Summary
defining “privity” as “[t]he connection or relationship between two parties, each having a legally recognized interest in the same subject matter (such as a transaction, proceeding, or piece of property); mutuality of interests”
Summary of this case from Fabian v. Ross M. Lindsay, III & Lindsay & Lindsay, LLCOpinion
13159
May 28, 1931.
Before BONHAM, J., Anderson. July, 1930. Affirmed.
Action by W.E. Thompson, as administrator of W.K. Hudgens, deceased, against Annie J. Hudgens and others, including James E. Peurifoy, Receiver. From the judgment the last-named defendant appeals.
The decree of Circuit Judge Bonham, directed to be reported, was as follows:
At summer term, 1930, of the Court of Common Pleas for Anderson County, by agreement of counsel, this case was marked "Heard," and taken up subsequently at chambers. It was heard, partly on an agreed statement of facts and partly on oral testimony taken before me, and on documents then introduced in evidence, or included in the agreed statement.
The action is brought by the administrator of the estate of W.K. Hudgens, deceased, for the purpose of calling in creditors, marshaling assets and settling the estate. Creditors were restrained by order of the Court from bringing their several and separate actions, and their rights are to be adjudicated in this action. The real contests are between James E. Peurifoy, as Receiver of American Bank Trust Company on the one hand, the widow and children of W.K. Hudgens, deceased, and the creditors of the decedent on the other hand. The pertinent issues grow out of the following narrated facts, as they appear from the pleadings, the agreed statement, and the testimony taken:
W.K. Hudgens conducted a considerable mercantile business at Piedmont and other places; he died intestate on the 7th day of July, 1928, and the plaintiff is the duly appointed and qualified administrator of his estate; he left him surviving, as his sole heirs-at-law, his widow, Mrs. Annie J. Hudgens, and his children, Mrs. Virginia Conner, James R. Hudgens, John W. Hudgens, and Archie Hudgens, of whom the last named is a minor, and appears in this action by his duly appointed guardian ad litem. The estate of said intestate is hopelessly insolvent.
On November 19, 1920, W.H. Poole conveyed to J.W. Washington a storeroom and dwelling house in the town of Piedmont, the stated consideration being "$10.00 and other consideration." The deed was recorded the same day. On that day, J.W. Washington executed and delivered to W. H. Poole a mortgage on the same premises to secure a note for $4,000.00; this mortgage was recorded November 26, 1920. It stands today unsatisfied of record. On November 20, 1920, J.W. Washington executed a mortgage of the same premises to W.K. Hudgens to secure a note for $2,500.00; this mortgage was recorded December 9, 1920. It is unsatisfied of record. November 1, 1921, W.H. Poole assigned the note and mortgage given to him by J.W. Washington to W.K. Hudgens. The assignment is written on the back of the mortgage, but is not recorded. December 5, 1923, J.W. Washington conveyed to W.K. Hudgens the premises covered by the mortgage to W.H. Poole, which had before that date been assigned to W.K. Hudgens, who was also owner and holder of the mortgage for $2,500.00, which was made to him direct. The stated consideration of the deed is "Ten Dollars and other valuable consideration." This deed bears the requisite Federal and state revenue stamps, and was recorded December 6, 1923. On April 12, 1926, W.K. Hudgens borrowed of American Bank Trust Company the sum of $9,464.74 for which he gave his note and to secure it, at the time of its execution and delivery, he pledged to the bank sundry notes and mortgages including the note and mortgage of $4,000.00 which J.W. Washington had executed to W.H. Poole on November 19, 1920, covering the house, storehouse, and lot in Piedmont, and which W.H. Poole transferred and assigned to W.K. Hudgens on November 1, 1921. June 30, 1930, there was due on the note to the American Bank Trust Company the sum of $6,228.84, including interest and attorney's fees. The collateral which the bank holds has been practically exhausted, except the Poole mortgage. At the time of the conveyance to W.K. Hudgens by J.W. Washington, namely, December 5, 1923, there were no liens by way of mortgage, judgments, or otherwise on the premises so conveyed, other than the two mortgages hereinabove spoken of. The name "Hudgens Company," as it appears upon certain of the documents involved herein, was a trade-name employed by W.K. Hudgens, and no other person than he had any interest in the business conducted by him under that name, or in its assets. W.K. Hudgens was possessed of other real estate which was pledged to several other of his creditors, but these matters are not involved here. The officers of the American Bank Trust Company had no actual notice of the deed from J.W. Washington to W.K. Hudgens, but the same was duly recorded in the office of Register of Mesne Conveyances for Greenville County in Deed Book 88, at page 581.
