Patterson v. Rabb

The opinion of the court was delivered by Mr. Justice Pope. Mary Regina Holley, by her deed dated the 18th day of December, 1867, conveyed a tract of land, containing 412 acres, situated in Fairfield County, in this State, to Thomas W. Rabb, in trust for his wife Cassandra during her life, and at her death to be delivered to such issue as the said Cassandra may have living at her death, to be held by such issue absolutely and discharged from all further trust. Under such deed said lands were taken possession of by such trustee. This deed was duly recorded, and contained a power to the trustee to make any changes of investment of such trust estate as he may think proper, after the written consent therefor of the said Cassandra, such changes of investment to be subject to the same trusts as original tract of land conveyed. On the 20th day of February, 1877, the said Thomas W. Rabb, as trustee, with the written consent therefor of the said Cassandra, conveyed the tract of land in question, and for $1,600 paid and secured to be paid as the consideration, unto David R. Flenniken in fee simple, alleging in said deed that the same was made in pursuance of the power in the deed made by Mrs. Holley. This deed and the written consent of Cassandra, the wife of the trustee Rabb, were duly recorded, and the said David R. Flenniken went into possession of said lands. — 142 — On the 27th day of December, 1879, David R. Flenniken, by his deed therefor, conveyed said lands to Wade Pickett in fee simple for $2,500. This snm of $2,500 was secured to be paid by Wade Pickett, by his bond payable to Flenniken, in the penal sum of $5,000, conditioned to pay the said $2,500 in five equal instalments, and by a mortgage of the premises. Both the deed and the mortgage were duly recorded. On the 1st January, 1880, this bond and mortgage, for value, were assigned to Giles J. Patterson. On the 4th day of February, 1881, Wade Pickett, conceiving his inability to pay his bond for the purchase money, reconveyed, by his deed therefor, the tract of land to David R. Flenniken in fee simple. On the 23d day of July, 1884, Cassandra H. Rabb, as plaintiff, exhibited her complaint in the Court of Common Pleas for Fairfield County against David R. Flenniken and Thomas • W. Rabb, as trustee, as defendants, to set aside the deed made by Thomas W. Rabb, as trustee, to David R. Flenniken, on the 20th February, 1877, on the ground that her trustee had thereby and therein been guilty of a breach of trust, with a fraudulent intent, participated in, if not contrived, by the said David R. Flenniken. A notice of lis pendens was duly filed in the office of the Clerk of Circuit Court for Fairfield County, on the 20th day of July, 1884. On the 5th day of December, 1885, the said David R. Flenniken, in view of his insolvency, by deed conveyed his whole estate, including expressly this tract of land, to James A. Brice, for the benefit of his creditors. On the 27th January, 1887, Giles J. Patterson, as jfiaintiff, began his action to foreclose the mortgage assigned to him by Flenniken, against James A. Brice, as assignee of the estate of David R. Flenniken, as defendant, on which judgment of foreclosure was rendered on the 13th June, 1887, and lands ordered sold on the first Monday in October, 1887, and at such sale on that date were bought by the plaintiff, Giles J. Patterson, for the sum of $550. At this sale notice was given publicly that Mrs. Cassandra Rabb owned the land. Deed • was made by clerk of court to Patterson, and he went into possession of the land immediately thereafter. — 143 — On 20th day of February, 1890, the judgment of the Supreme Court was handed down in the action of Cassandra-Rabb against David R. Fienniken and Thomas W. Rabb, trustee, whereby it was held that the sale by Rabb, as trustee, to Fienniken, was unauthorized, being in breach of duty, and that Fienniken should hold the said lands as a trustee, subject to all the trusts and limitations of the deed from Mary Regina Holley to Thomas W. Rabb, trustee, until such time as the court should thereafter appoint a person trustee for Mrs. Rabb and her children; and that when such new trustee was appointed, Fienniken should convey said lands to the newly appointed trustee, under the order of court therefor. See 29 S. C., 278; 32 S. C., 194. On the 26th day of March, 1890, by the decretal order of Judge Norton, Edwin J. Rabb was appointed the new trustee, in lieu of Thomas J. Rabb, and David R. Fienniken was ordered to convey by deed the said lands to such new trustee, upon the same trusts and limitations that are set up in the original deed of trust from Mrs. Holley. And that when the deed was executed, the sheriff of Fairfield County should put the said Edwin J. Rabb, or his authorized agent, in possession of said lands, against the said Fienniken, “or any one else who may have come into possession of the same” since the 20th July, 1884, when the lis pendens was filed. David R. Fienniken made the deed referred to on 1st April, 1890, and on 12th July, 1890, the sheriff of Fairfield County, H. Y. Milling, was called upon to execute the order of Judge Norton. His deputy had left his office for this purpose, and had ejected Giles J. Patterson, through his tenant then in possession, before such deputy knew that this present action was begun. The present conflict was thus begun, and, as must be apparent, is