Hahn v. Smith

• Decision Date: 10 July 1930
• Docket Number: 12946.
• Parties: HAHN v. SMITH.
• Court: South Carolina Supreme Court

154 S.E. 112

157 S.C. 157

HAHN v. SMITH.

No. 12946.

Supreme Court of South Carolina

July 10, 1930

Appeal from Common Pleas Circuit Court of Marion County; S.W. G Shipp, Judge.

Action to foreclose a mortgage, brought by Fannie B. Hahn against H. Stacy Smith, as executor of the estate of N. P. Smith, deceased. The cause was referred to the probate judge, who subsequently filed his report in favor of plaintiff, to which defendant excepted. The circuit court confirmed the report and decreed foreclosure, and defendant appeals.

The report of the probate judge was as follows:

This action was brought for the foreclosure of a mortgage given by A. D. Owens to E. T. Hughes and for judgment for the amount due thereon against A. D. Owens and the defendant Edna C Hughes, as administratrix of the estate of E. T. Hughes deceased. Eady V. Gasque and N. P. Smith were made parties defendant upon the allegation that they claim some interest in the premises. The defendant Eady V. Gasque made default. The defendant N. P. Smith duly answered alleging that he was the legal owner and holder of the mortgage in question and of the debt secured thereby, and that there was due him thereon the sum of $2,000.00 with interest from May 2, 1922, at the rate of eight per cent. per annum, together with attorney's fees. Some time after the reference in this case was held N. P. Smith died, and the action has been continued against H. Stacy Smith, as executor of his will. The defendant Edna C. Hughes, as administratrix of the estate of of E. T. Hughes, deceased, duly answered alleging, among other things, that the estate E. T. Hughes is wholly insolvent. Consequently, plaintiff has waived her claim for judgment against the Hughes estate.

Counsel consenting, the case was referred to me by Hon. S.W. G Shipp, Judge of the Twelfth Circuit, by his order dated February 9, 1924, to hear and determine all the issues of law and of fact. Pursuant thereto I held a reference at which the testimony herewith filed was taken.

On August 25, 1929, A. D. Owens made and delivered to E. T Hughes his promissory note in writing, dated on that day, whereby for value received, he promised to pay to the order of E. T. Hughes on August 25, 1920, the sum of $3,000.00, with interest after maturity at the rate of eight per cent. per annum, payable annually, and if not so paid each year's interest to be added to the principal and bear interest at the same rate; and on the same day, in order to secure this note, he executed to E. T. Hughes a mortgage upon a tract of land in the County and State aforesaid containing one hundred and four (104) acres as described in the complaint. This mortgage was recorded in the Clerk's office for Marion County, S. C., on August 25, 1919, in Book 54, at page 168. The note and mortgage were on the day after their execution endorsed and delivered by Hughes to the plaintiff, Fannie Bear Hahn, for the full value thereof. The mortgage was endorsed in blank by E. T. Hughes, and the note was endorsed in blank by E. T. Hughes and Mullins & Hughes (a law firm composed of Henry Mullins and E. T. Hughes), the firm name of Mullins & Hughes being written by E. T. Hughes. Shortly thereafter the interest from the date to the maturity of the paper, to wit $240.00, was remitted to the plaintiff. The plaintiff resided in Wilmington, North Carolina, and one L. M. Bunting was employed by her in a clerical capacity. Her nephew, Harriss Newman, Esq., an attorney-at-law, was her personal attorney. Both Bunting and Newman also resided in Wilmington. The testimony shows that the mortgage remained in the hands of either Bunting or Newman for the plaintiff until it was sent to Hughes for collection as hereinafter set forth. The testimony also shows that the note remained in the hands of either Bunting or Newman for the plaintiff until it was sent to L. D. Lide for the purpose of instituting the present action. No payments were ever made on the note and mortgage in question, except the payment of interest from its date to maturity above mentioned.

On or about December 7, 1921, L. M. Bunting mailed the mortgage in question, together with four other mortgages , to E. T. Hughes for collection. Aside from the oral testimony to that effect there was introduced in evidence a letter written by Bunting to Hughes, dated December 7, 1921, together with a list of the mortgages, including the mortgage in question. Mr. Bunting says in his letter that he trusts "you can make them come across with the cash." The list shows that only the mortgages were sent. Several references are made to this letter in the testimony, because at the time the testimony was taken the letter appears to have been misplaced, it being thought that it had been delivered to Mr. Newman. This, however, was a mistake, but defendant's attorney subsequently procured the letter, and by agreement of counsel, it was introduced in evidence. Mr. Hughes died on September 5, 1922, and Mr. Bunting died in February, 1923. The letter of December 7, 1921, refers to a letter written by Hughes of December 5, 1921, but this letter appears to have been lost.

