Summary
In Young v. Pitts, 155 S.C. 414, 152 S.E., 640, 642, where this question was considered, the Court quoted with approval the following from Lumber Exchange Bank v.Miller, 18 Misc., 127, 40 N.Y.S., 1073: "The principle which underlies all of the reported decisions in this class of cases is, when the legal rights of the parties have been changed by mistake, equity restores them to their former condition, when it can be done without interfering with any new rights acquired on the faith and strength of the altered condition of the legal rights and without doing injustice to other parties."
Summary of this case from Maxwell v. Epton et alOpinion
12866
March 25, 1930.
Before FEATHERSTONE, J., Laurens, December, 1928. Affirmed.
Action by John H. Young against W.H. Pitts, E. Lee Pitts, J.M. Pitts, and the First National Bank of Clinton. Decree for plaintiff, and the last two named defendants appeal.
The decree of Circuit Judge Featherstone was as follows:
This case was heard by me upon exceptions to the report of Special Referee, O.L. Long, Esquire.
The facts out of which the litigation arises are as follows:
In 1911, the defendant, Wash M. Pitts, who has filed no answer herein, gave the plaintiff John H. Young a mortgage on two tracts of land, one of 123 acres known as the Benjamin Place and the other containing 62.89 acres, known as the Dendy Place, to secure a debt of twenty-two hundred ($2,200.00) dollars. The mortgage was duly recorded 20th of January, 1911.
Upon this mortgage there was due at the date of the Referee's report, including 10% attorneys' fee, the sum of Three Thousand Seven Hundred Sixty-eight and 23/100 ($3,768.23) Dollars.
On December 15, 1916, Wash M. Pitts sold the 123-acre tract to one W.L. Riddle, and paid to plaintiff, from the purchase money thereof, Fourteen Hundred ($1,400.00) Dollars.
On that same day there was spread on the records in the Clerk's office, what purports to be a satisfaction of the entire mortgage debt.
The original of this paper cannot be found; but from the testimony, we must assume that Young signed it and that it was properly executed. It is clear, however, from the testimony that the satisfaction was executed through mistake, Young only intending to release the tract of land sold to W. L. Riddle and hold the mortgage on the other tract. This mistake is clearly established by the testimony of Young, Wash M. Pitts, J.D. Bell and from all the surrounding facts and circumstances.
The Referee makes no finding of fact as to the mistake, but only finds that Young executed the satisfaction. But if he had passed upon the question he would have been forced to find that Young did not intend to satisfy the mortgage, but only to release the tract sold to W.L. Riddle.
I start the consideration of the case with no doubt in my mind as to this fact.
On December 15, 1916, Wash M. Pitts executed to his brother, J.M. Pitts and E. Lee Pitts, his note for Two Hundred Sixteen ($216.00) Dollars, and his mortgage on the 62.89-acre tract of land, to secure the same. This mortgage was recorded 12th of February, 1917. It contains the following statement following the description of land: "I hereby declare that I own the above described land in fee simple in my own name except the balance due John H. Young and the mortgage herein created." J.M. Pitts is the sole owner of this paper and he testified that the consideration was an old debt, or rather to secure endorsements formerly made.
On January 20, 1921, Wash Pitts executed to First National Bank of Clinton, his mortgage on the 62.89-acre tract of land securing two notes, which now aggregate, including attorney's fees, the sum of Three Thousand Nine Hundred Ninety-seven and 01/100 ($3,997.01) Dollars.
It is admitted that these notes were renewals of old notes executed by Wash M. Pitts and one of them endorsed by J. M. Pitts. How far back the indebtedness was created does not appear, certainly as far back as 1920, but no money passed at the time of the execution of the mortgage.
The first question that I desire to pass on relates to a matter of practice and the Statute of Limitations. The plaintiff first brought his action for foreclosure on the note and mortgage without reference to the satisfaction endorsed upon the record. The defendants answered setting up, by way of defense, the satisfaction. The plaintiff filed no reply, but in reply undertook to show that in fact there was no payment, but that the paper purporting to show payment was executed in mistake, the defendants objecting to the testimony. Later the defendants made a motion to strike out the testimony as to mistake. The Referee, upon this motion ruled that as the pleadings originally stood, he regarded the testimony as incompetent and would have to strike it out, but that he would allow plaintiff to amend by setting up mistake and then reforming the satisfaction. In other words, he held that plaintiff must first reform the satisfaction by showing that it was executed in mistake, before he could recover on the notes and mortgage. Following this suggestion the plaintiff did so amend and the defendants were allowed to amend by pleading the Statute of Limitations to the action to reform. The Referee then sustained the plea of the Statute not passing at all upon the question of mistake. The exceptions question the soundness of the Referee's rulings in that respect. I think these exceptions will have to be sustained.