one of interest. On 12th July, 1890, Giles J. Patterson, as. plaintiff, against the defendants (who are here as appellants), in his complaint sets out such of the foregoing facts as he conceived sustained his right to procure a judgment restraining any and all persons who claim through, or act for, Cassandra H. and Edwin J. Rabb, as trustee, from any interference with his possession of the tract of land in question. Such plaintiff claims that when he received — 144 — the bond and mortgage executed by Wade Pickett to David R. Flenniken, be paid the full marketable value therefor, without any notice whatsoever of any adverse claims thereto by any one else; that he caused the offices at Winnsboro to be searched by an attorney, and was assured by such attorney that Flenniken’s title and Pickett’s title to the land was good; that he is, and was from the 1st January, 1880, entitled to the protection of a purchaser for valuable consideration without notice, as the assignee of the aforesaid mortgage; that he was not a party to the suit of Cassandra Rabb against Flenniken, and had no information or notice of any claims set up by her in her said suit until after the assignment of Flenniken in December, 1885; that in October, 1887, when he purchased' said lands at foreclosure sale, he was notified of Mrs. Rabb’s rights therein. On the same day (12th July, 1890,) Judge Witherspoon granted an order of restraint against any of the parties interfering with Giles J. Patterson’s possession of the land until the case should be heard upon the merits. The answer of the defendants deny that Patterson is entitled to be considered as holding the bond and mortgage of Pickett, by assignment of Flenniken as the assignee, by purchase thereof for full value without notice, and that the doctrine in equity of innocent purchaser for a valuable consideration without notice, cannot be maintained by the said Patterson, because he is merely the holder of a chose in action, which, under the laws of this State, is unnegotiable, being under seal; and, therefore, his rights under his holding are only such as his assignor, Flenniken, held, and that Flenniken, as the obligee in the bond of Pickett to him, held said bond in fraud of the trust estate created by the deed of Mrs. Holley in 1867, of which he had full notice. Besides this, the defendants claim that Patterson ought not to be considered as having the right to maintain his present suit, because of the Us pendens, filed on the 20th July, 1884, as required by law. The testimony was taken by Mr. McCants as special master. In addition to the records and deeds hereinbefore indicated, it was established by the testimony of Flenniken himself, that when in 1877 he received the deed for this land from Thomas — 145 — W. Rabb, as trustee, the $1,600 purchase money was paid by him in Rabb’s individual debt, by note of $425, and the balance was paid in supplies and cash, furnished by-Flenniken to Rabb. The cause was heard by Judge Fraser, and by his decree he sustained the equity of Patterson, to have the mortgage of which he was the assignee considered as held by him as a purchaser for a valuable consideration without notice, and superior to the equities of the trust estate. Giles J. Patterson having died pending the hearing before Judge Fraser, by consent an order was made on 7th January, 1892, substituting his widow, Mrs. M. Virginia Patterson, as trustee for herself and children as plaintiff. The defendants appeal from the order of Judge Witherspoon of 12th July, 1890, and from the decree of Judge Fraser. As these two sets of exceptions will be set out in the report of the case, we will not reproduce them here. 1 We will consider the exceptions to Judge Witherspoon’s order. These exceptions, three in number, cannot be sustained. Under the view we take of this case, Giles J. Patterson being in possession of the lands in question, and deriving his rights to such possession under an instrument executed prior to the suit of Mrs. Cassaudra H. Rabb, to which suit he was not a party, he was not bound by the decree in this last cause. It was necessary that the rights of the respective parties to the present cause should be passed upon by the courts, and under such circumstances the status quo of the parties should have been preserved pending such decision of the antagonistic claims to the land held by the parties to this controversy. This was covered by the order of Judge Wither-spoon, and no more. Let these exceptions be overruled. 2 We will next, consider the exceptions to the decree of Judge Fraser. Inadvertently, no doubt, by his decree Judge Fraser gives ftre appellants ground to complain by his finding as a fact that Mrs. Cassandra H. Rabb was implicated in the breach of trust committed by David R. Flenniken and Thomas W. Rabb. There was no testimony to this effect, and, therefore, the exception numbered 6, relating to this matter, is sustained. — 146 — The remaining six exceptions may be so grouped as to be considered together, for they all relate to conclusions of the Circuit Judge in the matter of the equities of Patterson, growing out of the bond and mortgage assigned to him on 1st January, 1880, by Flenniken. Injustice to the learned judge, we will reproduce a part of his decree relating to this subject: “The main question which arises on this state of facts is whether the plaintiff is entitled to protection as a