A reconsideration of this appeal, induced by the petition herein, has convinced me that the master was right in his conclusions, that the Circuit Judge was wrong, and that the petition therefore should be granted. My concurrence in the opinion of Mr. Justice Watts, affirming the decree of Judge Memminger for the reasons stated by him, is withdrawn, and, in the event of a dismissal of the petition, let this opinion appear as a dissenting opinion to the judgment of this Court.
I have adopted this course for the additional reason that the great debacle which overtook the Carolina Bond Mortgage Company, of which C.H. Barron was president, has overwhelmed in its "back-wash" numberless innocent persons, whose rights will doubtless be sooner or later before this Court for adjudication, and it is becoming that as clear a statement of the law as possible be made for future guidance.
The undisputed facts connected with the present controversy are as follows:
Beginning as far back as 1911, the law firm with which Charles H. Barron was connected, in the City of Columbia, acted as the agents or attorneys for the plaintiff, J.S. Land, *Page 279 in the matter of negotiating loans upon real estate mortgages for him. The notes and mortgages were invariably taken in the name of Land and delivered to him after the mortgages had been recorded; they were at all times thereafter in his possession. The firm guaranteed to Land the payment of all interest upon loans negotiated for him by them, and at the interest periods collected the interest and remitted it to Land. They were not specifically authorized to collect the principal or any part of it, although in three or four instances cited they did collect the principals upon loans as they fell due, and accounted to Land therefor, either by paying him the cash, or by turning over to him new securities. In each instance Land required a prompt accounting.
On or about July 1, 1919 (neither the note nor the mortgage is dated, but it is conceded that the transaction occurred about this time), the defendants, trustees of the Union Baptist Church (colored), in the City of Columbia, applied to Barron for a loan of $3,000. Land was notified by Barron of the application, and agreed to make the loan. Accordingly a bond and mortgage were executed by the defendants, payable to Land, admittedly by the answer to have been dated July 3, 1919, for $3,000, payable June 3, 1922, with interest payable semiannually at 8 per cent., and a reasonable attorney's fee. The papers were prepared in Barron's office; the money paid to the defendants by the checks of the firm; the mortgage was recorded; and it, with the bond and insurance policy, was delivered by Barron to Land, who has since held all of them in his possession. On the semiannual periods thereafter, and until Barron's death in November, 1922, the firm regularly remitted to Land the accrued interest. On October 4, 1920, the defendants claim to have paid Barron the sum of $1,000 upon the debt, and on June 21, 1922, $700. No part of these payments was remitted by Barron to Land, although he continued at the periods of January 1, 1921, July 1, 1921, January 1, *Page 280 1922, and July 1, 1922, to remit to Land the semiannual interest on $3,000 at 8 per cent., $120, as if no payments in the meantime had been made by the defendants. Land knew nothing of these payments, and, as stated, received no part of them.
On April 28, 1923, after the death of Barron, Land instituted this action for the foreclosure of his mortgage, claiming that no part of the debt had been paid except the interest up to July 1, 1922. The defendants answered the complaint, which was in the usual form, admitting the main allegations thereof, but contending that they were entitled to credit upon the debt for the $1,000 paid on October 4, 1920, and the $700 paid on June 21, 1922.
The case was referred to J.C. Townsend, Esq., master of Richland County, who filed his report, dated May 26, 1924, sustaining the contention of the plaintiff, and recommending foreclosure for the full full amount claimed, $3,000, with interest from July 1, 1922, aggregating $3,658 as of May 27, 1924, with $200 attorney's fees.
To this report the defendants filed exceptions. The matter came on to be heard before his Honor, Judge Memminger, in the latter part of the year 1924, and he later filed a decree, dated January 19, 1925, reversing the report of the master, and sustaining the contention of the defendants, and decreeing foreclosure for $1,300, with interest to February 6, 1925, aggregating $1,570.34 and $50 attorney's fees.
From this decree the plaintiff has appealed upon exceptions which fairly raise the questions hereinafter considered.
