Opinion
12623
March 29, 1929.
Before MAULDIN, J., Greenville, July, 1927. Modified in part and remanded with directions, and in other respects affirmed.
Action by W.E. Scott against Lena W. Stone. Decree for plaintiff, and defendant appeals.
The report of the master and the decree of the Circuit Judge, directed to be published, follow:
MASTER'S REPORT"In accordance with an order of reference in the above-stated cause I have held reference, taken the testimony which is herewith reported.
"This is an action to foreclose a mortgage growing out of the facts as are hereinafter set forth.
"The defendant seeks to avoid liability because of the matters and things set up in the answer which are in effect that by the conduct of the plaintiff, this defendant was released from all liability alleging that the plaintiff looked to one J.W. Gantt for the payment of the debt, and furthermore that, because of that, the plaintiff is estopped from recovery.
"As to the second cause of action the defendant asks to be excused on the ground that the mortgage therein referred to was given as collateral to another note and mortgage which they claim to have been satisfied.
"Briefly the facts as I find them to be in this case are — At about January 1, 1920, the plaintiff sold to the defendant a house and lot on Augusta Street for a consideration of $15,000.00 payable $7,500.00 in one year and the remainder in two years with interest from that date at the rate of 6% per annum, payable semi-annually, all interest not paid when due to bear interest at same rate and 10% attorney's fee. To secure the payment of these notes this defendant gave to the plaintiff a purchase money mortgage on the Augusta street house and lot and also 1.29 acres known as lot 21 of Croft Stone Acres near the Camp Road in this County; also a house and lot on the north side of West Earle Street. All three pieces of property are fully described in the complaint. Before either of the notes came due the defendant sold and conveyed the Augusta street property to one J.W. Gantt, who assumed payment of principal and interest, but said Gantt was not able to pay the first note when it became due and he arranged to borrow $7,500.00 on the Augusta street property provided the plaintiff would allow that to be a first mortgage, and if he would, the $7,500.00 would be paid to him in satisfaction of the first note past due; this arrangement was entered into, the plaintiff retaining his mortgage on the 1.29 acres lot and the West Earle street property; the $7,500.00 borrowed by Gantt was obtained from an insurance company and in order that it might be a first mortgage that portion of plaintiff's mortgage as covered the Augusta street property was released and the said Gantt in turn executed to the plaintiff a new mortgage for $7,500.00, all of which is alleged in the complaint and testimony taken thereto. When the plaintiff had received $7,500.00 of his original debt at the request of the defendant he also released from his original mortgage 1.29 acres near the Camp Road as described in the complaint.
"Along about November 4, 1922, no interest, taxes and insurance having been paid, another arrangement was entered into affecting the Augusta street property whereby the said Gantt paid $500.00 on the principal to the insurance company mortgagee and raised $7,000.00 from another insurance company and secured that $7,000.00 with a first mortgage on the Augusta street property; it became necessary then for the plaintiff to get his mortgage No. 2 out of the way and by that time interest, taxes and insurance paid by the plaintiff had amounted to $9,640.00 and the said Gantt gave to him still another mortgage which we will call mortgage No. 3 on the Augusta street property, and as the said Gantt owned a piece of property in the City of Anderson, S.C. a separate note and mortgage for $1,030.00 was taken as collateral security to the main $9,640.00 note and secured by a mortgage on the Anderson County property, it being estimated that that was the value of the Anderson County lot. When the collateral note and mortgage was received there was a credit of $1,030.00 entered on the back of the $9,640.00 note, but which I find was prematurely done as it was taken collateral only and finally $550.00 was received under foreclosure of the Anderson County property, and that is the amount that should be credited on the note.
"After the transaction had been running between the plaintiff and defendant since January 1, 1920, the defendant on March 10, 1921, in order to further secure the plaintiff, executed and delivered to him her note for $2,000.00 and secured it by a mortgage set out as exhibit 4 in the testimony and described in paragraph 2 under the second cause of action in the complaint.
