January 27, 1920. The opinion of the Court was delivered by This action was brought to foreclose a mortgage of real estate, dated January 16, 1913, and given by J.A. Cockfield to Farmers Merchants Bank to secure his note for $1,090.76.
On November 2, 1914, J.A. Cockfield conveyed the land to H.W. Cockfield, subject to the mortgage to the bank, payment of which was assumed by H.W. Cockfield.
On November 3, 1914, H.W. Cockfield mortgaged the land to S.R. Cockfield to secure his note for $2,500 which was assigned before maturity to Home Fertilizer Chemical Company.
On February 2, 1915, the defendant, Farmers Merchants National Bank (successor to Farmers Merchants Bank), assigned the J.A. Cockfield note and mortgage to S. *Page 284 R. Cockfield, under the following circumstances: The bank having demanded payment thereof, it was arranged by the payment of $223.03 in cash and the giving of a new note for $901.03 which was signed by H.W. Cockfield, and indorsed by S.R. Cockfield and Mrs. F.C. Cockfield. This was done through S.R. Cockfield, who carried the money and new note to the bank and negotiated the business.
Instead of marking the J.A. Cockfield note and mortgage paid, or crediting the cash payment made thereon, the bank assigned them to S.R. Cockfield for the sole purpose, as testified by the cashier, of securing him and Mrs. F.C. Cockfield against loss by reason of their indorsement of H. W. Cockfield's note, which has not been paid, and upon which there is still due about $800. But no payment was ever made thereon by either of the indorsers.
The assignment, however, did not express the agreement above stated, but was as follows:
"For and in consideration of the sum named in the within paper we do hereby transfer, set over and assign all our rights, title, and interest in the within note and mortgage to S.R. Cockfield, his heirs and assigns forever, without recourse to or on us."
On February 26, 1916, S.R. Cockfield assigned said note and mortgage, which were then past due, to plaintiffs as collateral to secure them for advances which were to be made and were made to him during the year 1916. Plaintiffs knew nothing of the agreement above stated under which the note and mortgage had been assigned to S.R. Cockfield by the bank, but took them in good faith, in reliance upon the form of the bank's assignment of them to him, and his statement to them that he was the absolute owner thereof, and that the full amount thereof was due to him, and plaintiffs had no notice of the agreement until after they had made the advances. *Page 285
In the meantime, on December 31, 1915, H.W. Cockfield mortgaged the land to S.R. Cockfield to secure his note for $1,831.84, which was assigned before maturity to the bank.
On January 17, 1917, M.B. Joye (presumably the grantee of H.W. Cockfield) mortgaged the land to S.R. Cockfield to secure his note for $5,000, which was assigned at once to the bank.
Appellants contended that the note and mortgage sued on were paid before their assignment to plaintiffs, and, having been assigned to plaintiffs after maturity, they took them subject to the equities existing between the original parties; and plaintiffs contended that by its unqualified assignment of them to S.R. Cockfield, by which he was allowed to hold himself out as the absolute owner thereof for the full amount due thereon, the bank is estopped from asserting the contrary.
We agree with the Circuit Court in sustaining the plaintiffs' contention. The rule in equity is that, where one of two innocent persons must suffer a loss, it must be borne by the one who, by his conduct, acts, or omissions, has made the injury possible. This rule as stated by Pomeroy was quoted and approved in Chambers v. Bookman, 67 S.C. 432,451, 46 S.E. 39. By the form of its assignment to S.R. Cockfield the bank made it possible for him to commit a fraud upon plaintiffs, unless the bank is now held to be estopped to deny that the assignment spoke the truth, and it follows the bank should suffer the loss.
The words "for and in consideration of the sum named in the within paper" were calculated to mislead plaintiffs into the belief that S.R. Cockfield had paid to the bank the amount due on the note and mortgage and was entitled to hold the same as securities therefor. By its form the necessary implication of the assignment was that the note and mortgage were valid subsisting securities for the amount *Page 286 due thereon, and that the bank had good title thereto and the right to give its assignee such a title. Wait v. Williams,107 S.C. 32, 91 S.E. 969.
It is contended on behalf of H.W. Cockfield, though he is in default, and admitted to be insolvent, that to sustain the plaintiffs' contention would cause him to have to pay the same debt twice. That does not necessarily follow. But we are not called upon to decide that issue, or any issue that may arise between H. W. Cockfield and the bank, as to his liability to pay the note which the bank holds against him. The issue here is between the plaintiffs and the bank.
The principle relied upon by appellants that one who buys a nonnegotiable security takes it subject to all equities existing between the original parties is sound, but inapplicable where such original parties have, by their conduct, acts, or omissions, estopped themselves from asserting the existence of such equities. There is no conflict between the two rules.
Appellants' argument is predicated upon the assumption that plaintiffs are not entitled to the protection of bona fide purchasers for value without notice within the equity rule, because they took the note and mortgage as security for the payment of a pre-existing debt. But, as hereinbefore stated, the evidence satisfies us, as it did the Circuit Court, that the note and mortgage were not taken to secure a pre-existing debt, but to secure the payment of advances to be made and actually made during the year 1916, before plaintiffs had any notice of the defect in their assignor's title.
Judgment affirmed. *Page 287