Enterprise Bank v. Federal Land Bank of Columbia

Citation138 S.E. 146,139 S.C. 397
Decision Date12 May 1927
Docket Number12204.
CourtUnited States State Supreme Court of South Carolina

Appeal from Common Pleas Circuit Court of Oconee County; M. L Bonham, Judge.

Action by the Enterprise Bank against the Federal Land Bank of Columbia and others. Decree for plaintiff, and defendant named appeals. Reversed and remanded.

R. T Jaynes and J. R. Earle, both of Walhalla, for appellant.

Herndon & Thompson, of Walhalla, for respondent.


This is an action by the plaintiff, as assignee, to foreclose a certain alleged mortgage executed by Maud Talley and L. O Talley to J. L. Chastain, dated January 23, 1920, as security for the payment of six notes of $216.70 each, aggregating $1,300.20, and covering a certain tract of land, described in the complaint, containing 50 acres more or less. The Talley notes and mortgage were assigned by J. L. Chastain to the plaintiff, Enterprise Bank, eight days later, on January 31, 1920, as collateral security for the payment of a note given that day by Chastain to the bank for $2,000. The Talley mortgage was not recorded at that time, and was not, until February 9, 1921, when it was recorded by the bank.

There was offered in evidence a deed from Chastain to Maud Talley, his daughter, purporting to convey the 50-acre tract to her, dated January 23, 1920, the same day upon which the Talley notes and mortgage were executed. There is some doubt whether this deed was ever delivered, but in the view which we have taken of the case that question may be disregarded. This deed has never been recorded.

Prior to the date of this transaction between Chastain and Maud Talley (January 23, 1920), Chastain had executed three mortgages to one James Phinney: (1) Mortgage dated January 25, 1917, securing note of that date for $4,441.89, recorded February 3, 1917, covering the home tract of 182 acres, not including the 50-acre tract. (2) Mortgage dated January 20, 1919, securing note of that date for $1,500, recorded January 27, 1919, covering the home tract of 182 acres and the 50-acre tract. (3) Mortgage dated November 1, 1919, securing note of that date for $10,000, recorded November 10, 1919, covering both of the above-mentioned tracts and a third tract of 250 acres. (This last-named tract was later conveyed, November 20, 1920, by Chastain to M. A. Moss, who had become the assignee of that mortgage, for a credit of $9,000 on the $10,000 mortgage.)

On April 7, 1920, James Phinney assigned the three notes and mortgages above described to M. A. Moss.

On January 20, 1921, M. A. Moss, as assignee, as stated, of the three mortgages, instituted foreclosure proceedings against Chastain upon all of them. Lis pendens was filed February 7, 1921. The master reported March 28, 1921, on the first mortgage, amount due $3,931.22; on the second, $1,816.45; on the third, $1,916.54; total on all three, $7,664.21; and a decree of foreclosure followed in conformity with the report and judgment duly entered up on April 16, 1921.

On February 9, 1921, two days after the filing of lis pendens, the Enterprise Bank (the plaintiff herein) lodged the Talley mortgage, which had been assigned to it, for record.

On April 6, 1921, his land being about to be sold, Chastain applied to the Federal Land Bank for a loan of $8,000, to be secured by a first mortgage, as required by the act of Congress, upon the home tract of 182 acres and the 50-acre tract, above referred too. The purpose of the proposed loan, as stated in the application, was to pay off the mortgages above enumerated, amounting to $7,600, and to take $400 stock in the National Farm Loan Association; the applicant further represented and guaranteed the statements contained in the application, and that no liens or incumbrances existed against the property except as stated. The application was approved for $6,000, and a loan for that amount was accepted by Chastain.

A most elaborate and painstaking abstract was made of the title by J. R. Earle, Esq., a reputable attorney of the Oconee bar, who reported the title marketable in Chastain and accompanied the report with a statement of the liens. He did not report the Talley mortgage for the manifest reason that the deed from Chastain to Maud Talley had not been recorded; there was nothing to put him upon notice of such a mortgage under these circumstances.

The loan was then closed by the remittance by the Federal Land Bank to J. R. Earle, Esq., of a check for $5,677.50 payable to Earle and Chastain, that being the loan, $6,000, less $300 stock in the N. F. L. Association and $22.50 expenses, dated November 14, 1921. The check was indorsed by the payees and $5,490.75 placed in bank to the credit of M. A. Moss, the mortgage creditor, the difference, $186.75, being paid to one of his attorneys, on November 18, 1921.