The principal ground upon which I base my opinion that the petition for a rehearing should be granted is that the payments claimed as credits were made to Barron's firm before the maturity of the bond and mortgage, and that there is not a particle of evidence tending to show that he was either expressly or impliedly authorized to receive them; considerations to which I respectfully submit the Court in its opinion of affirmance have been inadvertent. *Page 281
Counsel for the defendants appear to have fully appreciated this difficulty, for upon the reference before the master they offered parol testimony tending to show that, at the time the negotiations were closed with Barron, it was agreed that, at any time before the debt matured, the defendants should have the privilege of making such payments upon the principal as they desired, thus reducing it and lessening the interest. The plaintiff objected to this testimony on the ground, among others, that it tended to vary the terms of the written instruments. The master held that no authority had been "given to change the terms of the contract contained in the bond and mortgage to accept any part before maturity, and that any collections so made were without authority, either expressed or implied, in so far as the same specifically relates to any collections on the bond and mortgage, the subject of the action." This ruling was excepted to by the defendants.
The Circuit Judge, in his decree, holds:
"The negroes paid interest to the law firm, and, pursuant to an agreement with the law firm, made at the time of the execution and delivery of the mortgage, paid before maturity, on account of the principal, two payments amounting to $1,700."
This conclusion was reached upon a consideration of parol evidence contained in the testimony of Charlie Smith, one of the trustees of the church who signed the bond and mortgage, to this effect, that, at the time of the execution of the papers, Mr. Barron agreed that "he would accept any amount on the principal, whenever we were able to raise it, that it would make it easier on us not having so much interest, and we did so"; in the testimony of Joe Wilson, another trustee, "I think we were to pay him $1,000 a year, something like that"; and in the testimony of Dallas Robinson, another trustee, "As we paid on the principal, the interest *Page 282 would be reduced, * * * that you (we) could pay it back to him along, and reduce the interest."
The papers contained no such agreement; the bond was payable at a fixed time, three years after date, maturing July 3, 1922. The payments were made October 4, 1920, and June 21, 1922. The plaintiff entered objection to this testimony upon the ground that it tended to vary the terms of the bond in a material particular.
There being no other direct evidence in the case tending to establish the contractual right of the defendants to anticipate payment of the principal or any part of it, and the reciprocal obligation on the mortgagee to accept such payment, it is manifest that, if this testimony be held inadmissible under the "parol evidence rule," the appeal will turn upon the question whether there is any evidence in the case tending to establish implied authority on the part of Barron's firm to accept the payments, or estoppel on the part of the plaintiff to deny such authority.
In orderly fashion, therefore, it appears appropriate to consider, first, the admissibility of the parol evidence; and, if the conclusion should be adverse to its admissibility, the further questions of implied authority and estoppel.
The "parol evidence rule" is:
"Parol contemporaneous evidence is inadmissible to contradict or vary the terms of a written instrument." Lagronev. Timmerman, 46 S.C. 372; 24 S.E., 290, and 100 other authorities that might be cited.
In Knighton v. Desportes Mercantile Co., 119 S.C. 340;112 S.E., 343, it is said:
"The rule of necessity applies to the essential elements of the agreement which the parties intended to crytalize in the writing, it does not extend to the formal, nonessential features of the contract writing, nor to independent agreements which do not contradict, vary, or add to the contract, and which are not inconsistent with it." *Page 283
Every term of the contract which is material, essential, is under the protection of the rule. It rarely happens that the oblige will decline an offer of fulfillment by the obligor pending the maturity of the paper. Circumstances, however, may be such as to make it to his interest to do so, as for instance the difficulty of reinvestment and the consequent loss of interest; but, whether it be to his advantage or not, even though moved by whim, fancy, a disobliging disposition, or what not, he has unquestionably the right to stand upon the "nomination" in the bond. If the obligor has the right to prove by parol a collateral agreement allowing anticipation, I can see no valid reason for denying to the obligee a reciprocal agreement compelling anticipation. I apprehend that it will not be contended that the latter right could exist, in the face of the express terms of the writing.
The maturity of a bond or note is necessarily a material term of the contract. By it the obligor is secure from pressure during the pendency of the immaturity; and at the same time the oblige, reciprocally, is free from the obligation to prematurely accept performance. In other words, the obligor cannot be compelled to pay or perform, and the oblige cannot be compelled to accept payment or performance.
In Nalitzky v. Williams, 237 F., 802; 151 C.C.A., 44, the syllabus is:
"Parol evidence is not admissible to vary the unqualified terms of a note by proving an agreement that it might be paid off in installments."
