Before SEASE, J., Spartanburg, November, 1939. Reversed and remanded.

Foreclosure proceedings by the Federal Land Bank of Columbia against Alma E. Ledford and others. From an adverse judgment, plaintiff appeals.

The Master's report follows:

The above-entitled action was referred to me by order of the Circuit Court to hear and determine the issues arising herein and to make my report to this Court.

This is an action for the foreclosure of a mortgage given by J.H. Champion to the plaintiff on September 23, 1921, to secure a note of even date in the sum of $800.00, the mortgage having been recorded in Mortgage Book 130, at page 54, which mortgage I find to be a first lien on the property described therein. Subsequently the defendants succeeded to the title of J.H. Champion by deed and later by inheritance.

It appears that all parties have been properly served and that all parties are before the Court, having answered. The minors have answered through their duly appointed guardian ad litem.

The defendants, other than the Duke Power Company, set up payment by Alma E. Ledford of $400.88, alleging that she should be given credit for same. The matter of payment will be discussed fully later in this report.

The defendant, Alma E. Ledford, assumed plaintiff's mortgage as a part of the consideration for a conveyance of an interest in the property to her.

Considerable testimony has been taken and the sole issue is whether the plaintiff's mortgage should be credited with the alleged $400.88 payment. The following are the facts in connection with the alleged payment:

Defendant, Alma E. Ledford, held (as Effie Ledford) a mortgage over another tract belonging to Fred W. Turner. On September 29, 1934, Turner applied to plaintiff for a loan on his land. In his application, Turner agreed "if this application is accepted and a loan granted hereon, I agree to furnish at my expense * * * an abstract or other evidence of title to the * * * property offered as security for said loan". On the approval of the application, Turner notified plaintiff that he had selected F. Gentry Harris, Esq., as his attorney "to prepare and/or examine the abstract of title and assist in the closing of the loan." On November 20, 1934, Harris notified plaintiff in writing that he accepted the employment.

T.M. Burgess was then secretary and treasurer of the Spartanburg National Farm Loan Association. Turner was seeking the loan pursuant to the pertinent Acts of Congress, "to be made through a national farm loan association serving the territory wherein the security is located." Burgess was also local correspondent for the plaintiff and for the land bank commissioner and as such was an agent of the plaintiff for the purpose of closing loans made by the commissioner through the plaintiff as his agent.

In due course, Harris supplied the abstract of title, and on December 28, 1934, plaintiff mailed to Burgess papers and instructions for closing the loan. Among these papers was a draft on plaintiff through a Columbia bank for $400.88 covering the mortgage held by Effie Ledford on the Turner land. The draft was made payable to the joint order of Fred W. Turner and Effie Ledford. It was sent out from plaintiff's office signed by J.D. Hornsby, an employee, as having been audited by him but not signed by anyone as drawer. It therefore reached Burgess as an uncompleted draft, to be signed by him as drawer in accordance with plaintiff's instructions for the closing of the loan by Burgess.

The Turner loan was duly closed, and on January 5, 1935, Fred W. Turner brought Mrs. Ledford to the office of F. Gentry Harris, Esq. There the $400.88 check was endorsed by the payees, and was turned over by Mrs. Ledford to Mr. Harris with the intention that it should be applied in reduction of the Champion mortgage which is sought to be foreclosed in this action. In addition to the check, Mrs. Ledford gave Harris the sum of $23.10 for remittance to plaintiff in payment of a semi-annual installment on her mortgage then due. Harris remitted the $23.10 to plaintiff and it was duly credited. He endorsed and cashed the $400.88 check, presumably by deposit to his account in bank. Before remittance could be made to plaintiff it was necessary to ascertain exactly the amount that could be paid under the anticipation provision of the loan papers. Harris wrote plaintiff to ascertain the amount. On February — , 1935, he died without having made the remittance.

It is at this point that the contentions of the parties sharply divide them. In brief, defendants contend that in receiving the $400.88 check, Harris was acting as the agent of plaintiff; whereas plaintiff denies any such agency and contends that it never received the amount of the check.