As I view it, the plaintiff denying that his mortgage had been paid, had a perfect right to bring the ordinary action of foreclosure and when defendants pleaded satisfaction, had the right without even filing a reply, to show that the satisfaction was executed in mistake and thereby destroy its force. The fact that the satisfaction was spread upon the record did not give it any peculiar efficacy, or destroy this right. See Montague v. Priester, 82 S.C. 495, 64 S.E., 393. Suppose, for instance, Young had undertaken to show that he never signed the paper, that it was a forgery, can it be doubted that he could have proceeded to foreclose his mortgage and when it was set up, broken it down by showing forgery? Again, even if it should be conceded that he must first bring his action to reform, coupled with the action to foreclose, I think the action would not be barred, unless the right to foreclose was barred. See Montague v. Priester, 82 S.C. 495, 64 S.E., 393. The only object of reformation would be to get the satisfaction out of the way so as to enable him to foreclose. But, as I have already stated, I do not think the allegations looking to a reformation were at all necessary.
And now we come to a consideration of the case on its merits. I have already held that the plaintiff had shown that the satisfaction piece was executed in mistake, if it was executed by him at all. He says he has no recollection of signing a satisfaction at all; that he only intended to release the larger tract bought by W.L. Riddle. The matter was attended to for him by others, Mr. J.D. Bell, at that time president of the Commercial Bank of Clinton, amongst the number. And Mr. Bell is as positive and strong as Mr. Young, even suggesting that if the original paper could be found it would show the mistake to have been that of the Deputy Clerk. And Wash M. Pitts, the mortgagor, corroborates Young and Bell. But there is the satisfaction, duly recorded on the record, staring us in the face. As before suggested, I think it will have to be held that Young signed the paper, but that he signed it through mistake. With this holding we go to the next step.
What is the legal effect upon the rights of the defendants; the junior mortgagees? I am not considering its effect upon the mortgagor, for beyond question, as against him, the mortgagee has the right to show the mistake and hold his mortgage. The junior mortgagees do not contend that they were actually misled by seeing the satisfaction on the record before taking their mortgages. But as I understand it, their contention is that the satisfaction being there, where they could have seen it, they occupy the position of bona fide purchasers for value without notice. Let's see about that. In the first place, are they purchasers for value? I do not think they are according to their own testimony. Pitts' mortgage was executed on the very day that the satisfaction was spread upon the record, and he says that no money was passed at that time, but the consideration was an old endorsement. What about the bank's mortgages? Again, we have old debts as the consideration. How old we do not know, but certainly prior to the execution of its mortgage, for there is no testimony to show. Clearly then they are not purchasers for value, for the mortgages were given to secure antecedent debts. See Marsh v. Ramsay, 57 S.C. 121, 35 S.E., 433; Summers v. Brice, 36 S.C. 204, 15 S.E., 374; Gibson v. Hutchins, 43 S.C. 287, 21 S.E., 250; and Norwood v. Norwood, 36 S.C. 331, 15 S.E., 382, 31 Am. St. Rep., 875.
But while the question is one of novel impression, I do not think that if they were purchasers for value, it ought to be held by a Court of Equity that they are entitled to priority over the Young mortgage, unless it is shown that they were misled, to their injury, by the record of the satisfaction. Young had a good mortgage giving him security ahead of their papers, duly recorded, of which they were bound to take notice. Through mistake, a satisfaction is entered instead of a release as to the tract sold to W.L. Riddle. It being entered through mistake, the law regards it as never having been entered at all, unless entering the satisfaction brought about prejudice to others dealing with the property. This was my view when the case was argued and I have been gratified to find that there is ample authority to sustain that view. The books contain numerous cases holding that a satisfaction entered through mistake does not destroy the priority of the mortgage unless others are misled and injured thereby.