bona fide purchaser for valuable consideration without notice, and if so, to what extent. I will not attempt to follow counsel through the elaborate and interesting review of the authorities. I will state my conclusions briefly, as well as my reasons for them. In Haynsworth v. Bischoff, 6 S. C., 159, it was held that a mortgage of lands is within the rule which protects a purchaser for valuable consideration without notice. In reference to the rights of an assignee of a mortgage, I find this laid down in Leading Cases in Equity, vol 2, part 1: ‘In Mott v. Clark, the mortgagee had notice at the time of taking the mortgage that the mortgagor was a mere trustee for the defendants, and the question was whether the subsequent assignment of the mortgage without notice for valuable consideration invested the assignee with the rights of a purchaser, and entitled him to a recovery against the defendants. And it was held by the court that, although a mortgage might be so far considered a mere chose in action or security for the debt as to be discharged by equities between the mortgagor and mortgagee, against which the assignee might protect himself by making inquiry of the former at the time of the assignment, yet that with regard to the equities of third persons the case was different, and an assignment for value was to be regarded as a purchase, and it was consequently decided that the mortgage was good in the hands of the assignee, not only against the equities of the-defendants, which bound it in the hands of the assignor, but against a deed from the mortgagor to the defendants, and which the latter had neglected to put on record’ [italics ours]. In Leading Cases in Equity, vol. 2, part 2, at page 240, it is said, that ‘this doctrine in Mott v. Clark and other cases, accords with the doctrine in Livingston v. Dean and Murray v. Lyburn, laid down by Chancellor Kent; — 147 — and must be regarded as law, notwithstanding the more recent cases in New York the other way.’' “In this State, a mortgage is a mere security for a debt, and the case or Haynsworth v. Bischoff, supra, in which it is held that a mortgagee is a purchaser for valuable consideration without notice, and is within the rule, effectually settles the question as to whether in this State a mortgagee should have the legal title, as in some States he has, in order to entitle him to that protection which equity gives to an innocent purchaser without notice. An innocent assignee has all his rights. In Maybin v. Kirby, 4 Rich. Eq., 105, the contest was between several assignees of the stock of an incorporated manufacturing company. The case was decided according to the well known principles as in those cases in which this doctrine applies, and there was no case of a want of notice made out. I think that the statement that a chose in action is not within the rule, is a mere dictum, and must be regarded as not law, after Haynsworth v. Bischoff, supra. I, therefore, hold that, to the extent of the mortgage, the plaintiff’s title was good, and that he has a right to the possession of the premises bought under his foreclosure proceedings, and that he cannot be turned out of possession under any proceedings to which he was not a party.” 3 There is no longer any room to doubt that, in view of the .repeated adjudications in this State, a mortgage is only to be regarded as a mere security for a debt. Care must always be taken to remember that a bond, or note, or mortgage (when the last describes the indebtedness), is not the debt; these, respectively, are merely evidences of the debt. It sometimes happens that the bar of the statute of limitations, or that of bankruptcy, is a discharge of the evidences of indebtedness, but do not destroy the debt. However, usually, whatever discharges or satisfies the debt renders null any securities for such debt. Nichols v. Briggs, 18 S. C., 485. 4 Quite a distinction exists in the law as between choses in action which are negotiable and those that are unnegotiable. This distinction has given rise to a diversity of opinion, both by lawmakers and by courts. It is not at — 148 — all surprising, therefore, that citations may be readily made of decisions of courts in favor of either view of this subject. Our State has uniformly, both in the legislature and our courts, regarded this difference as substantial and fixed. To avoid the inconveniences arising from this fixed status of obligations under seal not being negotiable, although assignable, the act of 1798 (5 Stat., 330,) was passed. The preamble of that act recognizes that bonds, sealed notes, &c., are unnegotiable, and the body of the act authorizes assignees of such unnegotiable instruments to sue thereon in their own names as assignees; but so careful was the legislature that the consequences attendant upon unnegotiable instruments should not be avoided by this new right conferred upon the assignees thereof, that this proviso was attached: “Provided, nevertheless, that nothing in this act contained shall be construed to preclude any defendant in such action from the advantage of any discounts or defences which he or she would have been entitled unto, had the action been brought in the name of the obligee or obligees of said bond or bonds, or payee or payees of said note or notes, bill or bills.” Also, Code of 1870, 14 Stat., 450, §§ 134 and 135; Code 1882, §§ 132, 133. Our courts have enforced these fundamental distinctions between negotiable and unnegotiable chose in actions, both in law and in equity. Hodges v. Connor, 1 Speer, 120; Whitesides v. Wallace, 2 Id., 163; Waring, as assignee, v. Cheeseborough and Campbell, 1 Hill, 187; Cantey, as executor, v. Blair, 1 Rich. Eq., 49; Holbrook v. Colburn, 6 Rich. Eq., 299; Bobo v. Vaiden, 20 S. C., 281; Moffatt v. Hardin, 22 Id., 9. Both bonds and mortgages are choses in action. Our courts, both before Haynsworth v. Bischoff, 6 S. C., 159, supra (decided in 1875), and since that ease, have held that choses in action, under seal, were not within the rule, whereby equity will protect a purchaser for a valuable consideration without notice. 