Equitable Life Assur. Soc. of U.S. v. Lazarus

• Decision Date: 19 September 1934
• Docket Number: 165.
• Citation: 175 S.E. 705,207 N.C. 63
• Parties: EQUITABLE LIFE ASSUR. SOC. OF THE UNITED STATES v. LAZARUS et al.
• Court: North Carolina Supreme Court

175 S.E. 705

207 N.C. 63

EQUITABLE LIFE ASSUR. SOC. OF THE UNITED STATES v. LAZARUS et al.

No. 165.

Supreme Court of North Carolina

September 19, 1934

Appeal from Superior Court, Henderson County; McElroy, Judge.

Suit by the Equitable Life Assurance Society of the United States against George B. Lazarus and others. From the judgment rendered, plaintiff and named defendant appeals.

Reversed.

Evidence in suit to foreclose trust deed and remove prior trust deed as cloud on title held sufficient to raise fact question whether prior mortgagor was agent of holder of notes secured by prior mortgage in making collections thereon, so as to require reversal of judgment based on court's holding as matter of law that such payments did not discharge notes.

On August 1, 1926, the Guaranty Title & Trust Corporation entered into a collateral trust indenture with the Citizens' Bank of Norfolk, Va., trustee. This document is voluminous, but recites that the Guaranty Company "has determined * * * to create and issue in the manner and form as provided in this indenture its certificate to be known as the Guaranteed Collateral Trust Gold Certificates of the company without limit as to amount; * * * and whereas, the certificates are to be issued in series, each series to be limited to the principal amount of not to exceed $1,000,000; and whereas, the payment of the principal and interest of the certificates is to be guaranteed by the National Surety Company; * * * and whereas in order to secure the payment of the principal and interest of all the certificates at any time issued and outstanding under this Indenture * * * the company * * * has determined to execute to the Citizens Bank of Norfolk, Virginia, as trustee * * * an indenture * * * and to pledge and assign thereunder as security for the respective series of certificates collateral of the character hereinafter referred to." Section 2 article II, of said indenture, provides that "all securities now or hereafter assigned, transferred, pledged delivered and set over unto the trustee, shall be promissory notes and bonds duly executed by individuals, firms or corporations, secured by first mortgages or deed of trust upon improved real property owned in fee simple by the respective makers of the notes," etc. The Guaranty Company guaranteed to the holder the payment of all of said notes or bonds.

The trustee had the power in its discretion to foreclose the mortgages or deeds of trust or to assign or sue upon any or all of the securities in its own name as if it were the beneficial owner thereof. It was further provided that the trustee "shall at all times upon the request of the company, accept from any debtor the amount owing upon any security deposited with the trustee." It was further provided that "the company will well and truly on or before the 20th day of each month during the continuance of this Trust Indenture, and so long as any of the certificates are outstanding, give notice in writing to the trustee * * * of any and all defaults in the payment of principal or interest upon any of the securities deposited with the trustee * * * which may be continued sixty days prior to the first of such month, and for such purpose the trustee will from time to time inform the company with respect to any and all collections made by it on account of principal or interest," etc. It was further provided that "the trustee may exercise its powers and perform its duties by or through and may select and employ agents, attorneys, etc and may in all cases pay to them or any of them such reasonable compensation as it deems proper," etc. The trustee may appoint the company its agent for the collection of any moneys due to the trustee for principal or interest on the securities pledged hereunder, etc. Also a portion of section 3, page 62, reads as follows: "Or if, for any reason, the Company shall refuse, or be or become unable, to act as agent for the Trustee for the collection of moneys due the Trustee for principal of or interest on the securities pledged hereunder, the Trustee shall be entitled to fair and reasonable compensation (over and above any and all other compensation to which it would otherwise be entitled hereunder) for any services it may render, or shall by the terms of this Trust Indenture be required to render in the execution of the trust hereby created, in addition to the services ordinarily required of it had such default, refusal or inability to act not occurred."

