Ballou v. Young

The opinion of the court was delivered by Mr. Justice Gary. This was an action for the recovery of a lot of land in the city of Columbia, called lot No. 1, and of a half interest of an adjoining lot called lot No. 2. Both parties claimed from a common source, and plaintiff’s title, on the face of the papers, seemed perfect. The defence was fraud iu two links of plaintiff’s title. The verdict was for the defendants. One Maria Young purchased lot No. 2 on July 17th, 1880. Prior to that date, Josephine Young, the daughter of Maria, had purchased lot No. 1. Josephine died in 1878 or 1879, leaving four illegitimate children, the four Shelton defendants to this action. Josephine died intestate, leaving as her lawful heirs, her mother, the said Maria, and her sister, the defendant, Anna Young. Thereupon, the fee in lot No. 1 vested in Maria and Anna; and then Anna had a half interest in lot No 1, and Maria had the other half, and the entire interest in lot No. 2. Maria Young died intestate in 1887, 1888 or 1889. Thereupon, Anna Young became seized in fee of both lots. On 17th September, 1889, Anna Young signed a deed which purported to convey to E. M. Babbitt, the interest which the children of Josephine would have inherited, if they had not been illegitimate, to wit: all of lot No. 1, and a half interest in lot No. 2, in trust for these four children, with power to sell, “and, also, with power, if necessary, in his discretion, to mortgage the same, to enable him to best promote the welfare of said children.” The defendant, Anna Young, claims that whatever paper she signed, was under representations of Babbitt that it was different from said deed. Babbitt [175] made a mortgage of this property, under this power, to W. S.. Monteith, on 27th December, 1890, with power of sale, to secure a promissory note payable one year thereafter, and on the same day Monteith assigned the mortgage, and endorsed the note to plaintiff. After default, plaintiff sold, purchased and took deed, demand was made for possession, and action brought. Among other things, the presiding judge charged the jury that the said note and mortgage would not be valid in the hands of Ballou, if Monteith knew that Babbitt did not borrow this money for the welfare of the four children of Josephine, even if Ballou did not know such fact-. Plaintiff’s attorney, in his argument, says: “Plaintiff’s grounds of appeal make substantially two allegations of error in the charge: 1. In the law applicable to Anna Young’s signature to this trust deed under the testimony. 2. In the law governing the holder of a promissory note and its security, which have been signed by a trustee, and put into circulation with intent to misapply the proceeds.” 1 The charge of the presiding judge is very full, as to the rules governing in cases where a person signs a deed under fraudulent misrepresentations, and while there are parts of this charge which considered in detail would be erroneous, yet when, as it must be, it is considered as a whole, no such error can be imputed to it. The question of negligence on the part of the defendant in the alleged signing of the deed was kept before the jury throughout the charge. The law as charged by the presiding judge is in harmony with the doctrine announced in Montgomery v. Scott, 9 S. C., 20; and 10 Id., 449, which is one of the leading cases on this subject. 2 We come now to a consideration of the exceptions complaining of error on the part of the presiding judge under the second head. The words in the deed of trust conferring power on Babbitt to execute the note and mortgage are as follows: “With power to said trustee, at any time in his discretion, to sell the whole or any part of said real estate, and reinvest the same in such manner as he deems best, and, also, with power, if necessary, in his discretion, to mortgage the same, to enable him to best promote the welfare of said children.” [176] The note and mortgage are both signed by Babbitt as trustee, and in the mortgage he uses the words: “I, Edward M. Babbitt, as trustee for the children of Josephine Young, deceased.” This was- notice to Ballou of the trust and of the power under which the uote and mortgage were executed. In fact, this is not questioned. Appellant’s attorney in his argument saying: “There is no doubt that both note and mortgage carried notice to Ballou that Babbitt was trustee, and notice of the terms of the trust deed; but they did not carry notice of any breach of trust.” Appellant contends that if Ballou became the endorsee of the promissory note, and at the same time assignee of the mortgage, before the maturity of the said note for valuable consideration, and