The plaintiff, the administrator of the estate of W.K. Hudgens, deceased, as representative of the creditors of the insolvent estate, makes the claim that when W.K. Hudgens received from J.W. Washington a deed conveying to him the title in fee to the premises which Washington had bought from Poole and upon which he had given Poole a mortgage and upon which he had given to Hudgens a mortgage junior to that to Poole, the lesser title of mortgage was merged in the greater title of the fee, and the mortgages were extinguished. The defendant, American Bank Trust Company, contends that there was no merger because the parties did not intend that there should be; that if there was a merger, W.K. Hudgens was estopped to claim it, and that his personal representative and his heirs-at-law, being in privity with him, are likewise estopped. That in any event the bank has an equitable mortgage which gives it priority over all other claimants, and that it has a preferred lien on the funds of the estate which arose from the collection by Hudgens of some of the collateral pledged by him to the bank, all of which had not been remitted. These positions are controverted by the administrator and by the widow and children of the decedent. The widow claims dower in the premises, and the widow and children claim homestead.
These are the issues which stand for adjudication.
Was there a merger? When does a merger occur?
When the holder of a mortgage acquires the equity of redemption or the legal title to the land merger will take place, unless the parties intend otherwise.
This doctrine is sustained fully by the decisions of our own Court. McCreary v. Coggeshall, 74 S.C. 42, 53 S.E., 978, 7 L.R.A. (N.S.), 433, 7 Ann. Cas., 693; Gainey v. Anderson, 87 S.C. 47, 68 S.E., 888, 31 L.R.A. (N.S.), 323; Willoughby v. Ray, 131 S.C. 317, 127 S.E., 441.
"Where a greater and a less legal estate held in the same right, meet in the same person without any intermediate estate, a merger necessarily takes place. The lesser estate ceases to exist, being merged in the greater, which alone remains." Pomeroy's Equity Jurisprudence (3d Ed.), § 787.
"Where the legal estate — for example the fee — and an equal co-extensive equitable estate unite in the same person, the merger takes place in equity in the absence of acts showing an intention to prevent it, as certainly and as directly at law. Under these circumstances merger is prima facie the equitable as well as the legal rule." Same authority, § 788.
"Where the owner of the fee becomes absolutely entitled in his own right to a charge or encumbrance upon the same land, with no intervening interest or lien, the charge will at law merge in the ownership and cease to exist. Under like circumstances a merger will take place in equity, where no intention to prevent it has been expressed and none is implied from the circumstances and interest of the party; and a presumption in such case arises in favor of the merger. Generally the same result follows whether a mortgagee assigns a mortgage, or the mortgagor conveys the land to the mortgagee." Same authority, § 790.
The burden of overcoming the presumption in favor of merger rests upon him who denies that there was a merger; he must show by the preponderance of the evidence that it was the intention of the parties that there should be no merger. The rule is nowhere more clearly and succinctly expressed than in the case of Gainey v. Anderson, 87 S.C. 47, 68 S.E., 888, 890, 31 L.R.A. (N.S.), 323, in this language: "When the circumstances under which merger ordinarily takes place are shown, the burden rests upon him who alleges that there was no merger to prove a contrary intention, or to prove facts and circumstances from which such an intention will be presumed."
To the same effect is the case of McCreary v. Coggeshall, 74 S.C. 53, 53 S.E., 978, 7 L.R.A. (N.S.), 433, 7 Ann. Cas., 693.
At what time does the intention become the controlling factor? It is at the time the two estates come together.
"While the intention controls it must be understood as the intention existing at the time the two interests came together. If there was then no intention to keep the encumbrance alive, a merger cannot be defeated by an intention afterwards formed and expressed, or from a subsequent change of circumstances from which an intention might be inferred." Pomeroy's Equity Jurisprudence, § 792.