The case of Joint Stock Land Bank v. New York Title Mortgage Company ( Peques' case), 172 S.C. 435, 174 S.E., 402, 405, disposes of defendants' contention, so far as it may relate to the alleged existence of agency in fact. In that case, as in this, the borrower was required to furnish an abstract of title and the contention was made (though in a different connection) that the abstracting attorney was the agent of the lender bank. But the Supreme Court held otherwise, saying: "It is difficult to see how * * * it can be held that [the abstracting attorney] was the attorney and agent of the bank * * *. One cannot escape the inference that he was the attorney and agent of the applicant for the loan * * *."

But defendants do not contend that there was an agency in fact. In their argument, they say: "We do not claim that the plaintiff appointed Mr. Harris to make collections on its mortgage, but we do claim that by its conduct * * * it held him out as its agent and that it is now estopped from denying such agency."

I think, therefore, that decision of the case depends on the answers to two questions:

(1) Whether the proof is legally sufficient to support an inference of agency by estoppel, and (2) if legally sufficient to support such an inference, whether the preponderance of the evidence establishes agency by estoppel.

I have carefully considered the proof and have concluded that it is not legally sufficient to support the inference of agency by estoppel.

As giving rise to estoppel, the defendants rely on alleged conduct of plaintiff in the following respects:

1. In that plaintiff frequently permitted Harris to make collections and either turn them over to Mr. Hall, its representative, or remit them directly;

2. In that plaintiff received and retained part of the money which Mrs. Ledford paid to Harris, i. e., the $23.10 which plaintiff has credited on the mortgage debt;

3. In that plaintiff permitted Harris to advertise the fact that he was plaintiff's representative.

As to the making of collections by Harris, I find no proof that he ever held himself out as plaintiff's general agent in doing so. It is true that at times plaintiff turned over to him certain mortgages for foreclosure. But the fact of his making collections on such mortgages under special authority could not in law amount to a general holding out to the public as collecting agent.

It is true also that at times Harris received from mortgagors and turned over to W.D. Hall, plaintiff's representative in this territory primarily dealing with collections, various amounts for credit on mortgages held by plaintiff. But I find no proof that any such amount was paid to Harris as agent in fact of plaintiff, nor is there any proof that in receiving any such amount Harris represented himself to any one as plaintiff's agent. Nor is there any proof that any such holding out came to the knowledge of defendants. In the absence of some proof that Harris was undertaking to act for plaintiff in such transactions, the Court is not at liberty to assume that Harris undertook so to act. I think the reasonable inference would be that he was acting for the accommodation of the mortgagors.

I hold that the proof fails to establish agency by estoppel in this respect.

The proof is undisputed that plaintiff received and retained a portion of the amount which Mrs. Ledford turned over to Harris on January 5, 1935, to wit: The sum of $23.10. However, there is no proof that in accepting and crediting that amount, plaintiff knew anything about the circumstances of the $400.88 check. In fact, the proof is that the $23.10 was received and applied in the regular course of business without condition or qualification and without notice of any circumstances that would have served to put plaintiff on notice that Harris was in any respect undertaking to act as its agent in connection with its receipt or in connection with the $400.88 check.

I hold that the elements of estoppel are lacking in connection with the receipt of the $23.10.

As to the advertisements inserted by Harris in the newspapers, there is no proof that any such advertisements ever came to the notice of plaintiff or were authorized by plaintiff. It is true that Hall testified that he had seen some of the advertisements carried by Harris, but he also testified that he did not read them. The advertisement which defendants offered in evidence (and which was admitted on the excluded sheet) does not represent Mr. Harris to be plaintiff's agent. Furthermore, there is no proof that defendants acted in reliance on any such advertisements, or ever even saw one or heard of its contents.

I find, therefore, that the advertisements proven are not capable of supporting the suggested inference of agency by estoppel.

The general trend of the proof is contrary to the theory of the agency of Harris for plaintiff.

The correspondence between Mrs. Ledford and plaintiff which is in evidence shows that over a period of years all matters relating to the Champion mortgage were transacted directly between Mrs. Ledford and plaintiff, and there is no showing of any such transaction had through the intervention of Harris.

It is not in proof who represented Champion, the original mortgagor, in securing his loan; but if we assume that Harris represented him, there is no proof that Mrs. Ledford participated in any way in that transaction or knew that Harris had so functioned.