On May 2, 1922, E. T. Hughes made a note to N. P. Smith for $2,000.00 due July 2, 1922, with interest from date and after maturity at the rate of eight per cent. per annum, payable annually in advance, and if not so paid each year's interest to be added to the principal and bear interest at the same rate. The consideration of this note was the sum of $2,000.00 which was paid by Smith to Hughes at the time the note was executed. Hughes delivered to Smith as collateral security for this note the mortgage above mentioned and also a note given him by A. D. Owens dated December 19, 1921, and due January 15, 1922, in the principal sum of $3,480.00, with discount before and interest after maturity at the rate of eight per cent. per annum, payable annually in advance, and if not so paid each year's interest to be added to the principal and bear interest at the same rate. On the lower left hand corner of this note the word ""Renewal" is written in the handwriting of E. T. Hughes. It is admitted that Owens signed this note, but nothing else appears in the testimony in reference to it.

The plaintiff had no knowledge whatsoever of the transaction with Smith until some time after the death of Hughes. Mr. Newman came to Marion bringing with him a letter from Bunting to Mr. Henry Mullins dated September 9, 1922, requesting him to turn over to Mr. Newman the five mortgages which had been sent to Hughes as above stated. All of the mortgages except the Owens mortgage were found in the desk of Mr. Hughes, and were delivered by Mr. Mullins to Mr. Newman. Shortly thereafter plaintiff through her attorney, Mr. Newman, learned for the first time of the Smith transaction.

The facts above stated are the salient facts in the case, and are practically undisputed. The plaintiff was undoubtedly the lawful owner and holder of the note executed by A. D. Owens dated August 25, 1919, and the mortgage was in the hands of Hughes for collection only. It is obvious that Hughes had no right to make any other use of the mortgage, and the transaction he had with Smith was corrupt and fraudulent. The contention made in behalf of the defendant Smith is substantially to the effect that both the plaintiff and himself were innocent, and that where one of two innocent persons must suffer because of the fraudulent conduct of another the loss should fall upon that one whose negligence enabled the fraud to be committed. In other words, he contends that the plaintiff placed it within the power of Hughes to commit the fraud by delivering to him the mortgage in question which was made to Hughes himself and merely bore his endorsement in blank. On the other hand, it appears that the plaintiff so far from being negligent took unusual precautions through Bunting, in that he did not send Hughes the notes which the mortgages were given to secure.

The assignment of the bond or note carries with it the mortgage, but the assignment of the mortgage as distinct from the debt which it secures is nugatory and confers no rights upon the assignee. 27 Cyc., 1286. In the case of Cleveland v. Cohrs, 10 S.C. 224, the Court says: "The rule of law is well established that the assignment of the bond carries with it the mortgage, but the assignment of the mortgage does not necessarily carry with it the bond. The bond represents the debt, while the mortgage is a mere security for the payment of such debt. One is the principal, the other is the mere accessory; and while the assignment of the principal carries with it the accessory, the assignment of the accessory does not carry with it the principal."

In the case of Patterson v. Rabb, 38 S.C. 138, 17 S.E. 463, 465, 19 L. R. A. 831, the Court says: "There is no longer any room to doubt that, in view of the repeated adjudications in this state, a mortgage is only to be regarded as a mere security for debt."

In the case of Ballou v. Young, 42 S.C. 170, 20 S.E. 84, 85, the Court says: "The transfer of a note carries with it a mortgage given to secure payment of such note."

See also Walker v. Kee, 14 S.C. 142; Whitmire v. Boyd, 53 S.C. 315, 31 S.E. 306; McDaniel v. Stroud (C. C. A.) 106 F. 486.

It is therefore, manifest that in view of the fact that Hughes did not have possession of the note secured by the mortgage, but that the same remained in the possession of the plaintiff, the attempted assignment of the mortgage was a nullity. It is argued in behalf of the defendant Smith, however, that since there was delivered to him with the mortgage a note purporting to be a renewal he thereby became vested with the title to the debt and the mortgage. The undisputed evidence shows that the plaintiff had no...