"The Anderson County property having been foreclosed and $550.00 realized and credited then the $9,640.00 note and mortgage was foreclosed subject to Penn Mutual Insurance Co., of $7,000.00, and was bid in by the plaintiff for $1,300.00. There will appear further on in this report a finding as to the various credits which were proven in the testimony and a balance struck of how much is due on the plaintiff's debt. My only comment here is that the mortgage of the plaintiff remains open and unsatisfied, both as the Earle street property and the Randall street property described in the complaint.
"I find there is due on plaintiff's mortgage after allowing and deducting all credits the sum of $10,397.03 as of March 24, 1927, including principal, interest, insurance premiums and attorney's fees.
"My conclusion is that at no time was this defendant released from her obligation either by agreement, by conduct of the plaintiff or by any other fact or law nor is he estopped from recovering such amount as may be found to be still due and unpaid by the defendant because of her note and mortgage first hereinabove referred to.
"I therefore recommend that the plaintiff have judgment against the defendant for $10,397.03 and that the mortgage described in the complaint be foreclosed and the land sold, and the proceeds applied to the payment of said judgment."
DECREE"This is an action for judgment and foreclosure of mortgages. It comes up upon various exceptions to the Master's report, and while there are a number of them, but two questions of any consequence are raised, to wit:
"1. Whether under the various transactions, wherein one J.W. Gantt assumed the mortgage debt due the plaintiff, the defendant became merely a surety to the said Gantt, who became principal and by various transactions thereafter, she was released.
"2. Whether or not there was a novation by which the defendant is entirely discharged.
"I concur with the master in his findings of fact. It is pointed out in the third exception that the fact as to when the 1.29 acres was released from the mortgage is erroneous, but that is immaterial to the issues and of no consequence in determining the question before the Court.
"After carefully reading the evidence in the case and hearing argument by both sides, I am of the opinion that both the findings of fact and conclusions of law by the master should be confirmed, and it is so ordered.
"It is further ordered, adjudged and decreed that both the mortgages described in the complaint be foreclosed and the land therein described be sold by the Master for Greenville County in or in front of the Court House at Greenville, S.C. during the legal hours of sale on salesday in September, 1927, or on some convenient salesday thereafter, at public auction to the highest bidder for cash first giving the notice of the time, terms and place of sale as is required by law. That the purchaser upon his or her bid being received be required to deposit a certified check of five hundred dollars with the master to be applied to the purchase price upon compliance with the terms of sale but to be applied to the costs and expenses of the action and any remainder forfeited to the plaintiff. If no such check is deposited or if the terms of sale are not in 10 days complied with, then and in either event the Master do resell said property at the risk of the former purchaser on same terms on some convenient salesday thereafter. In making the sale the Master first sell the Earle street property, and if this satisfies the judgment herein and the costs and expenses of this action and sale, the other property described in the complaint will not be sold.
"Out of the proceeds of the sale the Master first pay any taxes that may be due, and the costs and expenses of this action and sale and then the plaintiff's judgment. Any remaining be paid to the defendant.
"Upon the purchaser complying with the terms of sale, the Master make to him a deed and thereby convey the land so sold and put him in possession, and all parties to this action, except such as may become purchasers, and all persons claiming, by, through or under them or any of them be barred of any right, title, and interest in the land so sold and conveyed."
Messrs. T.H. Munro, and R.G. Stone, for appellant, cite: As to novation: 138 S.C. 20; 20 Mo. App., 524; 21 R.C.L., 955; 79 S.E., 375. One who assumes mortgage becomes as to mortgagor, the principal, and the mortgagor the surety: 16 S.E., 995; 14 S.C. 437; 73 N.Y., 211; 56 N Y, 402; 76 N.Y., 274; 97 N.Y., 81; 67 N.Y., 464; Jones on Mtgs., Secs. 741-742; 35 S.C. 68; 2 Brant. Suretyship (2d Ed.), 359, 363, 369-375; 27 Fed., 588; 112 A.S. R., 890. Changing amount in a note voids it: a Bail., 359; 1 McC. Eq., 443; 23 S.C. 588; 19 S.E., 491; 10 S.E., 946. Changing amount in a note voids it: a Bail., 359; 1 McC. Eq., 443; 23 S.C. 588; 19 S.E., 491; 10 S.E., 946.