In the present case, the American Bank Trust Company (which will be called the bank) seeks to fulfill the requirement of its obligation to overcome the presumption in favor of the merger by these circumstances:
First: The pencil calculations on the back of the mortgage which it is claimed show that the interest was calculated to March 1, 1926, whereas the deed from Washington to Hudgens was dated December 5, 1923, and recorded the next day. The bank argues that Hudgens would not have made such calculation for use of the paper as collateral for a loan unless he had intended from the first that the mortgage should remain open; and, second, he would not have pledged the mortgage to the bank if he had intended that there should be a merger. The argument is plausible and persuasive, but it is not conclusive. Certainly it is not conclusive evidence of his intention at the time of the conveyance from Washington. Indeed, the more plausible suggestion is that when his affairs became so seriously involved he was like a drowning man catching at a straw. When his necessity was imperative to raise money in 1926, he probably recalled this mortgage which had not been satisfied of record. Doubtless he thought it was legitimate for him to use it instead of executing a new mortgage. But the thought born of that date, April 12, 1926, could not take rank as of the date of conveyance, December 5, 1923. This calculation was made March 1, 1926, which is the date of the audit made for him. It is significant that this mortgage is not included in that audit among his assets. But the real estate is included in the audit at the very figures of that calculation, to wit: $7,873.72. It would seem to be the logical conclusion that the computation on the back of the mortgage was made for the purpose of ascertaining what the property had cost Mr. Hudgens. It nullifies the idea that he had kept the mortgage open from the date of the conveyance to him. It appears from the testimony of Mr. Thompson, then in the employ of Mr. Hudgens, that the information upon which that audit was made was furnished by Mr. Hudgens. That there was no intention at the time of the conveyance that the mortgage should be kept alive is further made manifest by the testimony of E.J. Washington, the son of J.W. Washington, who made the Poole mortgage which was assigned to Hudgens. He testifies that on account of his father's ill health he conducted the negotiations which led to the conveyance of the property to Hudgens; that the purpose of the transfer was to pay off the indebtedness; that it was understood that the mortgages should be satisfied and delivered to J.W. Washington; that his father had asked him a time or two, if he had got them; that it was his carelessness that left them in the hands of Mr. Hudgens unsatisfied. In the light of this testimony, the conclusion is irresistible that there was a merger of the mortgages in the title.
The serious question which next claims attention is that of estoppel. Was Hudgens estopped to claim merger? If he was, is his personal representative estopped? Is his widow estopped to claim dower? Are the widow and children estopped to claim homestead?
The bank claims that Hudgens, if he were alive, would be estopped to set up merger, and that no one in privity with him can now set it up.
The assigner of a note and mortgage warrants their validity; he impliedly asserts that they are true and vital papers, and that the mortgage is a lien on the property. It is so held by our Supreme Court in several cases cited by counsel for the bank, of which that of Hall v. James T. Latimer Son, 81 S.C. 90, 61 S.E., 1057, is especially noteworthy. Estoppel arises when a person by his conduct, or language, or silence amounting to representation, or a concealment of material facts, induces another to change his position to his hurt. Cannon v. Baker, 97 S.C. 116, 81 S.E., 478, and numerous other cases. When W.K. Hudgens assigned this mortgage and note to the bank, he, by implication, declared them to be valid subsisting obligations, and he in effect warranted that the mortgage was a lien on the real estate which it covered. When he received from the bank a loan of money which was made in reliance upon such implied representations, he estopped himself to deny the validity of the papers.
41 C.J., page 443. It is useless to cite other authorities. The above doctrine is recognized law.
How far does the estoppel go? Hudgens, being dead, who are affected by the estoppel which governed him? The answer is generally, that all those in privity with him are also estopped by reason of his conduct in the premises. It will not be questioned that his heirs-at-law, those who take by descent, namely, his wife and children, are estopped, and their claim of homestead cannot prevail against this mortgage, unless there be a surplus of the proceeds of the sale of the mortgaged premises.
