HAWKINS, PRESIDING JUSTICE, FOR THE COURT:
Tom D. Wansley and Julian E. Wansley have appealed a decree of the chancery court of Sharkey County confirming foreclosure sales of realty under deeds of trust executed in favor of First National Bank of Vicksburg, and entering deficiency judgment against them in favor of the Bank on its counterclaim.
The issue we address on this appeal is the propriety of the Bank purchasing at the foreclosure sale when the trustee was a large shareholder in the Bank, on its board of directors, and its general counsel. We hold the failure of the Bank to appoint a disinterested trustee rendered the sale voidable, and reverse the decree of the chancery court dismissing the complaint. With the exception of the parties in this case, our holding is prospective.
Tom D. Wansley and his brother Julian E. Wansley owned
4,200 acres of realty in Sharkey County. They divided their farming operations, each independently farming one half of the land. Tom and his wife Mary Ann executed deeds of trust in favor of the Bank covering Tom's undivided one-half interest in the realty, and Julian and his wife Mary Frances executed deeds of trust in favor of the Bank covering Julian's undivided one-half interest.
On February 25, 1982, Tom and Mary Ann executed a deed of trust to John C. Wheeless, Jr., as trustee, to secure an indebtedness to the Bank of $620,000, and on April 22, 1983, Julian and Mary Frances executed a deed of trust to Wheeless as trustee to secure an indebtedness to the Bank of $850,000.
Both Julian and Tom defaulted and the Bank directed Wheeless, as trustee, to foreclose. The interest of Tom's and Julian's was each sold at public auction on March 29, 1985, and the Bank being the highest bidder, on April 1, 1985, the trustee executed trustee's deeds to the Bank for the respective interests of Tom and Julian.
Thereafter the Wansleys filed a complaint in the chancery court of Sharkey County to cancel and set aside the trustee's deeds.
The Bank counterclaimed seeking deficiency judgments against the Wansleys for the difference between the price bid at the sale and the amounts of each of the indebtednesses.
John C. Wheeless, Jr., the attorney who acted as trustee in the foreclosures, was general counsel for the Bank. He was also on the Bank's board of directors. Although his stock ownership was not shown of record, Mr. Wheeless freely acknowledged that he was "one of the largest" shareholders on the board.
Following a hearing the chancellor dismissed the complaint, but found for the Bank on its counterclaim, entering judgment against Tom and Mary Ann for $493,294, and against Julian and Mary Frances for $230,030.
The Wansleys have appealed.
When the trustee in a deed of trust has a substantial financial interest in the beneficiary Bank, is it permissible for the Bank to purchase at a foreclosure sale conducted by the trustee?
The law is well settled that the mortgagee cannot directly or indirectly purchase at a sale under his own mortgage, without the consent of the mortgagor. Houston v. National Mut. Building & Loan Ass'n., 80 Miss. 31, 31 So. 540, 92 Am. St. Rep. (1902); Byrd v. Clark, 52 Miss. 623 (1876). "It is bottomed on the fundamental principal that no man shall be placed in a position where there shall arise a conflict between interest and integrity." And, "It is not necessary, in order to avoid the sale, to show that there ...