Scottish-American Mortg. Co. v. Clowney

• Decision Date: 24 November 1904
• Parties: SCOTTISH-AMERICAN MORTG. CO. v. CLOWNEY et al.
• Court: South Carolina Supreme Court

49 S.E. 569

70 S.C. 229

SCOTTISH-AMERICAN MORTG. CO. v. CLOWNEY et al.

Supreme Court of South Carolina

November 24, 1904

Appeal from Common Pleas Circuit Court of Fairfield County; Allen J Green, Special Judge.

Action by the Scottish-American Mortgage Company against Margaret M Clowney and others. From the decree, plaintiff and certain of the defendants appeal. Modified.

The circuit decree is as follows:

"This action was commenced May 7, 1901, and is brought by the plaintiff against the defendants for the purpose of removing a cloud upon its title, and, failing therein, to be subrogated to the rights of an alleged purchase-money mortgage, which it is alleged was paid with its money. The defendant M. M. Clowney made default. The other defendants who are the children of W. J. Clowney, the beneficiaries under the trust deed hereinafter mentioned, answered; the last named, Boyd C. Clowney, an infant, by his guardian ad litem. The cause was referred to James G. McCants, Esq. referee, to take the testimony upon the issues raised by the pleadings, and came on to be heard before me at the special November term, 1903, of the court of common pleas for Fairfield county upon the pleadings and testimony so taken. There is no controversy as to the facts. The issues raised and argued are as to the proper conclusions to be drawn from the facts and the principles of law applicable thereto.

The facts are as follows: On the 1st of January, 1877, Samuel B. Clowney, by his deed dated on that day, reciting 'in consideration of the sum of $2,500, secured to be paid to me by William J. Clowney, trustee,' conveys with full warranty to said 'W. J. Clowney, as trustee, his successors or assigns,' a tract of land in Fairfield county, fully described therein, containing 649 acres, more or less, in trust 'to and for the use, benefit, and behoof of the children of the said William J. Clowney now living, and of them which may hereafter be born and living at the time of the death of the said William J Clowney; and if all of the children of the said William J. Clowney shall die in his lifetime, leaving no issue, or if he shall die without leaving an issue living at the time of his death, then it is agreed by and between the parties to these presents that said tract of land shall revert to the said Samuel B. Clowney, his heirs and assigns forever, discharged and free from all trusts whatsoever; and the said William J. Clowney is hereby authorized and empowered to sell or otherwise dispose of the said tract of land whenever, in his judgment, it may be expedient for his said children, and to reinvest the proceeds upon the same trusts and subject to like reversion to the said Samuel B. Clowney, his heirs and assigns forever, as is hereinbefore provided as to said tract of land.' On the same 1st day of January, 1877, the said W. J. Clowney, as trustee, mortgaged the said premises to the said Samuel B. Clowney to secure his bond of even date, conditioned to pay $2,500 in one, two, and three equal annual installments, computing from date, with interest at 10 per cent. per annum, payable annually, until the whole debt and interest be paid. After the description of the premises in the mortgage appears these words: 'And being the same tract of land as was conveyed to me as trustee by the said Samuel B. Clowney by deed bearing even date with these presents.' The deed and mortgage is witnessed by the same witnesses, probated by the same officer on the 8th day of February, 1877, and recorded the same day. The bond and mortgage were assigned to Smythe & Adger by S. B. Clowney on the 17th day of March, 1877, and by them to George W. Witte on the 6th day of February, 1878.