The only proof of any transaction with Mrs. Ledford in which Harris was concerned is with reference to the $400.88 check. On that occasion she came to Harris' office with Turner for the purpose of receiving payment of her mortgage on Turner's land. She testified concerning the $400.88 check, as follows:

"I endorsed it to Mr. Harris and turned it over to him.

"Q. For what purpose? A. Paying the debt of $400.88 — as payment to Federal Land Bank. —

"Q. State why you made that payment through Mr. Harris. A. I asked him if he was agent of the Federal Land Bank and he said that he was — ." (Objection.)

The only reason she gave for relying on the agency of Harris was his declaration to that effect.

In corroboration of her testimony, Mr. Turner testified as follows:

"She endorsed it and handed it to Mr. Harris to send back to Columbia * * * she asked him if he could send it down there for her and he told her that he certainly could.

"Q. What, if anything, was said about the representative of the land bank, did he state whether or not he was their representative? (Objection.) A. She asked him if he could send it down there and he said that he was one of the agents."

Consequently the only proof of holding out to Mrs. Ledford is the declaration of the alleged agent as testified to above, including Turner's testimony that "she asked him if he could send it down there for her."

Harris gave Mrs. Ledford his individual receipt for the funds, and there is nothing on the writing to indicate that he was holding himself out as agent for another.

It appears, too, from the letter which the plaintiff received from Mrs. Ledford on February 14, 1935, that she was expecting a showing of receipt of the money by the plaintiff. The same thing appears from her letter received by plaintiff on April 10.

The note secured by the Champion mortgage provided that it was payable at the office of the plaintiff in Columbia in sixty-five semi-annual installments including principal and interest, in June and December of each year. It further provided for the privilege of paying in anticipation of maturity "one or more installments of principal, or the entire unpaid balance of said principal sum."

In this connection the Act of Congress under which the Champion loan had been made, provided (12 U.S.C.A., § 771, Subd. 2): "After five years from the date upon which a loan is made the mortgagor may, upon any regular installment date, make in advance any number of payments or any portion thereof on account of the principal of his loan as provided by his contract or pay the entire principal of such loan, under the rules and regulations of the Farm Credit Administration."

The payment of the $400.88 was intended to be in the exercise of the privilege of anticipation. To exercise that privilege, it was necessary that Mrs. Ledford tender some amount which she had a contract right to pay. Accordingly we find that on January 8, Harris addressed a letter to plaintiff, " Re: Mrs. Alma Ledford — S. 75-55", asking to be advised "what amount nearest and under $400.00 the land bank will accept on this loan as part payment on the principal." While there is no proof that Mrs. Ledford saw the letter, the presumption that she knew the law and the purport of the contract gives rise to an inference that she knew the information sought must be secured before payment by anticipation could be made. She is bound to have considered that Harris would hold the $400.88 for the purpose of paying that permitted amount to plaintiff "for her" and of accounting to her as her agent for any balance that might have remained.

I think the circumstances generally indicated that Mrs. Ledford considered that Harris was acting "for her" in arranging for a partial anticipation of the Champion mortgage.

Defendants have stressed the declaration of agency made by Harris when the check was delivered to him.

It is elementary that the declaration would not be competent unless there were "other evidence tending to establish the agency", which is the expression used in the case of Cogswell v. Cannady, 135 S.C. 365, 368, 133 S.E., 834, 835, cited by defendants.

I have not been able to find in the record other proof "tending to establish the agency."

Indeed, as pointed out, defendants do not contend that agency existed as a matter of fact, but by estoppel.

The declaration is offered therefore as tending to support the inference of agency by estoppel, in that on that occasion Harris held himself out as plaintiff's agent. Defendants cite the case of Land v. Reese, 136 S.C. 267, 134 S.E., 252, to the effect that a "declaration of general agency of lender at time of making loan held admissible as res gestae and binding on the lender."

But it appears from that case that the declaration was made by the lending attorney to the borrower. It appears, too, that Barron, the attorney, had for years been making loans for Land, the mortgagee, under circumstances which led the Court to conclude "that Barron was the general agent of Land for investing his money." The case was therefore a case of agency in fact and not agency by estoppel. Said the Court (italics added): "Barron thus being the general agent for Land, under Knight v. Jackson, 36 S.C. 10, 14 S.E., 982, his declarations at the time of execution of the papers were part of the res gestae, admissible as evidence and binding upon Land."