On August 16, 1926, George B. Lazarus negotiated a loan of $5,500 from the Guaranty Title & Trust Corporation of Norfolk, Va. This loan was evidenced by seven notes or bonds, all dated August 16, 1926. The first three bonds were in the sum of $500 each, and the last four in the sum of $1,000 each. Each of said bonds was payable to bearer "at the office of the Guaranty Title & Trust Corporation of Norfolk, Virginia." The first bond for $500 matured August 16, 1928, and the second bond matured August 16, 1929. These notes were deposited in the hands of the Citizens' Bank of Norfolk, Va., on November 23, 1926, under and by virtue of the terms of the trust indenture hereinbefore mentioned, along with many other bonds and notes of like character, totaling a large sum. Each of the Lazarus bonds had attached to it interest coupons in the sum of $15.

After procuring the money, Lazarus began making payments upon the indebtedness. When the first bond for $500 matured on the 16th of August, 1928, Lazarus paid the same in full to the Guaranty Title & Trust Corporation, and received from said corporation the said bonds marked "cancelled," and with the following words stamped thereon: "Paid Guaranty Title & Trust Corporation, Norfolk, Virginia." Lazarus also paid thirty-five interest coupons to the Guaranty Title & Trust Company, and each of said coupons was returned to him by said Guaranty Corporation marked "cancelled" and stamped thereon "Guaranty Title & Trust Corporation of Norfolk, Virginia," etc. Lazarus testified as follows: "When the notes were due or about ten days before they were due I always got a letter from the office of the Guaranty Title & Trust Corporation of Norfolk, Virginia, * * * and I always sent the money on that date and they would send me a receipt and coupon of what I paid. * * * After I paid the money I would later on receive coupons through the mail." On or about the 12th day of April, 1929, the defendant Lazarus applied to the plaintiff insurance company for a loan of $8,000 on his property. In order that the plaintiff should have a clear title, it was necessary to pay off the loan of $5,000 to the Guaranty Title & Trust Corporation. Thereupon, on April 1, 1929, Lazarus wrote a letter to the Guaranty Title & Trust Corporation as follows: "I am contemplating leaving this part of the country and liquidating all my business here and would like to straighten up that loan for $5,000.00 on my house. The number of the loan is 3492. Kindly let me know at once how soon I can take this off." On April 3, 1929, the Guaranty Title & Trust Corporation, through its vice president, Virginius Butt, replied to the Lazarus letter as follows: "Answering your letter of April 1st, relative to retiring your loan at Hendersonville we have communicated with the holders of your notes who agree to accept retirement of the unpaid balance, aggregating $5,000.00, for a premium of three per cent, or $150.00. Your check in the principal amount of $5,300.00, with interest on $5,000.00, from February 16, 1929, to date of remittance should be forwarded to us at your convenience and the notes will be returned." Thereafter, on May 2, 1929, the attorneys for Lazarus duly sent a check for $5,365, payable to the Guaranty Title & Trust Corporation. There was a notation on the check to the effect that it was in payment for the balance of principal, interest, and anticipation fee of $300. This check was duly deposited by the Guaranty Corporation to its credit in the Seaboard Citizens' National Bank of Norfolk, and on May 4 the Guaranty Corporation acknowledged receipt of check to the attorneys of Lazarus, stating in the letter: "Instructions are going forward to our Accounting Department today to forward notes, deed of trust and insurance policies which will probably be mailed on Monday."

Lazarus did not receive his papers, and the Guaranty Title & Trust Corporation was placed in the hands of a receiver on June 25, 1929, and afterwards became a bankrupt.

The Citizens' Bank of Norfolk, Va., was duly merged with the Seaboard Citizens' National Bank of Norfolk, and under and by virtue of provision in the trust indenture the said Seaboard Citizens' National Bank became the successor trustee to the original trustee named in the indenture.

Lazarus made ten payments to the Equitable, and testified subsequently: "A man came in and asked me about the loan and said he represented the Guaranty Title & Trust Company and said it...