Is the widow estopped to claim her dower? Inasmuch as she never renounced her dower on the Washington mortgage, she would not be barred of an inchoate right of dower if Mr. Hudgens were alive and the mortgage was being foreclosed. It is difficult to see how his death can operate to bar her. It is argued for the bank that this mortgage was given for purchase money against which the claim of dower will not prevail. When J.W. Washington gave the mortgage to Poole for the balance of purchase money, the wife of J.W. Washington renounced her dower thereon. She could not have claimed dower as against Poole, nor his assignee Hudgens. When Hudgens took conveyance of the premises, Mrs. Washington renounced her dower, and Hudgens became the owner in fee. Mrs. Hudgens immediately upon the accomplishment of the seizin in Mr. Hudgens became entitled to her inchoate right of dower, which became vested in her when Mr. Hudgens died. It nowhere appears that since seizin by Mr. Hudgens she has done any act to bar herself of dower. In the very recent case of Bomar v. Wilkins, 154 S.C. 64, 151 S.E., 110, 112, 68 A.L.R., 501, the Court gave utterance to this doctrine: "The husband cannot dispose of his wife's dower in his real estate during life, nor can he direct the disposition of it after his death, by will or otherwise. The widow can be deprived of it only by her voluntary consent, or by her own act."
My conclusion is that the widow is not estopped of her dower.
Is the personal representative of the decendent estopped by the conduct which estopped his intestate? If he is in privity with his intestate, he is estopped. Counsel for plaintiff argue that he is not in such privity because he is the representative of the creditors, and the creditors are not in privity with the decedent. The doctrine of estoppel may not be invoked to give to one creditor an advantage over others. This would seem to apply with peculiar force when one comes to distribute the assets of an insolvent estate as is that of W.K. Hudgens. Rather will equity apply the rule laid down in Livingstain v. Columbian Banking Trust Co., 77 S.C. 305, 57 S.E., 182, 184, 22 L.R.A. (N.S.), 442, 122 Am. St. Rep., 568, where the late honored Associate Justice Woods laid down the principle in such apt and clear language that his utterance has become a canon of the law, to wit: "No rule of equity appeals more to the judicial conscience that that which requires the assets of an insolvent corporation to be distributed ratably among creditors."
The doctrine is reiterated in Citizens' Bank v. Bradley, 136 S.C. 511, 134 S.E., 510.
Under the facts of this case, it is appropriate to consider the relation (as to privity), of the administrator (1) to his intestate, and (2) to the creditors of the estate. The record discloses that at the present time the creditors have not been called into this proceeding and required to prove their claims. As such, they are, therefore, not before the Court. If privity of interest does not exist between them and the plaintiff, they would not be bound by an adjudication of the questions under consideration. As the necessity for a solution of these problems will be influenced or controlled by the conclusion reached regarding the question of privity between the plaintiff and his intestate, that question will be first considered.
Another preliminary observation is this: The specific asset of the Hudgens' estate about which this controversy arises is real property. The estate is insolvent. The administrator claims the right to use said real estate in aid of intestate's personal assets to pay his debts.
PRIVITYA rule of universal application is that an estoppel, such as that established herein, may be invoked only against a party and his privies. The party whose conduct gave rise to the principle of estoppel herein was plaintiff's intestate, so that in determining the rights of the parties to this action it is necessary to ascertain who are in privity of interest with said intestate.
The definition of privity most frequently encountered is: "`Privity' denotes mutual or successive relationship to the same rights of property." Words and Phrases, second series, Vol. 3, page 1217.
As authority for this definition, the case of Logan v. Atlanta C. Air Line R. Co., 82 S.C. 518, 64 S.E., 515, 516, is referred to. From an order of Judge Hydrick therein affirmed, the following is quoted: "A general statement of one of the elementary principles of that law is that only parties and privies are bound by a judgment. `Privies,' in the sense in which the word is here used, includes only those who have `mutual or successive relationship to the same rights of property.' 24 A. E. Ency. Law (2d Ed.), 764. `The ground of privity is property, not personal relation.' Big., Estop., p. 142; Freem., Judg., § 162; Smith v. Moore, 7 S.C. 215, 24 Am. Rep., 479. `Absolute identity of interest is essential to privity. The fact that two parties as litigants in two different suits happen to be interested in proving or disproving the same facts creates no privity between them.' 24 A. E. Ency. L. (2d Ed.), p. 747."