The case therefore merely holds the principal bound by the declaration of his general agent made in the course of the agency.

The Knight case also was a case of agency in fact in the making of the loan. That case differentiates the case of Renneker v. Warren, 17 S.C. 139, where an attempt was made to establish the agency of son for father by the declaration of the son at the time of the transaction in question. There the Court said (italics added): "The declarations or acts of an agent within the scope of his agency are the declarations and acts of the principal. This is familiar law. But before it can have application in a special case the agency must be established, and we do not think that this can be done by the declarations of the agent himself."

Now, in the present case, it is clear that there was no agency in fact. Therefore, the case lacks that prerequisite to the admissibility of the declaration, i. e., that before the rule admitting the declaration "can have application in a special case the agency must be established."

On the contrary, it appears here that actually the attorney was the agent of Turner in the making of the loan, under a written appointment and acceptance. It was Turner's mortgage obligation to Mrs. Ledford which she had come to Harris' office to receive satisfaction of on January 5, 1935. The turning over to her of the $400.88 check was the act of Turner intended to accomplish that satisfaction. Concerning the check she testified: "Mr. Turner handed it to me" (page 12).

I hold, therefore, that the declaration of Harris on that occasion was the declaration of Turner's agent engaged at the time on Turner's behalf in the business of satisfying Turner's obligation to Mrs. Ledford.

So that even giving the declaration the meaning contended for by defendant, i. e., that Harris was undertaking to receive the money for plaintiff, and disregarding the actual proof that what Harris undertook to do, he undertook to do "for her", the declaration would still be inadmissible (1) because of the absence of the prerequisite of proof of agency in fact for plaintiff and (2) because of the overwhelming proof of agency in fact for Turner.

Defendants seek to invoke the rule that "where one or two innocent persons must suffer, he who brings about the loss must bear it," citing Mortgage Acceptance Corporation v. Stewart, 142 S.C. 375, 140 S.E., 804, 805; Land v. Reese, supra, and Davis v. Bland, 138 S.C. 354, 136 S.E., 300, 301.

In the Stewart case, the agent had collected and remitted a number of monthly payments on an installment contract without objection by the principal, and the agency to collect on that contract was the issue. The trial Judge instructed the jury that there was agency in fact. Here there is no proof of previous collection on this mortgage by Harris.

The Land case, as has already been pointed out, was a case where the facts established a general agency in fact.

In the Davis case, an attorney collecting a mortgage was requested by mortgagee to "reinvest the collection when made." He committed a fraud in the course of the employment. This was therefore also a case of agency in fact.

There can be no doubt that where agency is established and there is a wrong committed by agent, his principal must ordinarily bear the loss, whether the agency is in fact and the rule of law respondeat superior applies, or whether the agency is by estoppel and equity intervenes under the rule quoted above to charge the blamable party.

It should be remembered that while the rule puts the loss on the blamable party in both cases there is this difference, that in one instance he is responsible because the wrong was done by an agent authorized to represent him, whereas in the other instance the wrong was done by one whose authority to represent him he may not deny because of an estoppel.

The peculiar requisite of the second case, therefore, is that it must contain the elements of estoppel; and unless the circumstances presented by the complaining party are sufficient to establish agency by estoppel those circumstances could not be sufficient to induce the operation of the rule of equity sought to be invoked by defendants. Because if the party sought to be charged acts neither in his own person nor by an agent, actual or by estoppel, it cannot be said that he "brings about the loss."

The authorities dealing with the rule uniformly require proof of authority either actual or by estoppel.

Ordinarily, as stated in Morris v. Carlisle, 128 S.C. 417, 122 S.E., 511, 512, "payment is an affirmative defense, and must be proven. If the mortgagor relies upon payment to an agency, he must show real or apparent authority to receive payment."