1st. As we have seen, our statutes expressly make them, in the bands of assignees, subject to discounts or defences of defendants. 2d. The cases now cited so held. In Hodges v. Connor, supra, a note under seal was sued on. It seems that when Connor executed the note to Hodges (the — 149 — consideration being for land sold), he held a note for $145 against Hodges. Afterwards Hodges wished to trade with another, and objection being made to the form of Connor’s sealed note, it was renewed by Connor in unobjectionable form. After Rosamond held the note, it again passed into the hands of Hodges, who sued upon the same, and Connor, as a second defence to such note, pleaded his $145 note in discount. The allowance of the discount was objected to. The Court of Appeals held: “But we think the defendant was entitled to his discount to the amount of the note of $145 and interest. This action is brought by Hodges on a paper payable to himself, and, as such, must be liable to all the discounts against it by the party executing it; although, in conscience, Rosamond ought to have the paper freed from any such demand, as he took it like a demand payable to himself. At the time, however, he received the paper, he could have secured this advantage by making it payable to himself; but having failed to do so, he and those claiming under him must take and hold the single bill subject to all the legal disadvantages incident to it.” In Whitesides v. Wallace, supra, which was an action on a lost sealed note, the court held: “That the note in this case is a sealed note, which is not a negotiable instrument. It may be assigned, under the act of 1798, but the assignee takes it subject to any bona fide defence which might be set up against the payee.” In Waring, as assignee, v. Cheeseborough and Campbell, supra, which was an action by the plaintiff, as assignee, for full value of the assignee of the obligees of a bond, the obligees were guarantors also of the bond assigned. The defence was failure of consideration. At the trial it was proved that Cheeseborough and Campbell, named as obligees in the bond, and who assigned the bond to Withers, were the sureties of Smith, the obligor in the bond, and that the bond was made by them in that form to Withers for negroes and two plantations. Some ten of the negroes sold were not the absolute property of Withers. The defence of failure of consideration prevailed. In Cantey, as executor, v. Blair, supra, the facts were about as follows: Henry T. Cantey had executed a sealed note, payable to James W. — 150 — Cantey. Afterwards he executed a second sealed note to the same party. James W. Cantey assigned these notes to Blair for value without notice. Henry T. Cantey having died, Blair sued his executor to judgment on these sealed notes. After judgment, Blair assigned a proportionate part of each to Mr. McWillie and Mrs. McKinon. The executor of Henry T. Cantey having learned, after judgment against him, that James W. Cantey had made payments on such sealed notes, and had another defence — that of usury — -filed a bill in equity for appropriate relief against Blair, McWillie, and Mrs. McKinon. These last (McWillie and Mrs. McKinon) interposed the plea, that they were purchasers for full value without notice. The court denied them that privilege, saying: “It is very clear that the assignee of a judgment cannot be placed on a better footing than the assignor.” In Holbrook v. Colburn, 6 Rich. Eq., 299, supra, the court said: ‘ ‘The honest obligee of a bond is liable to be defeated of satisfaction by proof of fraud, mistake, or want of consideration affecting the obligation.” The complainant in this ease, who was the assignee of the obligee, failed in his suit. Bobo v. Vaiden, 20 S. C., 281, supra, was an action decided in 1883. In this case, the assignee of the interest in an estate of a distributee thereof, which distributee was a surety on the bond of the administrator of such estate, invoked the doctrine of an innocent purchaser for valuable consideration without notice, to the effort of creditors of the estate of the intestate to apply the share of such distributee, Mrs.'Vaiden, to the payment of her liability as surety on the bond of the administrator, he proving insolvent. This court held: “If Mrs. Vaiden were now suing the estate for her share, is there any doubt that her liability as surety would be set off before anything was paid to her? Has the assignee any higher right? The demand is a mere chose in action, and in such cases the admitted rule is, that the assignee takes the interest assigned, subject to all the defences, both legal and equitable, against the assignor. Wait Ann. Code; Lynch’s Code, sec. 135. In Moffatt v. Hardin, 22 