, be reformed and corrected so that the sum of $3,000 be inserted therein in place of the figure $2,000, that the figure of $34.50 be substituted thereon for the figure of $24.00 showing the monthly payments to be made upon such loan and indebtedness and that the figure of $45.00 be substituted therein for the figure $30.00 showing the amount of each of the eight short term notes described in said deed of trust, and for such further relief as to the court may seem just, fair and equitable, and that the costs of this action be paid by the defendants as assessed by the clerk.”
    The pertinent parts of the deed in trust are as follows: “That whereas, the parties of the first part are the owners of the land and premises hereinafter described and have decided and determined to create the indebtedness hereinafter referred to and have executed a certain promissory negotiable long term first mortgage note in the principal sum of $2,000, payable 12% years after date and bearing interest at the rate of six per cent per annum, said interest beginning two years after date and payable semiannually and continuing until the said long term first mortgage note is fully paid; and eight short term mortgage notes in the amount of $30.00 each, and payable respectively three, six, nine, twelve, fifteen, eighteen, twenty-one and twenty-four months after date, bearing no interest until after maturity; said long term first mortgage note and the said short term first mortgage notes all being 'payable to bearer at the First National Bank in the city of Durham, North Carolina, and being secured without priority or distinction except as hereinafter expressly provided by this deed of trust upon the land and premises hereinafter described :
    And whereas, the said parties of the first part are desirous of securing and have determined to secure the prompt payment of the principal and interest of said notes by executing and delivering to the trustee, herein-before named, this deed of trust conveying to said trustee all of the property hereinafter described, . . . but in trust nevertheless for the following uses and purposes, to wit: (1) To secure the full, true, complete and final payment of the long term first mortgage note hereinbefore described aggregating the principal sum of two thousand and no/100 dollars ($2,000) and the semiannual interest thereon, and also the eight short term first mortgage notes,” etc.
    The defendants, I. W. Woolley and wife, Elbe Woolley, appellants, demurred ore tenus to the complaint on the ground of defect of parties plaintiffs.
    
      Scarborough & Boyd and Fred H. Hasty for plaintiff.
    
    
      William Milton Hood for defendants I. W. Woolley and wife, Ellie Woolley.
    
   OlaeksoN, J.

Tbe question of law involved: Did the court below err in overruling defendants’ I. W. "Woolley and wife, Ellie Woolley’s demurrer ore tenus to the plaintiffs’ complaint? We think so.

C. S., 446, in part, is as follows: “Every action must be prosecuted in the name of the real party in interest, except as otherwise provided,” etc.

C. S., 511: “The defendant may demur to the complaint when it appears upon the face thereof, either that: . . . (2) The plaintiff has not legal capacity to sue. . . . (4) There is a defect of parties plaintiff or defendant.”

In Fishell v. Evans, 193 N. C., 660, 662, we find: “ Where a bill or note is made payable to several persons, or is endorsed or assigned to several, they are joint holders and must sue jointly as such.’ 8 C. J., 846. In Sneed v. Mitchell, 2 N. C., 292, it is said: 'The reason why a contract made with several persons jointly must be sued by all is because if they were to sue severally they could recover only their several proportions; no one could recover all to the exclusion of the others; and if each could recover only his proportion, then the defendant upon one contract would be subject to as many suits as there were persons with whom he made it. If one might sue alone, by the same reason, each of them might sue alone. All this mischief is avoided by one joint action brought by all.’ ” Plotkin v. Bank, 188 N. c., 711; 10 R. C. L., at p. 298, part sec. 42, is as follows: “One of the most common classes of cases in which relief is sought in equity, on account of mistake, is that of written agreements, either executed or executory. In all such cases, if the mistake is mutual and is clearly made out by proofs entirely satisfactory, relief may be obtained therefrom in equity by reformation, or rescission.”

This is an equitable action brought by a substituted trustee, alleging that there rvas a mutual mistake and the deed of trust was written $2,000 and should have been $3,000, and made to secure a $3,000 note and certain other notes, and prays for reformation and correction. Suppose that the substituted trustee loses, if the note was made for $3,000, would this bind the holder of the $3,000 note, who is not a party to this action, or the other holders of the smaller notes? We think not. The notes are to bearer, and, therefore, negotiable. C. S., 2976, C. S., 2982. The holders are necessary parties.