In Bacot v. Loan Trust Co., 132 S.C. 340, 127 S.E., 562, 563, agency by estoppel was contended for but the Supreme Court refused to disturb a concurrent finding of referee and Judge to the contrary. It was in proof that the attorney had represented the holder of the mortgage "in making this and other loans" and collecting interest. To that extent there was agency in fact. "That those facts", said the Supreme Court, "do not as a matter of law require the conclusion that [the attorneys] had implied authority to collect the principal of the loan is well settled."

The Court further said: "It is the duty of one dealing with an agent to use due care to ascertain the scope of the agent's authority * * *, and that it is `the duty of the debtor * * * to see that the person to whom he pays it is in possession of the security.'"

In Leaphart v. Selby, 135 S.C. 1, 133 S.E., 451, 453, there was an agency in fact in the lending of money of the attorney for the lender over a number of years and including many loans. Having held that "a general agency existed", the Circuit Judge added, I think by way of dictum, that "even if there was not such a general agency, and if both parties to this suit were innocent", the rule of equity quoted above would apply. There was proof that the lender left to the attorney "almost exclusively the handling of his funds."

In Cogswell v. Cannady, 135 S.C. 365, 133 S.E., 834, 835, there was "some circumstantial evidence, tending to establish" agency in fact to collect the principal, and the agent's declaration to the borrower was accordingly admitted. The attorney was admittedly the agent in fact of the lender engaged in the business of making the loan when the declaration occurred. Further, the Court considered that "there was also evidence going to show ratification" by the lender of the attorney's acts. The Supreme Court declined to disturb the findings of the Circuit Court, saying that "the real issue in the cause is one of fact."

In Miles v. Gadsden, 139 S.C. 52, 137 S.E., 204, the lender was held to have ratified the unauthorized collection of principal by the attorney by claiming ownership of the collected funds.

In Miles v. Felkel, 139 S.C. 95, 137 S.E., 329, the Supreme Court declined to disturb to disturb concurrent findings of agency by Referee and Court under circumstances which appear to duplicate those of Miles v. Gadsden, supra, showing ratification.

In Neely v. Love, 144 S.C. 271, 142 S.E., 623, 628, the attorney had been "agent and attorney" for the lender "for a good many years" in lending and collecting her money. There was therefore an agency in fact and the rule of respondeat superior was applied, although there was some reference by the Court to the equity rule above.

In Ohlandt v. Craven, 146 S.C. 450, 144 S.E., 162, agency in fact of the attorney for the lender was proven, and the attorney's declaration at time of making the loan was admitted.

In McFaddin v. Bland, 147 S.C. 27, 144 S.E., 592, there was agency in fact of the attorney for the lender who was made to bear the loss consequent on embezzlement by the attorney of a portion of the funds delivered to him by lender for disbursement in satisfaction of a prior mortgage.

In Hahn v. Smith, 157 S.C. 157, 154 S.E., 112, an attorney having the mortgage for collection, fraudulently hypothecated it. Here was agency in fact and the principal was held to the loss. There was also reference by the Court to the above rule of equity.

In Fulmer v. Hawley, 168 S.C. 33, 166 S.E., 785, 786, the attorney had made many mortgage loans for plaintiff, including the one being foreclosed against defendant. The same attorney, acting for defendant, afterwards negotiated loans for defendant on the property for the purpose of satisfying plaintiff's mortgage, but plaintiff had not received the funds. Defendant contended that the attorney was plaintiff's agent to receive payment of principal. The Court said: "Neither the placing of loans nor the collection of interest thereon by an agent, nor both together, will, in the absence of other circumstances, establish agency for the collection of the principal."

I am of the opinion that no case has been produced where a conclusion of agency by estoppel has been reached under such circumstances as are now presented.

Of agency by estoppel, it is laid down in 2 Corpus Juris, page 464: "The general rule, it will be observed, embraces three primary elements. These are (1) a representation by the principal; (2) a reliance upon such representation by a third person, and (3) a change of position by such third person in reliance upon such representation. All three elements must be present to bring a case within the rule. The person sought to be bound must, by his word or conduct, have represented that the person assuming to act for him had authority so to do. Accordingly an estoppel does not arise from the mere fact that the agent has acted for the principal on one or more previous occasions, but not under the appearance of a general authority so to act, nor does the rule in question apply to acts of the agent outside the scope of the authority which the principal has caused him to seem to possess. * * *"

It is indicated by the cases in South Carolina that one may not assert estoppel on the theory that he was misled by circumstances when he knew nothing about those circumstances. Sullivan v. Moore, 84 S.C. 426, 65 S.E., 108, 66 S.E., 561; Georgia Veneer Package Co. v. S.H. E.H. Frost, 168 S.C. 285, 167 S.E., 500, 501.