The opinion declares:
"The second defense asserts that, when the note was made, the bank agreed that the debt might be paid off by small installments — $50 or $75 — an agreement that would be violated if recovery were now permitted. Evidence to this effect was offered, but was correctly rejected; no authority *Page 284 need be cited for the proposition that the unqualified terms of the note cannot be thus varied by parol testimony."
In Crooker v. Hamilton, 3 Ga. App. 190; 59 S.E., 722, the syllabus by the Court is:
"Parol evidence is inadmissible to vary the terms of payment or the date of the maturity of a promissory note, or to in graft upon the note a provision for an extension of time."
"The debtor may of course pay the bill or note to any one who is the holder, under an indorsement to him personally, or an indorsement in blank, at any time before maturity, provided the holder consents to receive payment. But if the debtor, from the prospect of some benefit by the rate of exchange, or otherwise, should offer payment before the term arrives, the creditor is not bound to take it, since the term of payment is a condition of the bill or note fixed equally for behoof of both parties." 2 Daniel, Neg. Inst. (5th Ed.), § 1234.
"The maker of a note has no right to pay the same before maturity without the consent of the holder." 8 C.J., 602.
It is axiomatic, that an action cannot be brought upon a note or bond until after maturity, for the reason that the written contract so provides by necessary implication in fixing the maturity. Clearly parol evidence would not be admissible to vary this term of the contract and, if not, the maturity is as binding upon the maker as upon the payee, and the same rule should apply when the maker attempts to change the term.
In Strachan v. Muxlow, 24 Wis. 21, it was held, quoting syllabus:
"Where a buyer gave his note payable to a third party or order, an alleged contemporaneous agreement allowing him to pay it before maturity, and stopping the interest, or to pay it to the seller when due, contradicts the note." *Page 285
In Doar v. Gibbes, Bailey Eq., 371, it was held that parol evidence was not admissible to enlarge the time within which the terms of a written agreement for the sale of land were to be complied with.
In Dierck v. Roberts, 13 S.C. 338, it was held, quoting syllabus:
"If a note on the face of it, purports to be an absolute engagement to pay money at a certain time, no parol evidence of an agreement at the time to renew and give indulgence will be admissible to defeat the action on the note."
It would appear illogical to hold that parol evidence is inadmissible to extend the maturity and admissible to accelerate it.
In Thompson v. Ketcham, 8 Johns. (N.Y.), 189, 5 Am. Dec., 332, it was held that the time of the payment of a note is a part of the contract.
In Trentman v. Fletcher, 100 Ind., 105, it was held that a note due at fixed time could not be changed by a verbal agreement that it was to be paid from time to time.
"It is a general principle of law that parol evidence is inadmissible to vary or contradict a written contract. Therefore, if a bill or note be absolute upon its face, no evidence of a verbal agreement made at the same time, qualifying its terms, can be admitted. * * * The principle applies to every element of the instrument." 1 Dan. Neg. Inst. (5th Ed.), §§ 80, 81.
"Neither the mortgagor nor any third person can compel the mortgagee to accept payment of the mortgage debt before it falls due according to the terms of the mortgage, unless the right has been reserved." 27 Cyc., 1389.
In Oxweld Co. v. Davis, 115 S.C. 426; 106 S.E., 157, approved in Colt v. Britt, 129 S.C. 226; 123 S.E., 845, it was held that, where a written contract provides no specific time for performance, the law implies a reasonable time, *Page 286 and that parol evidence tending to fix a definite time will not be received.
As to the inadmissibility of parol testimony affecting the declared maturity of a note, see Nicholas v. Krebs,11 Ala., 230. Joyner v. Turner, 19 Ark. 690. Stucksleger v. Smith,27 Iowa, 286. Curran v. Askin, 7 Ky. Law Rep., 367.Eaton v. Emerson, 14 Me., 335. Currier v. Hale,90 Mass. 47. Wooley v. Cobb, 165 Mass. 503; 43 N.E., 497.Thompson v. Ketcham, 4 Johns. (N.Y.) 285. Farmers' Merchants' Bank v. Whinfield, 24 Wend. (N.Y.), 419.Terrell v. Walker, 66 N.C. 244. Clarke v. Allen,132 Pa., 40; 18 A., 1071. Campbell v. Uphaw, 26 Tenn., 185; 46 Am. Dec., 75; 43 L.R.A. (note), 456.