Messrs. Haynsworth Haynsworth, and Richey, Richey Cane, also for appellant.
Mr. B.A. Morgan, for respondent, cites: As to novation: 20 R.C.L., 363, 366; 128 S.C. 442. As to estoppel: 81 S.C. 329; 96 S.C. 106. As to assumption of mortgage: 19 R.C.L., 374; 108 S.C. 475. Cases distinguished: 14 S.C. 437; 38 S.C. 158.
March 29, 1929. The opinion of the Court was delivered by
On January 1, 1920, the plaintiff, Scott, sold to the defendant, Mrs. Stone, a house and lot on Augusta Street, in the City of Greenville, for $15,000, on credit; $7,500 payable January 1, 1921, and $7,500 January 1, 1922. Notes were given by Mrs. Stone to Scott for these installments, with interest from date at 6 per cent., payable semiannually; they were secured by a mortgage upon three distinct pieces of real estate: (1) The Augusta Street lot; (2) a lot on the Camp Road near the City, containing 1.29 acres; and (3) a house and lot on Earle Street in the City.
In this action it appears that the Augusta Street lot has been heretofore sold under foreclosure proceedings; the mortgage upon the Camp Road lot has been released; and a later mortgage has been given by Mrs. Stone to Scott on certain Randall Street property as collateral to the original obligations; this action involves therefore a demand on the part of Scott for the foreclosure of the mortgage upon the Earle Street lot and for the foreclosure of the later mortgage upon the Randall Street property, all of which will more fully appear in the sequel. The foreclosures are resisted by the defendant Mrs. Stone upon grounds which will be explained. It seems necessary to go quite into details in the effort to unravel "the tangled sleeve" of the various transactions.
On June 1, 1920, which, it will be observed, was prior to the maturity of the first note, January 1, 1921, Mrs. Stone conveyed the Augusta Street lot to one J.W. Gantt, for $18,000, he making a small cash payment and assuming payment of the two notes of Mrs. Stone to Scott, due respectively January 1, 1921, and January 1, 1922. It appears that this transaction was consummated without consultation with Scott, as none really was necessary.
On January 1, 1921, the first of the two notes given by Mrs. Stone to Scott, it being for $7,500, fell due; neither Gantt nor Mrs. Stone was prepared to meet it. Scott was pressing, and about March 1, 1921, an arrangement between all of the interested parties was entered into of the following nature:
Gantt negotiated a loan from the Equitable Company of $7,500, which was proposed to be secured by a first mortgage upon the Augusta Street property; Scott having a first mortgage upon the property and under the arrangement being the recipient of the proceeds of the proposed loan, released the lien of his mortgage upon the Augusta Street lot so that the Equitable Company might have the first lien to secure the loan. (It will be observed in passing that Scott released his lien only upon the Augusta Street lot, retaining the Stone mortgage as a first lien upon the other property described in it, the Earle Street lot, and the Camp Road lot, as security for the second of the State notes due January 1, 1922, for $7,500.)
Gantt then gave Scott a new note for $7,500, or perhaps only a new mortgage upon the Augusta Street lot, as security for the second of the Stone notes, which by the arrangement was subordinate to the first mortgage of the Equitable Company.
About the same time Mrs. Stone gave Scott a note and mortgage for $2,000, as collateral security to the obligation of Gantt to Scott, the second mortgage upon the Augusta Street lot as above stated. This $2,000 mortgage covered certain lots on Randall Street in the City of Greenville.
The mortgage upon the Camp Road lot was later released under a separate agreement by which a mortgage then upon the Earle Street lot, senior to Scott's mortgage, was satisfied, advancing Scott's mortgage to first place upon this property. The Camp Road lot therefore passes out of the case, leaving Scott with a first mortgage upon the Earle Street, lot, a second mortgage upon the Augusta Street lot, and a first mortgage upon the Randall Street lots; the debt secured being the second of the Stone notes due January 1, 1922, for $7,500.