In the Frost case, the defendant had on a number of occasions paid for goods sold by a Beaufort company to one Hughes on Hughes' order, but plaintiff knew nothing about these transactions. Hughes ordered goods from plaintiff with directions to bill defendant, but defendant refused to pay. Plaintiff then sued, contending for agency by estoppel arising from defendant's previous transactions with the Beaufort company.

But the Supreme Court, reversing the judgment secured by plaintiff below, thought otherwise, pointing out (1) that all of the previous transactions had been with the Beaufort company, i. e., none of them with plaintiff; (2) that there was "not a syllable of evidence to show that" plaintiff "had the slightest knowledge of such transactions"; (3) that the previous transactions "could not have had any influence whatever in inducing [plaintiff]" to sell Hughes.

"Estoppel", said the Court, "arises when one is led to change his position to his hurt by something which another has done or said, or left undone or unsaid, and the second person seeks to repudiate or evade the consequences of his action or speech, or non-action or silence. The law estops him. Such is not the case here."

The Court concluded that "it would be straining the law of agency, and the rule of proof by estoppel of such agency" to hold defendant liable.

"The final element of an equitable estoppel is that the person claiming it must have been misled into such action that he will suffer injury if the estoppel is not declared." Ott v. Ott, 182 S.C. 135, 140, 188 S.E., 789, 792. See, also, American Surety Company v. Hamrick Mills, 191 S.C. 362, 4 S.E.2d 308, 124 A.L.R., 1147, decided August 1, 1939.

Having in mind that in a case of this kind the circumstances consisting of previous transactions may have a bearing either (1) as proving agency in fact, or (2) as proving agency by estoppel, I conclude that the defense has failed when it appears (1) that agency in fact has not been proven, and (2) that defendants had no knowledge of the previous transactions relied on to create estoppel.

Furthermore, I doubt that such previous transactions would have been sufficient to give rise to estoppel had defendant known their every detail; because if they fail to show agency in fact, then defendants would not have been justified in drawing from them a conclusion of that which they did not show.

But even if they had been such as to justify that conclusion, the defense must still fail because of lack of knowledge; for when defendants say "we changed our position in reliance on these previous tratnsactions", it is a complete answer to say that they could not have relied on that of which they had no knowledge.

For in this case the only representation of agency that was made to defendants was by the inadmissible alleged declaration of Harris, which was not the representation of plaintiff for the reasons already pointed out. The proof discloses no representation whatever by plaintiff to defendants that Harris had authority to act for plaintiff in the circumstances at issue.

That this is a hard case from defendants' standpoint cannot be denied. It is partly for that reason that I have held the matter for careful consideration and have stated my conclusions in such detail. But I think that the circumstances do not justify the laying of the loss on plaintiff.

I therefore find that there is now due on plaintiff's mortgage the sum of $804.21, which includes interest to September 15, 1939, and I further find that an attorney's fee of $80.40 or 10% would be reasonable, this case having required considerable work on the part of attorneys engaged and a 10% fee in my opinion is exceedingly reasonable under the circumstances.

I further recommend that plaintiff's mortgage be foreclosed, the rights and equities of all parties barred, the premises sold on salesday in November, 1939, or on some convenient salesday thereafter, for cash, purchaser to pay for deed and stamps; that from the proceeds of sale I recommend that the costs and expenses of this action be first paid, next, such taxes as may be a lien on the mortgaged premises, and third, plaintiff's mortgage debt as above set out; if there then remain any surplus, I recommend that same be held subject to the further order of this Court.

Inasmuch as plaintiff has in its complaint waived any deficiency judgment against the defendants, I recommend that the sale herein recommended be final on the date of sale.

I further recommend that the property be sold subject to right-of-way of Duke Power Company as now maintained over the mortgaged premises.