On the 26th of April, 1886, proceedings were commenced to foreclose the said mortgage by an action in which George W. Witte was plaintiff, and William J. Clowney, as trustee, alone was defendant. This action proceeded to judgment for foreclosure and sale of the premises, the amount found due being $2,131.58, with interest from September 22, 1886, and $50 costs, and was docketed accordingly on the 8th day of October, 1886, in the proper office. In the meantime, pending this action, to wit, on the 9th of August, 1886, William J. Clowney, trustee, executed a deed conveying the said premises to his wife, M. M. Clowney, subject to the above mortgage, which deed was probated and recorded on September 16, 1886. This deed purports to be made 'in consideration of the sum of $3,700 in hand paid at and before the sealing of these presents,' and "in pursuance of the power conferred upon me, the said W. J. Clowney, trustee,' by the deed of January 1, 1877. Before the record of this deed W. J. Clowney handed Mr. H. A. Gaillard an application signed by M. M. Clowney to J. B. Palmer & Son, the investing agents of plaintiff, for a loan of $2,000, offering a mortgage of the premises as security. Mr. Gaillard was the attorney of W. J. Clowney in the Witte foreclosure suit, and also the attorney of J. B. Palmer & Son in negotiating the loan, and forwarded them the application, made the abstract of title, and upon the consummation of the transaction received in checks from them the sum of $1,922.50, the net proceeds of the loan, and applied the same in extinguishment of the judgment of Witte v. Clowney, trustee, on June 27, 1887. Subsequently the balance of the judgment was paid, and it was satisfied of record. The loan is evidenced by five notes dated November 15, 1886, signed by M. M. Clowney and W. J. Clowney, secured by a mortgage of the premises of the same date, executed by Mrs. M. M. Clowney alone. The mortgage was recorded on the 28th of January, 1887. On September 29, 1894, the mortgage was foreclosed, and the premises sold under the proceedings on November 5, 1894, and bought by the plaintiffs, who received the deed therefor, and have been in possession since.

The cestui que trustents under the trust deed were not made parties to either of the foreclosure proceedings. At the reference Mrs. M. M. Clowney testified, under objection of plaintiffs' counsel, that she had no knowledge of any deed to her of the premises; did not know that there was such a deed; that no money passed to her from Mr. Clowney, nor from the mortgage company to her. She did not know that she was the owner of the land, never claimed the land or exercised any acts of ownership over it, and never had anything to do with getting money from plaintiffs. The mortgage was folded down, and she signed where directed. Did not read it, or know what was in it, and could not see from the manner in which it was folded. W. J. Clowney, the trustee, died March 12, 1903, leaving the three last named defendants, his living children. These have answered, the two adults setting up five defenses as follows: 'Under the trust deed the trust was a naked trust, and the statute executed the title in them, and plaintiff has no title.' 'That they not having assented to the mortgage of W. J. Clowney to Samuel B. Clowney, the same is void for lack of power in the trustee to make. (3) That said bond and mortgage, if valid, has been foreclosed, and the judgment satisfied in full. (4) That the deed of W. J. Clowney, trustee, is void for want of power as a breach of trust of which the grantee had full notice. (5) That the notes and mortgage of M. M. Clowney to plaintiff from the foreclosure of which plaintiff derives title were taken by plaintiff with full notice of the breach of trust on the part of W. J. Clowney, trustee, as aforesaid.' And ask for the recovery of the land, and an accounting by the plaintiffs for the rents and profits thereof since January 1, 1895.

The trust under the deed of 1877 is not a naked trust. Under the deed the trustee had power to sell. This, under the authorities, is sufficient to prevent the operation of the statute. Carrigan v. Drake, 36 S.C. 355, 15 S.E. 339. It is equally clear under the authorities in this State that the power to sell for reinvestment contained in the deed does not include the power to mortgage. As said by McIver, C.J., in Allen v. Ruddell, 51 S.C. 366, 29 S.E. 198, such power to sell for reinvestment negatives the power to mortgage; citing Salinas v. Pearsall, 24 S.C. 184. But I think the circumstances in relation to the bond and mortgage by W. J. Clowney, trustee, to Samuel B. Clowney, coupled with the fact that there is an entire absence of testimony to show that W. J. Clowney ever had any trust funds in his hands impressed with the trust mentioned in the deed, shows unmistakably that this transaction was the creation of the trust, and the mortgage was given to secure the purchase money, and hence it falls within the principle of Elliott v. Mackorell, 19 S.C. 238, and cases there cited. It follows, therefore, that the mortgage was a valid lien upon the premises paramount to the interest of the cestui que trustents.

The testimony of Mrs. Clowney is competent. It is always competent to show that the consideration expressed in a deed was not in fact paid; and even the grantor may maintain an action to recover it, notwithstanding his deed. 2 Whart. Ev. No. 1042. Besides, the object of the testimony was to show a breach of trust, a fraud upon the beneficiaries under the deed; and the charge of fraud renders competent all testimony necessary to sustain it. Burch v. Brantley, 20 S.C. 503. This testimony is uncontradicted, and clearly shows that the transaction evidenced by the deed to Mrs. Clowney to plaintiff was an attempt on the part of the trustees to mortgage the trust property; that the alleged execution of

the power of sale for reinvestment was pretentious, and no money ever passed to or was received by the trustee; and I hold the deed is absolutely void. The deed, being void, is a nullity, and carries with it the mortgage of

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