In Guy v. Harmon, ante, at p. 227, it is written: “The minor owners of the land were not made parties to the suit unless newspaper publication be sufficient for such purpose. Foreclosure is an equitable proceeding and the law as interpreted and applied in this State, has uniformly commanded a day in court for parties in interest, Gammon v. Johnson, 126 N. C., 64, 35 S. E., 185; Jones v. Williams, 155 N. C., 179, 71 S. E., 222; Madison County v. Coxe, ante, 58. Indeed, this Court in Hines v. Williams, 198 N. C., 420, 152 S. E., 39, in approving a judgment divesting tbe interest of minors in a tax foreclosure, declared: ‘It appears that tbe infant defendants and all persons baying a vested or contingent interest in tbe land bave bad tbeir day in court!’ ”

It bas long been tbe usual practice and settled law tbat actions must be prosecuted and defended by tbe real parties in interest. Notice is due process and fundamental in principle.

But plaintiff relies on C. S., 449, wbicb reads as follows: “An executor or administrator, a trustee of an express trust, or a person expressly authorized by statute, may sue without joining with him tbe person for whose benefit tbe action is prosecuted. A trustee of an express trust, within tbe meaning of this section, includes a person with whom, or in whose name, a contract is made for tbe benefit of another.”

Tbe cases relied on by tbe plaintiff are not applicable to tbe facts in tbe present action. In Mebane v. Mebane, 66 N. C., 334: “Tbe plaintiff declared upon a promissory note given by the defendants and made payable to ‘Susan Mebane, guardian of E. S. Mebane.’ Tbe said note was delivered to tbe said E. S. Mebane and her husband, upon tbeir marriage, in settlement of tbe guardian account and without endorsement. Suit was brought in tbe name of tbe guardian, to tbe use of tbe owners of said note — tbe husband and wife. . . . (p. 335.) Certainly a guardian who takes a note payable to himself and describing himself as guardian, is trustee of an express trust within tbe very words of this section.” Biggs v. Williams, 66 N. C., 427; Jones v. McKinnon, 87 N. C., 294. Tbe matter is discussed fully in Martin v. Mash, 158 N. C., 436. Sheppard v. Jackson, 198 N. C., 627.

In Barbee v. Penny, 172 N. C., 653, tbe matter is thoroughly discussed (and C. S., 449, supra, is construed). At pp. 657-8, we find: “ ‘Trustees and cestuis que trustent are tbe owners of tbe whole interest in tbe trust estate; and, therefore, in suits in equity in relation to tbe estate by or against strangers both tbe trustee and cestuis que iruslent must be parties representing tbat interest.’ Perry on Trusts (5 ed.), sec. 873. In a case substantially like this in principle, it being a suit by a trustee to remove a cloud from tbe title, tbe Court said: ‘It is presented as fundamental error tbat Mrs. Rice and her children'were necessary parties to the suit by tbe trustee. It is a general and well established rule tbat in suits by or against a trustee for tbe recovery or defense of property tbe beneficiaries are necessary parties. There are exceptions to this rule, as where the number of tbe beneficiaries would render it inconvenient to make them parties and where it may be presumed tbat it was tbe intention to invest tbe trustee with power to prosecute or defend suits in bis own name. This case does not come within tbe exceptions. Tbe deed does not clothe the trustee with authority to prosecute or defend suits for the property and the circumstances do not raise a presumption that it was intended to give him such power. This was a proceeding in equity to cancel certain transfers and enforce a trust, and a chancery court will not entertain a bill unless all the parties in interest are before it. This is a wise and salutary rule, for, without it, the trustee might by collusion, through the medium of a court, deprive the beneficiaries of the trust of valuable rights, when, if notified of the suit, they might protect themselves.’ Monday v. Vance, 32 S. W., 559, citing authorities. ‘The general rule in cases of this sort is that in suits, respecting the trust property, brought either by or against the trustees, the cestuis que trustent, or beneficiaries as well as the trustees also, are necessary parties. And when the suit is by or against the cestuis que■ trustent, or beneficiaries, the trustees are also necessary parties; and trustees have the legal interest, and, therefore, they are necessary parties; the cestuis que trustent, or beneficiaries, have the equitable and ultimate interest, to be affected by the decree, and, therefore, they are necessary parties,’ ” citing a wealth of authorities.

For the reasons given, the demurrer ore tenus made by appellants should have been sustained. It is not necessary for us to consider the other questions involved. In the judgment of the court below there is

Error.