I do not think that there is anything in the position taken by the Circuit Judge that, as Barron was the agent of the plaintiff in negotiating the loan, his declaration that the defendants might anticipate payment of the bond should be considered as a part of the res gestae. If Land himself had been drawing the papers, his declaration to that effect contradicting the express terms of the bond, would not have been admissible, and a fortiori the declaration of his agent would have been banned.
Next, as to the question whether there is any evidence tending to sustain the consequent burden imposed upon the defendants, of showing that Barron's firm was authorized to collect or receive a partial payment upon the principal of the bond.
The defendants are confronted by two stumbling blocks: (1) The payments were made when the bond and mortgage were both in the possession of the mortgagee; no requirement was made by them when they made the payments that the papers be produced by Barron to whom the payments were made. (2) Both of the payments were made before the bond matured. *Page 287
As to the payments to a supposed or alleged agent when the papers are in the possession of the mortgagee, the rule appears to be this: Under such circumstances there is no implied authority in the supposed agent to accept a payment; that when a debtor pays to one other than the holder of the papers, who has not possession of it, in order to validate such payment, the burden is upon him to show authority in such person to receive the payment, which of course may be done expressly or by implication.
In South Branch Lumber Co. v. Littlejohn, 31 Neb. 606;48 N.W., 476, the syllabus by the Court is:
"A party who pays money to another to be applied on a note which such person has not in his possession assumes the burden of proof to show the authority of the person to whom payment is made to receive the money."
"Payment of negotiable note secured by mortgage to the original mortgagee not in possession of the note or mortgage, is not binding on assignee before maturity, unless he had authorized such payment." Scott v. Taylor, 63 Fla., 612;58 So., 30.
"Payment of a negotiable note secured by mortgage, to the mortgagee, when not in possession of the note and mortgage, is not binding on an assignee before maturity who had possession of the papers at the time of payment, unless he has expressly or impliedly authorized such payment."Chase v. Commerce Trust Co., 101 Okla. 182; 224 P., 148.
In Murphy v. Barnard, 162 Mass. 72; 38 N.E., 29; 44 Am. St. Rep., 340, the syllabus is:
"Payments made to a mortgagee after he has assigned the mortgage are at the peril of the mortgagor, and he is not entitled to be credited therewith, if the mortgagee did not, at the time, produce the original negotiable notes which the mortgage was given to secure, though such notes were in fact in his possession in another city, if he was not *Page 288 authorized to receive such payment, and it was not induced by the fact of such possession."
"When a mortgagee assigns the mortgage and a negotiable note secured thereby, before maturity, and for a valuable consideration, and the mortgagor, without knowledge of such assignment, pays the mortgage debt to the administrator of the original mortgagee without requiring the production of the note and mortgage, such payment is no defense to foreclosure of the mortgage by the assignee."Williams v. Keyes, 90 Mich., 290; 51 N.W., 520; 30 Am. St. Rep., 438.
"Where a note secured by mortgage is assigned by a mortgagee, and payment by the mortgagor, without knowledge of the assignment is made to one whom he believes to be the agent of the original mortgagee, before the mortgage is due, and without production of the note or mortgage by such agent, it is not binding on the assignee of the mortgage, where neither the original mortgagee nor the agent to whom payment is made is shown to be the agent of such assignee."Dodge v. Berkenfeld, 20 Mont., 115; 49 P., 590.
The Court said:
"It was a most incautious act for him to pay them the amount of the note not yet due, without demanding of and receiving at their hands the note itself, all on the assumption that they were the agents of the owners of the papers."
"If money be due on a written security, it is the duty of the debtor, if he pays to an agent, to see that the person to whom he pays it is in possession of the security. For, though the money may have been advanced through the medium of the agent, yet, if the security do not remain in his possession, a payment to him will not discharge the debtor."Smith v. Kidd, 68 N.Y., 130; 23 Am. Rep., 157.
In Lane v. Duchac, 73 Wis. 646; 41 N.W., 962, it was held that, where a mortgagor pays the amount of the debt to one who he knows has not possession of the papers, and *Page 289 who undertakes merely to procure a release from the mortgagee, the mortgagor assumes the risks of the release being procured in that manner.
"A mortgagor who pays interest or principal upon a mortgage to any one other than the mortgagee himself, when the person receiving such payment has not in his possession the obligation, does so at his peril. In order to hold the principal to such payment he must prove express authority."Crane v. Evans, 2 How. Prac. (N. S) (N.Y.), 310.