To like effect, see Bigelow on Estoppel, page 378, as follows: "In the law of estoppel privity signifies (1) merely succession of rights, that is, the devolution, in whole or in part, of the rights and duties of one person upon another, as in the case of the succession of an assignee in bankruptcy to the estate of the bankrupt on the one hand, and to the rights of the creditors on the other, or (2) the derivation of rights, by one person from and holding in subordination to those of another, as in the case of a tenant. No one can be bound by or take advantage of the estoppel of another who does not succeed or hold subordinately to his position."
There is no privity between debtor and creditor. "No privity exists between creditor and debtor. There is neither devolution nor subordination of rights in the relation." Bigelow on Estoppel, 374; 21 C.J., 1185.
The general statement that executors and administrators are in privity of interest with their testator or intestate is not without authority for its support. Like most generalizations, however, the statement cannot, under all circumstances, be deemed a correct statement of the rule. In a given case, the controlling inquiry should be the nature of the tenure of such personal representative within the meaning of privity as above defined. Generally speaking, the heir is in privity with his ancestor while the creditor is not. To the extent that an administrator represents an heir, therefore, he would be in privity with his intestate. While on the other hand, to the extent that he represents the creditor such privity would not exist. Thus it is stated in Pond v. Estate of Pond, 79 Vt., 352, 65 A., 97, 98, 8 L.R.A. (N.S.), 215: "An administrator or executor under our law takes the legal title to the personal property; but not in his own right. He is not the owner of it, except in a qualified sense. His interest in it is in autre droit, merely. I Woern. Adm'r, § 174; Weeks v. Gibbs, 9 Mass. 74. His title is fiduciary, rather than beneficial. Carter v. Manufacturers' Nat. Bank, 71 Me., 448, 36 Am. Rep., 338. It is the legal title which he takes, but he takes it as trustee and for a particular purpose. Lewis v. Lyons, 13 Ill., 117; Stickney v. Parmenter, 74 Vt., 58, 52 A., 73. In a sense, then, when as here the estate consists entirely of personal property, the relation of trustee and cestui que trust exists between the executor and the legatee. It follows that in litigation which affects the amount or value of such an estate, the administrator or executor represents the legatee, and the privity between them is complete. 2 Van Fleet, For. Adj., § 465. The privity between them is the privity of trustee and cestui que trust, the privity which, it is said, was classified in the old books as privity of person. R. L. Law Dict., `Privity.' The real estate, however, descends directly to the heir, and the interest of the administrator is in the nature of a naked conditional power, and the privity between them as to such property is slight or none at all."
In the case at bar, the real estate in controversy descended by operation of law to the heirs at law of the intestate. The administrator has no interest whatsoever therein, except to employ the authority of his office to subject this asset to the lawful demands of intestate's creditors. He asserts this right herein against the heirs at law and all others claiming adversely, and solely on behalf of the creditors. Under such circumstances, he stands in the shoes of the creditors, and is not estopped by the conduct of intestate.
"In cases in which a decedent would be estopped, his personal representative ordinarily will be estopped in the same manner and to the same extent. It has been held, however, that the executor of an insolvent person, who has owned goods attached as those of a firm, can claim them as belonging to the individual estate of the deceased, although deceased had held himself out as a member of the firm, and had represented that the goods belonged to the firm under such circumstances as would have estopped him, if living, to assert the contrary, since the estoppel does not extend to his creditors, represented by the executor." 21 C.J., 1182.
The relation of the administrator to the Court appointing him and to the personal property of his intestate is the subject of the following comment by Justice Marion, in McNair v. Howle, 123 S.C. 252, 116 S.E., 279, 282: "Under the American system of administering the estates of deceased persons, the administrator is considered the deputy of the Probate Court, or other Court of similar powers, to whose jurisdiction is committed by statute law the care and management of the intestate's estate for the benefit of creditors and of all who may be legally entitled thereto. As the personal `representative of the deceased in regard to his personal estate, he (the administrator), has the same property in the goods of the intestate as the intestate himself had when living, and the same remedies to recover them' or to prevent their unlawful appropriation by others. McVaughters v. Elder, 2 Brev., 307, 313; and see Rhame v. Lewis, 13 Rich. Eq., 269, 292."