In 41 Corpus Juris, page 590, we find the following: "Generally, when the release or satisfaction of a mortgage is the result of fraud, accident or mistake, it will not inure to the benefit of a person acquiring an interest in the property, who did not rely or advance anything on the faith of such discharge. As the discharge, under such circumstances, did not enter into, or induce the transaction, the annulment thereof and the restoration of the mortgage to its priority of lien does not operate prejudiciously or place the person who acquired the interest in a worse position than he was before" — and dozens of cases are cited to sustain the text.
Again, citing from a New York case ( Lumber Exchange Bank v. Miller, 18 Misc. Rep., 127, 40 N.Y.S., 1073) referred to in the notes: "The principle which underlies all of the reported decisions in this class of cases is, when the legal rights of the parties have been changed by mistake, equity restores them to their former condition, when it can be done without interfering with any new rights acquired on the faith and strength of the altered condition of the legal rights and without doing injustice to other parties."
And again, in note 12, "See Stanley v. Valentine, 79 Ill. 544; McConnell v. Bank, 59 Ind. App. 319, 103 N.E. 809, where the holder of a note secured by a mortgage, by his own fault caused the satisfaction of the mortgage of record, he was, nevertheless, entitled to have the mortgage reinstated as against the mortgagor and subsequent creditors, who had no knowledge of the release and were not induced thereby to extend credit on the faith of the real estate being unencumbered."
And this is the same doctrine announced in Wheeler v. Alderman, 34 S.C. 533, 13 S.E., 673, 27 Am. St. Rep., 842, cited by counsel for defendant. In that case a judgment was marked satisfied and an innocent third party advanced money, upon the strength of that satisfaction. The principle contended for by defendants is really that of estoppel because of the conduct of Young, but they cannot avail themselves of that salutary doctrine, for the reason that they did not act upon and were not thereby misled. But, even though it might be conceded that such is not the equitable doctrine, it is clear that the defendant J.M. Pitts cannot claim priority over the Young mortgage.
First, he had notice that Young's debt was not satisfied. His mortgage from Wash M. Pitts contains a recital to that effect, by which he is bound. Again, Wash M. Pitts says he so notified him, which will be referred to later. Again, it appears that J.M. Pitts, before the sale by Wash M. Pitts to Riddle had a larger mortgage, which was reduced to $216.00 from the proceeds of the Riddle sale.
Second, his mortgage was given to secure an old endorsement, antedating the entering of the satisfaction. Therefore, the debt was not contracted on the strength of the satisfaction and he could not have been injured thereby.
Has the bank met the requirements of the equitable plea of purchaser, for value, without notice in any other respect, viz.: that it acquired the mortgage without notice of Wash Pitts' indebtedness to John H. Young? In passing upon this, we must bear in mind that such defense is an affirmative one, which must be clearly made out, in all respects, by those claiming its benefits. I know all of the witnesses and I have read and reread the testimony and I cannot get the consent of my mind to believe that the bank did not have actual knowledge of the fact that there was a balance due by Wash Pitts on the Young mortgage. When we take the testimony of Wash M. Pitts, who is testifying against his own brother, when we remember that his brother was endorser on one of the notes at the bank; when we bear in mind that J.M. Pitts had knowledge of the true state of affairs and was a director in the bank which was advancing money to his brother Wash, largely on the strength of his endorsement, it is almost unbelievable that the bank did not know what J.M. Pitts knew. And when we consider the testimony as to what transpired at Laurens, when Wash M. Pitts and B.H. Boyd saw the record; and the testimony of Hatton and others, coupled with Boyd's conversation with Young, as to saving costs, etc., there is an abiding conviction in my mind that the defendant bank as well as J.M. Pitts knew the real state of affairs, and I am bound to so hold for B.H. Boyd, being president of said bank and its business manager, his knowledge is imputed to the bank.
The exceptions to the report of the Referee are sustained as above indicated and it is ordered, adjudged and decreed that the plaintiff has a first lien on the premises and is entitled to foreclose his mortgage.
The plaintiff, J.H. Young, prior to the commencement of this action of foreclosure paid to the Sheriff of Laurens County $130.00, for taxes in order to redeem the said land from the delinquent tax sale made by the Sheriff of Laurens County under the tax execution against the said tract of land. The Referee recommended that J.H. Young be reimbursed for this payment, and no exceptions being taken thereto by either side the said J.H. Young is entitled to be repaid the said amount with interest thereon from the date of his payment, along with other taxes upon said property as a first lien thereon.
