(after stating the facts). It is conceded that the Bank of Siloam had no express authority-to collect the principal of the note and mortgage involved in this suit. The evidence shows that the note was negotiable, and that the note and mortgage were assigned to the plaintiff for value before the maturity thereof, and that the Bank of Siloam, the payee of the note, did not have the note and mortgage in its possession after the assignment thereof.
In the case of Winer v. Bank of Blytheville, 89 Ark. 435, we held: “If the maker of a negotiable note pays the same to the payee, who is not the holder, he is not discharged from his obligation to the holder without showing that the payee was authorized to receive payment or that the holder led him to believe that he was so authorized.”
This rule applies to notes secured by a mortgage or deed of trust, and it is generally held that 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. Marling v. Milwaukee Realty Co. (Wis.), 5 L. R. A. (N. S.) 412, 7 A. & E. Ann. Cas. 364; Hoffmaster v. Black, 78 Ohio State 1, 21 L. R. A. (N. S.) 52, and case note; Smith v. First Nat’l Bank (Okla.) 29 L. R. A. (N. S.) 576, and case note.
The reason for the rule is that a mortgage executed as security for the payment of a negotiable note is a mere incident thereto, and partakes of the negotiability of the paper it secures. A mortgagor executing a mortgage as security for a negotiable note is charged with knowledge that the note is negotiable, and he makes payments to the original mortgagee without the production of the note at his peril, and the payments so made are of no effect as against an indorsee thereof who had possession at the time the payments were made.
It is conceded that the Bank of Siloam had authority to collect the interest on the note and mortgage in question, but there was no evidence from which it can be inferred that the Bank of Siloam had any authority to collect the amount of the principal or that it had possession of the note or mortgage.
“Authority of an agent to collect interest on a mortgage does not afford ground for inferring authority to collect the principal, where the agent is not intrusted with the possession of the securities.” Jones on Mortgages, § 964; Richards v. Walker, (Neb.) 68 N. W. 1053; Hollinshead v. Jno. Stuart & Co. (N. D.) 77 N. W. 89; Thompson v. Buelher, (Neb.) 95 N. W. 854; Joy v. Vance, (Mich.) 62 N. W. 140; Trull v. Hammond, (Minn.) 73 N. W. 642; Klindt v. Higgins, (Iowa) 64 N. W. 414.
Finally, it is contended by counsel for defendants that the plaintiff is estopped to deny that the Bank of Siloam had authority to collect the principal of the note. In the case at bar the defendant knew the note was negotiable, and knew that it was intended to pass from owner to owner by indorsement. He knew it was liable to pass at any moment, and that the last person thus receiving it could require at his hands the full amount of the note. He had only to see to it that he received his note when he paid his money.
As stated in the case of Hollinshead v. Jno. Stuart & Co., supra; “If he neglected this simple requirement, demanded no more by the law than by common prudence, he paid at his peril; and, if loss occurs, he must bear it. One party or the other must suffer, and he, being the party in fault, must bear the burden.”
In the case of Bartel v. Brown, (Wis.) 80 N. W. 801, the court said: “The importance of protecting the holders of commercial paper is so great that to warrant finding that a person who assumes to have authority to receive payment of the principal sum on any such paper has such authority, possession of the paper itself by such person, or proof aliunde of express authority, is indispensable. As said by the court in Smith v. Kidd, 68 N. Y. 130, “Any other practice would be dangerous in the extreme.” “If money be due on a written security, it is the duty of the debtor to see that the person to whom he pays it is in possession of the security. That is the best evidence of authority. The payor is negligent if he relies on anything less, and must abide the event of being able to stablish, by clear and satisfactory evidence, an express agreement between the holder of the security and the supposed agent, authorizing the latter to represent the former in the transaction. To that familiar doctrine there are many authorities, a large number of which are collated in Jones, Mortg. § 964.”
In the instant case the plaintiff did nothing whatever to mislead the defendant. The defendant does not claim that the plaintiff, either by his conduct or acts, did anything to mislead him, but, on the contrary, he states that he thought the Bank of Siloam was the owner of the note and made the payment to them under that belief, and not because he thought the bank was acting as agent of the plaintiff.
The decree is therefore affirmed.