As shown above, the plaintiff in this case, as it relates to the issue under discussion, is in reality the representative of the creditors. To the extent that he is asserting a right in their behalf against the heirs at law, who are the holders of the legal title to the land in question and as such represent their ancestor, the plaintiff is in privity with the creditors, and not with intestate.
I therefore hold that the plaintiff, as administrator of the estate of W.K. Hudgens, deceased, is not in such privity with his intestate as to estop him to plead merger and the extinction of the Poole mortgage.
The defendant, the bank, sets up the claim of equitable lien. It contends that "whenever parties intend a contract as a mortgage and the property to be mortgaged is sufficiently described, a lien arises even though the common law, or statutory mortgage is not created."
That doctrine is indisputable, but it has no application here. It applies when parties intend and attempt to create a mortgage or lien, and the means employed fall short of accomplishing the purpose; or when a paper is imperfect for lack of some essential in its execution.
But in the present case, Hudgens did not intend, nor attempt, to create a mortgage. He gave his note and secured it by the pledge of certain collateral, one of which proved to be worthless. The doctrine of equitable lien cannot be involved to impart vitality to the defunct collateral.
"The deposit of title deeds as a security for debt does not, in this State, create an equitable mortgage on the land." Parker v. Carolina Savings Bank, 53 S.C. 583, 31 S.E., 673, 676, 69 Am. St. Rep., 888.
In the light of that decision, it would seem settled that the pledging as collateral of a defunct mortgage could not create an equitable mortgage.
Shortly before the death of Mr. Hudgens, the bank delivered to him, in trust for collection for the bank's account, the collateral which he had deposited with it to secure his note. Some of these collections were made and not remitted. The bank has a preference on the funds of the estate on hand at the time of the death of Mr. Hudgens. According to the testimony, this sum is $168.03.
Wherefore, it is ordered, adjudged, and decreed:
(1) That when W.K. Hudgens took to himself from J.W. Washington title in fee simple to the real estate described in and covered by the mortgage from J.W. Washington to W.H. Poole, which was assigned by Poole to Hudgens, the mortgage was merged in the title; there being then no intention of the parties that it should be kept alive.
(2) That W.K. Hudgens by his course of dealing with the American Bank Trust Company estopped himself to assert that there was a merger; estopped himself to say that the mortgage of Washington to Poole, which was assigned to Hudgens, was extinguished by merger.
(3) That all who are in privity with W.K. Hudgens, he being dead, are likewise estopped to deny validity of the said mortgage.
(4) That those who are thus estopped are the heirs at law of said Hudgens, who would take by descent, viz., his widow and children.
(5) That the widow is not estopped to claim her dower, and is entitled to have it allotted to her out of the proceeds of the sale of the premises covered by the Washington mortgage.
(6) That the plaintiff, as administrator of the estate of the decedent, is also the representative of the creditors of the estate, and, as such, is not in privity with W.K. Hudgens, and is not estopped to set up merger and the extinguishment of the mortgage.
(7) That the American Bank Trust Company is not entitled to claim an equitable mortgage or lien on this property.
(8) That the American Bank Trust Company has a preferred lien on the proceeds of the collection made by W.K. Hudgens of the collaterals given by him to the American Bank Trust Company as security for his note to them, which had been sent him by the bank for collection, and which he had not wholly remitted. It appears by the evidence that that sum, on hand at the death of W.K. Hudgens, amounted to $168.03, which sum the administrator is ordered to pay to J.E. Peurifoy, receiver of the American Bank Trust Company, or his attorney.
Ordered further, that the said premises be sold by H.E. Bailey, Probate Judge, as special referee, at public outcry to the highest bidder in front of the courthouse at Greenville, S.C. on sales day in October, 1930, during the usual hours of sale, or some convenient sales day thereafter, and that of said sale due and legal notice be given by publication once a week for three successive weeks in the Greenville News, a newspaper published in the City of Greenville, County of Greenville, and State aforesaid. That the terms of said sale be cash, purchaser to pay extra for revenue stamps and deed.