"Payment to the original holder of a negotiable note, secured by a mortgage, of the amount due, is at the risk of the one making it, unless it is authorized by the true owner or justified by possession of the securities." Koen v. Miller,105 Ark. 152; 150 S.W. 411.
"Where mortgagors paid the principal and interest to the broker who negotiated the loan, and the broker has no express authority to receive payment, and did not have the mortgage note or mortgage in his possession when the payment was made, such a payment did not operate as a satisfaction of the mortgage; the broker having no implied authority to receive payment." Thacker v. Medburg, 33 R.I. 37;80 A., 186.
"Where a debtor owing money on a written instrument pays another as creditor's agent, it is debtor's duty at his peril to see that the one paid is in the possession of the obligation, or, if not so in possession, debtor must show that the person to whom he pays has special authority to receive payment."Sioux City Co. v. Lovrien, 198 Iowa, 296;197 N.W., 914.
"The lack of possession of a note and mortgage is sufficient to put the debtor on inquiry as to the authority of the alleged agent to receive payment." Pioneer Co. v. Randall,113 Kan., 62; 213 P., 668.
"Where the assignee of a note and mortgage permits the original mortgagee, without intrusting him with the note, *Page 290 to collect the interest as agent, and the mortgagor, ignorant of the assignment, pays the agent both principal and interest without compelling a production of the instruments, he is not entitled to a cancellation." Biggerstaff v. Marston,161 Mass. 101; 36 N.E., 785.
"It is the duty of a person paying a note or bond secured by mortgage to require the production and cancellation of these instruments as a condition of payment, and a payment without requiring the production and cancellation of these instruments is at the risk of the person making the same. In order that such payment be effectual, the burden is on him to show that he paid the true owner or his agent having express or implied authority to receive the payment." AssetsRealization Co. v. Clark, 205 N.Y., 105; 98 N.E., 457; 41 L.R.A. (N.S.), 462, note.
In Hoffmaster v. Black, 78 Ohio St., 1; 84 N.E., 423, 21 L.R.A. (N.S.), 52; 125 Am. St. Rep., 679; 14 Ann. Cas., 877, it is pertinently said:
"When the defendants made payments to Hood [the alleged agent] without requiring the production of the securities, it was no more than if they had intrusted such payment to a messenger boy. That which reached the plaintiff was good payment. That which did not reach the plaintiff was at their own risk."
In Tappan v. Morseman, 18 Iowa, 499, in an opinion by Judge Dillon, it is said:
"If a debtor, owing money on a written security, pays to or settles with another as agent, it is his duty, at his peril, to see that the person thus paid or settled with is in possession of the security. If not thus in possession, the debtor must show that the person to whom he pays or with whom he settles has special authority, or has been represented by the creditor to have such authority, although for some reason not in possession of the security." *Page 291
In Biggerstaff v. Marston, 161 Mass. 101;36 N.E., 785, it is held that:
"Where the assignee of a note and mortgage permits the original mortgagee, without intrusting him with the note, to collect the interest as agent, and the mortgagor, ignorant of the assignment, pays the agent both principal and interest without compelling a production of the instruments, he is not entitled to a cancellation."
"Payment of a mortgage debt to the broker who negotiated the loan, after he had parted with possession of the notes and mortgage, does not relieve the mortgagor from liability thereon, and it is wholly immaterial that the owner of the mortgage has other transactions with the broker and has money deposited with him." Viskocil v. Doktor, 27 Ill. App. 232.
"Payment of the principal of a mortgage to one who assumed to be, but was not, the mortgagee's agent, and had not possession of the security, is not a discharge of the bond and mortgage, although interest on that and other mortgages had in several cases been paid through him." Cox v. Cutter,28 N.J. Eq., 13.
It is held by some authorities that the mere fact that the supposed agent is not in possession of the securities when the payment is made is conclusive upon the defense of payment made by the debtor, but the better rule is that the fact is one to be submitted to the triers of fact, as a circumstance against the authority of the supposed agent; the burden being on the debtor to establish the authorization.
If the payments had been made at or after the maturity of the bond, under the facts of this case, the defense would have been much stronger. The evidence shows, and the plaintiff admits, that upon at least three occasions Barron collected the principals of the mortgages and so notified him in each instance; that he insisted upon a prompt accounting by Barron, and, when either the money was turned over to *Page 292 him or new loans made, he marked the mortgages satisfied of record, without repudiating or even criticizing the action of Barron and without notifying the debtors that he was not authorized so to do.