On the same day, November 18, 1921, Chastain executed a mortgage upon the two tracts, 182 acres, home place, and the 50-acre tract, as security for his note to the Federal Land Bank for $6,000. This mortgage was recorded on the same day.

On the same day, satisfaction of mortgage by Chastain to Phinney (assigned to Moss), dated January 20, 1919, and covering the 50-acre tract, was entered by indorsement on the record of the mortgage, "Lien released by satisfaction of judgment under foreclosure"; and like satisfactions were entered as to the other two mortgages. On November 19, 1921, the next day, Chastain executed his note and mortgage to M. A. Moss for the balance of the mortgage and judgment debts, in the sum of $2,363.01, the amount unpaid upon them after the application of the $5,677.50.

This action was instituted by the Enterprise Bank on August 16, 1922, for the foreclosure of the Talley mortgage which had been assigned by Chastain as above stated. The defendants named were J. L. Chastain, W. T. Addis, indorsed on note of Chastain to Enterprise Bank, M. A. Moss, Maud Talley, L. O. Talley, her husband, and Federal Land Bank. Later, other parties were brought in as defendants claiming an interest in the property.

The contest now before the court appears to be solely between the Enterprise Bank and the Federal Land Bank as to priority over the proceeds of sale of the 50-acre tract.

The case was referred to M. O. White, Esq., master of Oconee county, who took the testimony and filed a report holding that the Enterprise Bank had the prior lien, and upon exceptions to his report his honor Judge Bonham confirmed it. From his decree the Federal Land Bank has appealed upon exceptions which fairly raise the points hereinafter discussed and decided. The basis of the decree may be found in the following statement:

"At the time this loan was made by the Federal Land Bank, the Talley mortgage to the plaintiff bank (that is, to Chastain, and assigned by him to the Enterprise Bank) had been on record since the 9th day of February, 1921, and was constructive notice of the Talley mortgage. Van Diviere v. Mitchell, 45 S.C. 127, 22 S.E. 759. This being so, the loan made by the defendant, Federal Land Bank, was a voluntary one, and the doctrine of subrogation would not apply. 25 R. C. L. 1337; Prudential Investment Co. v. Connor, 120 S.C. 42, 57, 112 S.E. 539; Capitol National Bank v. Holmes, 43 Colo. 154, 95 P. 314, 16 L. R. A. (N. S.) 470, 127 Am. St. Rep. 108; Citizen's Mercantile Co. v. Easom, 158 Ga. 604, 123 S.E. 883, 37 A. L. R. 378."

This statement fairly presents the two questions involved in this appeal.

Counsel for the appellants appear to concede that under the cases of Van Diviere v. Mitchell, 45 S.C. 127, 22 S.E. 759, and Younts v. Starnes, 42 S.C. 22, 19 S.E. 1011, the first proposition announced by the circuit judge, that the Talley mortgage having been on record since February 9, 1921, prior to the execution of the Federal Land Bank mortgage, the record of it was constructive notice of that mortgage, cannot be successfully assailed, as we find no exception covering this point and no discussion of it in the argument of counsel.

Speaking for himself alone, the writer of this opinion is very far from conceding the controlling effect of those decisions, which in several aspects are distinguishable from the case at bar, in view of the object of the recording statute to give notice of prior liens and the utter impossibility, in the present case, of a discovery of the Talley mortgage, the deed from Chastain to Maud Talley never having been placed upon record.

This leaves the very interesting question, which has been most ably presented and argued by the respective counsel, whether the Federal Land Bank, under the circumstances, is entitled to be subrogated to the lien of the Phinney mortgages which had been assigned to Moss, paid off, and marked satisfied upon the record.

To review briefly the situation of the parties at the time the Federal Land Bank mortgage was taken: The Enterprise Bank had accepted an assignment of the Talley mortgage; at that time the Phinney mortgages were liens upon the 50-acre tract which was also covered by the Talley mortgage; the Enterprise Bank, of course, took the assignment of the Talley mortgage, subject to the liens of the Phinney mortgages which had been duly recorded; the Enterprise Bank failed to see that the deed from Chastain to Maud Talley was recorded, if, indeed, it had ever been delivered; the Enterprise Bank neither did nor refrained from doing anything by reason of the negotiations between Chastain and the Federal Land Bank; its position was not in any wise altered to its prejudice by anything that the Federal Land Bank did; its claim to priority rests solely upon the fortuitous circumstances, not brought about by anything it did or refrained from doing, that the satisfaction of the Phinney...

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