The second of the original Stone notes, which was still held by Scott, fell due on January 1, 1922. Neither Gantt nor Mrs. Stone made any satisfactory arrangement concerning it at the time. In November of that year, Gantt being in default in the payment of interest, taxes, and insurance, and evidently under pressure from Scott, an arrangement somewhat similar to that of March, 1921, was entered into between Gantt and Scott. It does not appear that Mrs. Stone was a party to it; in fact, the evidence preponderates that she knew nothing of it. Gantt paid to the Equitable Company $500 upon the principal of the $7,500 note given to it in March, 1921, reducing the principal to $7,000. He effected a loan of $7,000 from Penn Mutual Company upon a mortgage of the Augusta Street lot and paid off the mortgage of the Equitable Company. In order to consummate this loan from the Penn Mutual, it was necessary that Gantt procure from Scott a postponement of the lien of this then second mortgage upon the Augusta Street lot, in favor of the proposed mortgage to the Penn Mutual, which Scott consented to give. Accordingly, Scott released the mortgage which he had taken from Gantt, constituting the Penn Mutual mortgage the first lien. This transaction was neither beneficial nor detrimental to Scott, as his mortgage was already junior to that of the Equitable Company and was not lowered in its rank by the new Penn Mutual mortgage. By that time the interest, taxes, and insurance due to Scott under his mortgage executed in 1921 swelled the amount due to Scott upon the Stone note due January 1, 1922, to $9,640. To secure this Gantt gave Scott a new note for that amount and secured it by a new mortgage upon the Augusta Street lot, which was subordinate to the $7,000 mortgage given to the Penn Mutual Company, and by a separate note and mortgage for $1,030 upon a lot in the City of Anderson.
When this last-mentioned note and mortgage were given, a credit of $1,030 was entered upon the $9,640 note and mortgage. The Master finds that this was prematurely done, as the $1,030 note and mortgage were given as collateral and not as a payment, which seems entirely justified. Subsequently, upon a foreclosure of this mortgage, the amount realized to Scott therefrom was only $550, for which the Master finds that the $9,640 mortgage should be credited.
Thereafter Scott instituted proceedings to foreclose the mortgage upon the Augusta Street property. A decree was entered directing foreclosure subject to the mortgage of the Penn Mutual Company. A sale was had, the property being bid in by Scott at $1,300. The Earle Street lot and the Randall Street lots were not involved nor affected by that proceeding. Mrs. Stone was a party, and in her answer claimed that she had been discharged from all liability by the various transactions described above. In the decree the issues raised by her answer were specifically reserved for future determination.
The Augusta Street lot has been exhausted; at the foreclosure sale Scott bid it in at $1,300 subject to the Penn Mutual mortgage of $7,000 with interest; this it appears that he had paid off, and he is chargeable with the $1,300 as a credit upon his note and mortgage.
The present action is to foreclose the original mortgage given by Mrs. Stone to Scott for $7,500, due January 1, 1922, with interest at 6 per cent. payable semiannually upon the Earle Street lot and to foreclose the mortgage given by Mrs. Stone to Scott for $2,000, collateral to the foregoing.
The defenses of Mrs. Stone are:
1. That the execution of the mortgage by Gantt to Scott in 1921 was a novation of the original mortgage which she gave to Scott and has discharged her from all liability on account thereof;
2. That the execution of the mortgage by Gantt to Scott in 1922 and the satisfaction of the mortgage by Gantt to Scott dated in 1921 in connection with Gantt's new mortgage dated in 1922, was a novation of the mortgage of 1921 by Gantt to Scott and has discharged her from all liability on account thereof;
3. That the conveyance by Mrs. Stone to Gantt of the mortgaged Augusta Street lot and the assumption by Gantt of her mortgage debt to Scott, with the knowledge, acquiescence and acceptance by Scott, constituted as between herself and Gantt the relation of surety and principal, to which Scott is concluded, and that by his dealing with Gantt as such principal, she as surety has been discharged.