This evidences a course of dealing between Barron and Land from which the inference could reasonably be drawn that as a matter of fact Barron was authorized to collect the principals upon the mortgages held by Land as they fell due, although they may at the time have been in the possession of Land. It does not appear that the defendants had notice of this course of dealing, and were misled thereby to confide in the supposed authority of Barron. If they did not, the question whether they can take advantage of a course of dealing of which they had no knowledge may be passed over for the present, in view of the following consideration which is conclusive against the defendants: The payments were made before the bond was due, and the authorities are unanimous in holding that express authority must be shown. The fact that the mortgagee may have allowed the agent to collect the principals of mortgages at or after maturity is no evidence of authority to collect them before; that is all that the defendants have to rely upon, for there is not a particle of evidence showing express authority on the part of Barron to collect such principals before maturity.
In Weldon v. Tollman, 67 F., 986; 15 C.C.A., 138, the Court said:
"The payment in question was made in advance of the maturity of the note to a person who was neither the payee nor indorsee of the note, and who was not at the time in the possession of the paper or of the deed of trust securing the same. The fact that the person to whom the payment was made was named as trustee in a deed executed by the maker of the note to secure the payment thereof, and that he was given power, under certain circumstances, at the request of the holder of the note, to sell the property conveyed *Page 293 for the purpose of paying the debt, did not give him even a colorable authority to collect the note in advance of maturity; there having been in the meantime no default which would authorize the holder of the paper to call upon the trustee to execute the trust. One who makes a payment under such circumstances to a person who is in fact unauthorized to receive payment, and is not even in possession of the note intended to be paid, does so at his own risk. A payment of that nature does not operate to extinguish the obligation on account of which the payment is made, unless the act is subsequently ratified by the owner and holder of the obligation."
In Keohane v. Smith, 97 Ill., 156, it was held that, where a note and mortgage were taken as security for a loan by the mortgagee, and later a third party left with the mortgagee funds for investment, and the mortgagee assigned the note to such person, a payment of the mortgage by the mortgagor to the mortgagee before the maturity of the note did not discharge the mortgage as against such assignee.
"Where the payee of two mortgage notes assigned them, payment to the payee before maturity will not affect the rights of the assignee." Hoffacker v. Manufacturers' Nat.Bank (Md.), 23 A., 579.
"It is not such care as ordinarily prudent persons observe in the transaction of business, to pay off a note secured by mortgage and take a release from the mortgage before its maturity, without seeing or taking up the note or making inquiry as to whether the mortgagee is still the holder of the note." Mann v. Jummel, 183 Ill., 523; 56 N.E., 161.
In Schermerhorn v. Farley, 58 IIun., 66; 11 N.Y.S., 466, it was held that, although an agent had possession of the securities, and was authorized to collect the interest and the installments of principal as they fell due, payment made by the mortgagor before the maturity of the mortgage, not remitted *Page 294 to the mortgagee, constituted no defense to a suit for foreclosure.
"An attorney of a mortgagee, having possession of a bond secured by mortgage which permitted its payment by the mortgagor on or after July 1, 1907, upon giving 30 days' notice to the mortgagee of intention to pay, did not have apparent authority, by his possession of the bond, to receive payment thereof in October, 1907, where the debt was not matured by giving the 30 days' notice." Johnstone v. Burhans,68 Misc. Rep., 484; 124 N.Y.S., 465.
"In regard to the $2,400 mortgage, this case presents the further feature, that at the time of the payment the mortgage had still four years to run. No authority to change the terms of the contract can be implied from the fact that it was originally made through the attorney, and there is no evidence in this case of any such authority. Even though an agent have authority to receive payment of an obligation, this does not authorize him to receive it before it is due." Smith v. Kidd, 68 N.Y., 150; 23 Am. Rep., 157.
"And even though an agent have authority to receive payment of an obligation, this does not authorize him to receive it before it is due, in the absence of a known usage of trade or course of business in a particular employment or habit of dealing between the parties extending the ordinary reach of the authority." Mecham, Agency (1st Ed.), § 380; Story on Agency, § 98. Greenleaf, Ev. § 65.
"He (agent) is not authorized to receive payment before the obligation is due, or to collect the principal by reason of authority to collect the interest." Tiffany, Agency, § 28.