without notice of any facts that would have defeated a recovery thereon in the hands of Monteith, he took the note and mortgage freed from such defences, and from all equities. This would be the case, provided Babbitt had the power to execute both the note and the mortgage. There is no doubt of “the flexibility of a mortgage, and that it may be adapted to the fate of the note it is intended to secure,” as was said by Mr. Justice Pope in Patterson v. Rabb, 38 S. C., 152. Section 133 of the Code provides that: “In the case of an assignment of a thing in action, the action by the assignee shall be without prejudice to any set-off, or other defence existing at the time of, or before notice of, the assignment; but this section shall not apply to a negotiable promissory note or bill of exchange, transferred in good faith, and upon good consideration, before due.” The transfer of a note carries with it a mortgage given to secure payment of such note. Walker & Trenholm v. Kee, 14 S. C., 143; Cleveland v. Cohrs, 10 Id., 225. Section 133 not only does not apply to a negotiable promissory note transferred in good faith, and upon good consideration before due, but does not apply to a mortgage given to secure payment of such note. Under such circumstances, the rule of the commercial law applicable to negotiable promissory notes is likewise applicable to the mortgage given to secure payment of the same. See Patterson v. Rabb, 38 S. C., supra, and cases therein referred to. [177] 3 Did Babbitt have the power under the deed of trust to exe"eute both the note and mortgage! We think not. The power conferred upou him was simply to mortgage, and under it Babbitt had no more authority for executing a sealed note, or bond, than to give a promissory note. A note and mortgage are both securities for the payment of the debt; they are separate and distinct; nor is a note essential to the validity of a mortgage. In the case of Plyler v. Elliott, 19 S. C., 257, a note and mortgage were given to secure payment of the same debt; the note was altered in such a manner as to prevent a recovery thereon. The court, however, held that this did not prevent a foreclosure of the mortgage, saying: “But considering the note as not recoverable either against the principal debtor or his surety on it, the more difficult question still remains, whether the plaintiff can enforce the mortgage, which was not altered, against the principal debtor, for the balance of his debt, as a separate security unaffected by the alleged alteration of the note. This court has recently held, in the case of Nichols v. Briggs, 18 S. C., 484, that when a note and mortgage are both given to secure the same debt, the mortgage may be enforced, although the note was barred by the statute of limitations. That case went on the ground that the debt itself is something different from either the note or mortgage, which are both mere securities for, and evidences of, the debt, and as a consequence the loss of the right to enforce one does not necessarily take away the right to enforce the other. The courts say: ‘It must be kept in mind that there is a difference between the debt itself and the securities for it. The debt is one, but there may be a number of securities of different kinds, personal, real, pledge, mortgage, &o. The note given is only evidence of the debt, and one of the means of collecting it, and if there is a mortgage, that is only another security for the same debt.’ ” In the case of Nichols v. Briggs, 18 S. C., 484, the court says: “The mortgage would have been good as a security for the $500, even if the bond had never been given.” Jones on Mort., section 353 (quoted with approval in Mc-Caughrin & Co. v. Williams, 15 S. C., 516), says: “The mortgage debt exists independently of the note. The inquiry is: Does [178] the debt exist? If it does, it is not essential that there should be any evidence of it, beyond what is furnished by the recital of the deed. The validity of the mortgage does not depend upon the description of the debt contained in the deed, nor upon the form of the indebtedness, whether it be by note or bond or otherwise; it depends rather upon the existence of the debt it is given to secure. Although there be no note or bond, and no time is specified for the payment of the mortgaged debt, the mortgage, if given to secure the payment of the debt that actually exists, is valid.” See, also, Dearman v. Trimmier, 26 S. C., 506. In the light of the foregoing authorities, the only security which Babbitt had the right to execute was the mortgage, but not the promissory note. It is the judgment of this court, that the judgment of the court below be affirmed.