I. As to the first contention:
There is no claim on the part of Mrs. Stone that Scott did anything which would indicate a release of her and an acceptance of Gantt as the principal debtor, prior to the transaction of March, 1921. The evidence shows that in the transaction between Mrs. Stone and Gantt by which she conveyed the Augusta Street lot to him in June, 1920, upon the terms above indicated, Scott was not consulted and had no knowledge of it. She does contend, however, that when Scott released his mortgage upon the Augusta Street lot and took a new mortgage from Gantt to secure the second $7,500 note, the transaction constituted a novation of her mortgage to Scott and discharged her.
This contention cannot be sustained for several reasons:
Scott did not release the mortgage to an extent beyond a release of it as affecting the Augusta Street lot, retaining the note due January 1, 1922, secured by a mortgage upon the Earle Street lot and the Camp Road lot, and taking from Mrs. Stone a mortgage of $2,000 upon the Randall Street lots. It is unreasonable to assume that Scott intended to release Mrs. Stone and accept Gantt as sole debtor when he retained in his possession the note and mortgage of Mrs. Stone and accepted from her collateral security to the extent of $2,000. It is unreasonable to suppose that under these circumstances Mrs. Stone should for a moment have supposed that she had been released. The circumstances attending the new arrangement negative such a suggestion: The note due January 1, 1921, had matured; Scott wanted his money; Gantt could not pay; Mrs. Stone could not pay; all parties agreed to the arrangement that was perfected that Gantt would effect a loan from the Equitable Company with which to pay Scott; that it should be obtained upon a first mortgage by Gantt of the Augusta Street lot; that that could only be done by a postponement of Scott's first mortgage, so far as the Augusta Street lot was concerned and so far only. Scott could very well afford to do this, as the entire proceeds of the loan were coming to him, leaving the second note due January 1, 1922, secured by a second mortgage of the Augusta Street lot, a first mortgage upon the Camp Road lot, a second mortgage upon the Earle Street lot, and a first mortgage upon the Randall Street lots.
The simplest form of consummating the purpose in the minds of the parties would have been for Scott to have assigned to the insurance company the note due January 1, 1921, with a stipulation that the insurance company should have the first lien to the extent of that note upon the Augusta Street lot. That is practically what the transaction, somewhat devious (not in an offensive sense at all), amounted to, particularly in view of the co-operation of the original mortgagor, Mrs. Stone. Doubtless this would have been the form that it would have taken but for the usual particularity and insistence of foreign lenders of money, who require an unquestioned first mortgage and an obligation not past due.
The novation of a contract as thus defined in 20 R.C.L., 360, quoted with approval in Smith Bros. Grain Co. v. Adluh Co., 128 S.C. 434, 122 S.E., 868: "A mutual agreement between all parties concerned, for the discharge of a valid existing obligation by the substitution of a new valid obligation on the part of the debtor." See, also, 20 R.C.L., 363, 364, 366, and 29 Cyc., 1130.
It is significant that in the transaction under review not a suggestion was made that Mrs. Stone would be released. That was not the subject of the negotiations; the effort was to raise the money by a loan with which to liquidate the past-due obligation of Mrs. Stone as well as of Gantt. Why Scott should have been willing to release Mrs. Stone under these circumstances has not been suggested. In all the future communications Mrs. Stone was given to understand that Scott was looking to her for payment, to which there does not appear to have been the slightest protest.
II. As to the second contention:
As has been seen, in March, 1921, Scott took a new mortgage from Gantt under the arrangement that the Equitable Company should have the first mortgage. This mortgage from Gantt to Scott was to secure the second of the two original Stone notes due January 1, 1922. Mrs. Stone executed the $2,000 mortgage upon the Randall Street lots as collateral security to the mortgage which Gantt gave to Scott. In November, 1922, when the ants were again scurrying up and down the burning log, Scott in an evident effort to assist them, in the negotiation by Gantt of a new loan from the Penn Mutual, released the mortgage which he held on the Augusta Street lot so that the Penn Mutual should obtain the first lien, canceled it, and had it marked satisfied on the record. He then took from Gantt a new note and mortgage for $9,640, a second mortgage on the Augusta Street lot.