"An agent having authority to receive payment of a debt has no authority to receive payment before its maturity."Wynn v. Grant, 166 N.C. 39; 81 S.E., 949.
"An agent authorized to collect the principal and interest of a loan has no authority to" collect "the principal or interest before it is due, and payment made to him by the *Page 295 debtor before that time is at the latter's risk." Park v.Cross, 76 Minn., 187; 78 N.W., 1107; 77 Am. St. Rep., 630.
"Every person who pays money beforehand pays it at his own risk. The agent could not have claimed the money before it was due to the principal." Parnther v. Craitskell, 13 East, 432 (Lord Ellenborrough).
In Mars v. Mars, 27 S.C. 132; 3 S.E., 60, the Court said:
"So that in ordinary agencies * * * a third party dealing with an agent deals with him at the peril of showing that the act done was within the scope of the powers of the agent."
In Williams v. Paysinger, 15 S.C. 171, the Court said:
"`On making a payment upon a mortgage, the debtor should always require the production of the note or bond secured by it, otherwise it may turn out that this evidence of the debt has been assigned.' 2 Jones on Mort., § 956. `Where a recorded mortgage is discharged by a person other than the mortgagee, the person paying the money, and all subsequent purchasers as well, are bound to inquire what authority he had to discharge it, and are chargeable with the notice of such facts as, by proper inquiry, might have been ascertained.' 2 Jones an Mort. § 959. Sworthout [Swarthout]v. Curtis, 5 N.Y., 301 [55 Am. Dec., 345]. Paysinger was not the mortgagee. There was enough to put Sanders on the inquiry, and he must be held to have had notice of everything that due diligence would have discovered.'
There are several statements in the Circuit decree which I do not think are borne out by the evidence in the case. For instance, it is said:
"The mortgage shows on the face that it was executed by ignorant people on behalf of a negro church."
I can find no evidence sustaining this statement. Both bond and mortgage were signed by the trustees in their own names; the signatures fall very far short of stamping them as "ignorant people." It is also said: *Page 296
"Of course the face of the mortgage shows that it was made to Land, but it is not probable that the negroes knew this, and no doubt believed they were dealing with Barron."
Three of the trustees and the pastor were put upon the stand and not one of them testified that they did not know what appeared on both bond and mortgage, that the loan was being made by Land. The notices and receipts show that the loan was made by Land through Barron's firm.
On October 17, 1919, the trustees were notified of the renewal of a policy of insurance. In the letter it was stated:
"This policy has been delivered to Barron, Frierson Moffatt, attorneys for Mr. J.S. Land, who holds the mortgage on this property."
On December 15, 1919, Barron's firm notified the trustees of accruing interest "on your loan No. 398 from J.S. Land." On January 2, 1920, Barron's firm receipted to them "in full payment of interest on loan No. 398 from J.S. Land." On July 1, 1920, Barron's firm receipted to the "interest on loan No. 398 from J.S. Land." On December 16, 1920, Barron's firm notified them of accruing interest "on your loan No. 398 from J.S. Land." On January 3, 1921, Barron's firm receipted to them, "in full payment interest on loan No. 398 from J.S. Land." On January 1, 1922, Barron's firm receipted to them for "interest on loan No. 398." On June 21, 1922, Barron's firm receipted to them for $700, "being part of principal in the above loan," Union Baptist Church to J.S. Land.
The payment of $1,000 on October 4, 1920, is far from being satisfactorily established. On that day it appears that Barron's firm received a check for $1,000, and a receipt was issued to the trustees. The signature on the receipt is said to be illegible, and the body of the receipt declares: "Received of Union Baptist Church the sum of one thousand dollars, on account of loan Joseph Wilson to Union Baptist Church." The check furnishes no information as to what *Page 297 account it was intended to be applied, and not one of the trustees testified upon the subject.
The learned Circuit Judge relies strongly upon the principle that:
"Where one of two innocent persons must suffer by the wrongful act of a third, he will be required to bear the loss who was most at fault in letting it be brought about."
This statement invites a comparison between the conduct of Land and the mortgagors, in reference to the transactions under review, in an effort to determine who was as "most at fault." In my opinion there is not a circumstance which attaches the least blame to the mortgagee. He had every confidence in Barron, a young man, active, energetic, of pleasing address, and of excellent family; a reputation sustained everywhere until the disclosures began to come to light, long after Land's dealings with him began. He intrusted Barron with the investment of his money in real estate mortgages, and confided to him the collection of interest as it fell due, taking care to get possession of the securities and keep them.