S. C., 9, supra, Hardin executed to Melton a sealed note and mortgage of land. This sealed note — 151 — and mortgage were assigned to the plaintiff and James Hemp-hill. When due, an action in foreclosure was begun by the assignees. Mrs. Hardin interposed as a defence to such sealed note and mortgage in the hands of these assignees, that Melton, the obligee, was indebted to her at the time the sealed note was executed. The assignees replied vigorously to this defence, that they were entitled to the protection of the' rulé of innocent purchasers for full value without notice, and also that the negligence of Mrs. Hardin in giving Mélton a receipt for $1,245, when no money was paid, and also giving him an assignment of her distributive share of her father’s estate, in the hands of the clerk of the court, had acted prejudicially to such assignees, who knew of both instruments. Tet, under these pleas, this court held that Mrs. Hardin was entitled to her defence. Mr.. Justice McGowan, in delivering the opinion of the court in this case, said: “It is said, however, that this is not an action to enforce these securities by Melton or his personal representative, but new parties have been introduced; that Melton, without making the proper credits on the note and mortgage, assigned them for full value, and without notice to the plaintiffs, who are now entitled as innocent purchasers to enforce them in the condition in which as assignees they received them, without regard to the omission of Melton to credit them, in accordance with his agreement. This would certainly be true, if the securities were negotiable in their nature, and had been transferred before due for full value and without notice. See the recent case of First National Bank of Parkersburg v. Johns, 46 Am. Rep., 516, where a great number of the authorities are collected. But the bond and mortgage assigned here were not negotiable securities transferred before due, but mere choses in action, and very different principles apply. They are not subject to the doctrine of implied warranty and of purchaser for valuable consideration without notice. Maybin v. Kirby, 4 Rich. Eq., 116.” This last cited case (Maybin v. Kirby, supra,) is not regarded by the Circuit Judge as throwing much light upon the question he was discussing, because there was notice. This is quite true; yet, when it is remembered that the principles there dis — 152 — cussed were those of the present cause except in the matter of notice, the decision has an important bearing. Suffice it to say, what may be termed dicta in that case have, since that time, and after Haynswarth v. Bischoff, 6 S. C., 159, supra, was decided, become matters adj udicated as the law of this State. It seems to us that the learned Circuit Judge has attached undue importance to Haynsworth v. Bischoff, for in that case the mortgagee, Bischoff & Co., was found to be entirely innocent of any knowledge of wrong, while, in the case at bar, Flenniken, the mortgagee, was not only cognizant of the breach of trust but participated largely therein, so that it was impossible for him to be considered, as was Bischoff & Co. in the other, an innocent mortgagee without notice. The Circuit Judge is quite right in his decree when he says, “an innocent assignee has all his (mortgagee’s) rights.” That is exactly the doctrine of our courts. But he ought to have gone further, and said that, under our law, an innocent assignee of a chose in action under seal takes such chose in action subject to all the infirmities in and against his assignor. This is not only the rule in our State, but it is that observed in the Supreme Court of the United States. Carpenter v. Longan, 16 Wall., 241. It is true, that this last cited case referred to a negotiable note, which the mortgage secured, yet the court in its judgment said: “The caséis a different one from what it would be if the mortgage stood alone, or the note was unnegotiable, or had been assigned after maturity.” This case is approved in Kenicott v. The Supervisors, 16 Wall., 469: “It has been decided at the present term of this court, that when a note secured by a mortgage is transferred to a bona fide holder for value before maturity, and a bill is filed to foreclose the mortgage, no other or further defences are allowed as against the mortgage than would be allowed were the action brought in a court of law upon the note. Carpenter v. Longan, supra.” It is thus seen, not only is the theory and practice of our own courts on the subject of unnegotiable choses in action approved by the Supreme Court of the United States, but also the flexibility of a mortgage, as that it may be adapted to the fate of the note, negotiable or not negotiable, it is intended to — 153 — secure. We might enlarge on all these points, but it is not deemed necessary to say more. It follows, therefore, that the judgment of the Circuit Court is erroneous, and that the present decree must be reversed. 5 It is the judgment of this court, that the judgment of the Circuit Court be reversed, and that the cause be remanded to the Circuit Court, with directions that a decree be there made, denying the plaintiff the relief prayed for, and requiring the land in dispute to be delivered up to Edwin J. Babb, trustee, and further requiring the deed to Giles J. Patterson from the clerk of the Circuit Court for Fairfield County for the land in question to be cancelled.