There can be no other explanation of this transaction than that he intended to extinguish the Gantt mortgage of 1921 and substitute for it the Gantt mortgage of 1922; clearly a novation of the mortgage of 1921 to secure which Mrs. Stone had mortgaged the Randall Street lots. This is the only extent to which Mrs. Stone is interested in the transaction of 1922 constituting a novation of the mortgage of 1921, which should be regarded as extinguished and as destroying the obligation which was intended to be secured by the $2,000 mortgage given as collateral thereto. The plaintiff is not therefore entitled to foreclose the $2,000 mortgage upon the Randall Street lots.
The novation of the mortgage of 1921, however, can have no effect as such upon the original mortgage of 1920, which has continued as a first lien upon the Earle Street lot.
The difference in the conclusions that the transaction of 1921 did not constitute a novation of the mortgage of 1920, and that the transaction of 1922 did constitute a novation of the mortgage of 1921, is due to the fact that in the transaction of 1921 the release of the mortgage applied only to the Augusta Street lot, leaving the mortgage open as to the other property covered by it, while the release of the mortgage of 1921 by the transaction of 1922 was complete.
III. As to third contention:
There is no evidence in the case tending to show that when Gantt assumed the payment of the mortgage which Mrs. Stone had given to Scott, he knew of such transaction even, until several months thereafter. Nor is there any evidence tending to show that at any time thereafter he recognized Gantt as the debtor to whom he should look for payment. It would have been a most remarkable thing for him to have done, in view of the fact that he had a mortgage upon the Earle street lot and the Camp Road lot, securing the note of Mrs. Stone. In fact, the evidence shows that at all times thereafter he specifically notified Mrs. Stone that he was looking to her. The fact, too, is significant that Mrs. Stone in addition to the property already mortgaged put up the Randall street lots as collateral to Gantt's new mortgage.
It appears to be settled by the case of Callaham v. Ridgeway, 138 S.C. 10, 135 S.E., 646, that: "An agreement consented to by a mortgagee, whereby the grantee of the mortgaged premises assumed payment of the mortgage note as a part of the purchase money, constitutes a novation which discharges the original mortgagor and renders the grantee the sole debtor."
The facts of this case do not bring it within that rule. In the Callaham case it was found as a fact that Callaham, upon an agreement for valuable consideration, obligated himself to release Ridgeway, the mortgagor, and look only to the grantee of Ridgeway. There is no such agreement shown in the case at bar, and all the evidence tends to negative that fact.
The rule is thus expressed in 21 R.C.L., 955: "As a rule, whenever one for a sufficient consideration promises another to pay his debts to a third person, the promisor becomes the pincipal obligor and the promise the surety; and if the creditor accepts the promise, he becomes bound to observe the relation of principal and surety existing between the parties, and hence must not do any act which would impair the surety's rights."
Both novation and the relation of principal and surety depend upon the same fact — the consent of the mortgagee to release the mortgagor and look only to his grantee.
The Master and the Circuit Judge both appear to have calculated the amount due to Scott upon the $9,640 mortgage of November, 1922. The liability of Mrs. Stone is not upon that mortgage, but upon the original mortgage of January 1, 1920, upon which there is due $7,500 with interest at 6 per cent. payable semiannually, subject to such credits as Scott should be charged with. The account should accordingly be recast conformably herewith.
The judgment of this Court is that the judgment of the Circuit Court be modified by denying to the plaintiff the right to foreclose the mortgage upon the Randall Street lots, and that the case be remanded to the Circuit Court, with direction to resubmit the case to the Master for the purpose of recasting the account in conformity with the foregoing suggestions. In other respects the decree is affirmed.
MESSRS. JUSTICES BLEASE and STABLER concur.
The facts of this case are stated in the report of the Master and the decree of the Circuit Judge, affirming the Master's report, and for the reasons stated therein, I think the judgment of this Court should be that the judgment of the Circuit Court be affirmed.
MR. CHIEF JUSTICE WATTS concurs.