It is thoroughly established, particularly by the recent decision of this Court in Bacot v. S.C. Loan Trust Co.,132 S.C. 340; 127 S.E., 562, that:
"The fact that an agent is authorized to receive installments of interest as they become due on a note or other obligation does not give him implied power to collect the principal."
So that Land cannot be held to have done any wrong by intrusting Barron with the collection of interest on the bond, and in accepting these collections. The mortgagors are assumed to have known that this did not authorize Barron to collect the principal or any part of it. The fact that Barron was permitted in certain instances to collect the principals of certain mortgages as they fall due, as I have endeavored to show, does not imply the authority to collect them before *Page 298 maturity. Land was under no obligation to notify the mortgagors that the bond was payable to him; the bond showed that. He was not required to notify them that the papers were in his possession; they knew that, as they were notified as early as December, 1919, when notice of the renewal of an insurance policy was given them, that Land "holds the mortgage on this property." He was not required to notify them that the authority of Barron to collect the interest did not extend to the collection of the principal; they are assumed to have known that. He was not required to notify them that Barron had no authority to collect the principal or any part of it before it was due; there was not the slightest evidence to show that Land suspected such intention on Barron's part or that he had ever done so before. In fact it does not appear that Barron induced such anticipated payments, but that the temptation was too great when they were voluntarily offered. If Land did a single thing to bring about the loss to the mortgagors, I have failed to see it.
On the other hand, consider the conduct of the mortgagors. They knew that the bond and mortgage were executed to Land and that they were in his possession. They made no demand for their production. Knowing that Land had them, this knowledge as the Court holds in the Paysingercase, supra, was sufficient to put them on the inquiry as to the authority of Barron to receive the payments. The prosecution of this inquiry would have developed either the fact that Barron had no authority to collect the bond in advance, or that Land was willing that he should do so. In either event the mortgagors would have been protected. They made the payments voluntarily; it does not even appear that Barron requested them to do so; certainly it does not appear that Land was instrumental in the matter or even knew of it until after Barron's death. In fact it does appear that Barron deceived him by concealing the fact of such payments, *Page 299 as is shown by his remittances of interest upon the original debt, semiannually, as if no payments had been made. I think that the rule invoked by the Circuit Judge could well be turned against the mortgagors who without reason, without inducement on the part of Land, made the payments before the maturity of the bond, and thus enabled Barron to perpetrate the fraud.
In a similar case (Murphy v. Barnard, 162 Mass. 72;38 N.E., 29; 44 Am. St. Rep., 340), the "two innocent persons" doctrine was invoked. The Court said:
"Nor is the case one where, if one of two innocent persons must suffer from the wrongful act of a third, the plaintiff should be relieved from the consequences of his payment to the wrong party. The owner of the note was not the cause of his making the payments, and did not induce him to make them; but he acted solely upon his own supposition that the mortgagee was himself the owner of the note and mortgage."
The defendants here have not even that excuse, for they knew that Land and not Barron was the owner and in possession.
Nowhere is the law more clearly stated than in 1 Jones, Mtg. (6th Ed.), § 964:
"In making payments to an agent, the mortgage debtor should be assured of his continued authority to act for the owner of the mortgage; and such assurance of this as may be derived from his possession of the mortgage note or bond and indorsement thereon of the payment, would be omitted only through great negligence. Authority of an agent to receive interest or principal on a mortgage cannot be inferred from the fact that the agent had collected and paid over to the mortgagee interest on other mortgages. Even authority to collect the interest upon a mortgage does not afford ground for inferring authority to collect the principal, when the agent is not intrusted with the possession *Page 300 of the securities. The mortgagor is bound to know the extent of the agent's authority. If he pays the principal to an agent, he must be prepared to prove express authority. He pays to an agent at his peril. The agent's own declarations as to his agency cannot be accepted. The rule has been generally adhered to in the adjudged cases, that the possession of the securities by the agent is the indispensable evidence of his authority to collect the principal."
The reporter will incorporate in the report of the case the master's report and the decree of his Honor Judge Memminger.
For the foregoing reasons I think that the petition for a rehearing should be granted.
MR. ACTING ASSOCIATE JUSTICE PURDY concurs.