Wherefore, it is ordered, adjudged, and decreed, that the mortgage of J.H. Young, the plaintiff, be foreclosed and the said premises sold by the Sheriff of Laurens County, and that the defendants and all parties holding an interest under them be forever barred and foreclosed of all their interest, claim and title to, in and concerning the said mortgaged premises; that the said sheriff after legal advertisement sell the said land at public outcry at Laurens, S.C. on salesday, in ..............., 1929, or on some subsequent salesday to the highest bidder for cash, the purchaser to pay for stamps and papers. The highest bidder other than the plaintiff shall deposit with the Clerk of Court the sum of $50.00, as a guarantee of good faith in the bidding, which shall be held as part payment of the purchase price. If the purchaser does not comply with the terms of sale, said premises shall be resold on the same or on some subsequent salesday on same terms at the risk of such defaulting purchaser. The purchaser upon complying with terms of sale shall be let into possession of the premises and the sheriff shall make a report of the sale to the Court.
From the proceeds of sale said sheriff shall pay the costs and expenses of said sale and of this action and any taxes due upon the premises at the time of the sale together with the taxes paid by the plaintiff to redeem the said land from delinquent tax sale, and then pay to the plaintiff or his attorneys the sum of $3,768.23, found by the Referee to be due on plaintiff's note and mortgage with interest thereon from the date of the Referee's report and then if any balance remain he shall pay to J.M. Pitts the amount found by the Referee to be due on his note and mortgage together with interest from the date of the said Referee's report and then he shall pay from the balance, if any, to the First National Bank of Clinton, and J.M. Pitts, the sum of $3,997.01, or so much thereof as said surplus proceeds of sale will pay in the ratio that $1,300.00 bears to $921.55, said J.M. Pitts since the commencement of this action having paid to the First National Bank of Clinton the amount due on the $921.55 note.
The description of the property is as follows:
"All that tract, piece or parcel of land situate, lying and being in Jacks Township, in the State and County aforesaid, containing sixty-two and 89/100 (62.89) acres, more or less, and bounded on the north by lands of State Training School for Feeble Minded, on the east by lands of Mrs. W. M. Finney, on the south by lands of Copeland and Stone, and on the west by lands of A.P. Young."
Messrs. Dial Todd, and Simpson, Cooper Babb, for appellants, cite: "Mistake": 2 McC. Eq., 137; Id., 112; 4 Rich. Eq., 314; 21 S.C. 226; 23 R.C.L., 349; 9 C.J., 1169; 21 S.C. 235; 2 Strob. Eq., 148. Statute of Limitations: Sec. 337, Code Proc.; 82 S.C. 492. Bona fide purchaser: 2 Pom. Eq. Jur.2d 745; 19 R.C.L., 410; 184 Pac., 269; 105 A.S.R., 768; 60 Am. Dec., 525; 86 A.S. R., 531; 57 S.C. 121; 43 S.C. 287; 36 S.C. 204; 5 S.C. 90; 3 Strob. Eq., 134; 14 S.C. 90. Estoppel: 41 C.J., 585; 35 N.W., 820; 61 Ind. 56; 41 C.J., 584; 24 S.C. 48; 41 C.J., 814.
Messrs. F.P. McGowan, and Blackwell, Sullivan Wilson, for respondent, cite: Findings of fact by Circuit Judge presumed to be correct: 82 S.C. 199; 83 S.C. 190; 150 S.C. 267. Reformation of satisfaction: 110 S.C. 99; 67 S.C. 280; 34 Cyc., 971; 2 Am. Rep., 823; 79 Ind. 235; 54 Ind. 212; 58 L.R.A., 791; 19 R.C.L., 258; 41 U.S. 421; 41 C.J., 821; 12 S.C. 130; 78 S.C. 302; 2 Jones on Mtg., 918; 27 Cyc., 1600; 24 S.C. 301; 22 S.C. 342; 16 S.C. 579; 34 S.C. 533; 57 S.C. 121; 43 S.C. 287; 41 C.J., 590.
March 25, 1930.
The opinion of the Court was delivered by
The decree of his Honor, Circuit Judge Featherstone, appealed from, in this cause, is entirely satisfactory to this Court. It will be reported, and is affirmed.
MR. CHIEF JUSTICE WATTS and MESSRS. JUSTICES COTHRAN, STABLER and CARTER concur.