Upon compliance with the terms of sale by the purchaser that the Probate Judge, as special referee, execute unto said purchaser a good and sufficient fee-simple deed to said premises and let him into possession thereof; that the Probate Judge, as special referee, pay out of the proceeds derived from the sale of said premises, first, such ratable part of the cost of this proceeding as may be deemed by him to be equitable; second, one-sixth of said remaining proceeds of sale shall be paid to Mrs. Annie J. Hudgens in lieu of her dower interest in said premises; third, any taxes due on said premises; fourth, from the balance on hand, the judgment debt of the defendant I.P. Jordan, amounting to $1,355.90, principal and cost, and interest to date of intestate's death; fifth, any other judgment indebtedness duly established as such before the Probate Judge, as special referee; sixth, that the remaining sum then on hand be paid over to the plaintiff to be used by him as assets for the payment of claims against the estate of his intestate according to their legal priority.
It appears that said premises have been rented since the date of the death of plaintiff's intestate. The defendant Annie J. Hudgens has consented to accept one-sixth of a sum equivalent to said rent in lieu of the interest allowed by statute on her dower claim. As it appears that said arrangement is beneficial to the estate, it is approved, and the plaintiff is directed to make such payment to said defendant either out of said rent collected or to be collected, or other assets of the estate.
As herein recited, this estate is insolvent. Therefore, the defendant James E. Peurifoy, receiver, is entitled to interest on his claim only to the date of the death of plaintiff's intestate. All matters and things growing out of issues involved in this case, not adjudicated herein, are reserved for the future determination of the Court.
Following is a description of the premises herein ordered to be sold:
All that certain piece, parcel, or lot of land, situate, lying and being in Grove township, Greenville County, S.C. in the Town of Piedmont, containing 81/100 of an acre, more or less, bounded on the south by lands, now or formerly, of Walter H. Poole, on the north and west by Piedmont Manufacturing Company, on the east by lands, now or formerly, of Rufus Shumate, and having the following metes and bounds, to wit: Beginning at a stake x3 by a black gum, thence north 16 west 3.98 to a stake x3, thence south 66.50 west 2.14 to a stake x3 at end of Liberty Street, thence south 1.50 west 2.94 to Walter H. Poole's line on Church Street, thence with Walter H. Poole's south 88.75 east 314 to the beginning corner, and being the same lot of land conveyed to J.W. Washington by Walter H. Poole by deed duly of record in the register of mesne conveyance office in Greenville County, S.C. and being the same conveyed to W.K. Hudgens by the said J.W. Washington by deed dated December 5, 1923, duly of record in the office of register of mesne conveyance for Greenville County, S.C. in Deed Book 88, at page 581, to which reference is invited.
Messrs. D.W. Robinson and D.W. Robinson, Jr., for appellant, James E. Peurifoy, Rec'r, cite: In chancery case Court will review findings of fact: 135 S.C. 190; 133 S.E., 709; 151 S.C. 114; 148 S.E., 704; 63 A.L.R., 965. No merger where contrary to intention of parties: 74 S.C. 42; 53 S.E., 978; Ann. Cas., 693. Burden is on party denying merger: 87 S.C. 47. Merger matter of intention: 87 S.C. 47; 68 S.E., 888; 120 S.C. 408; 113 S.E., 279; 131 S.C. 317; 127 S.E., 441. No intention of merger here: 2 Jones Mtges., 8th Ed., Sec. 1104; 106 Fed., 486; 60 N.E., 854; 64 Mo. App. 527; 128 N.Y. Supp., 878. Assignor of mortgage warrants validity: 81 S.C. 90; 61 S.E., 1057; 126 S.C. 273; 119 S.E., 829; 2 Jones Mtges., Sec. 824 A; 41 S.J., 704, 706, 730, 932. Assignor is estopped to deny validity: 93 S.C. 254; 75 S.E., 371; 93 S.C. 264; 85 S.E., 233; 104 S.C. 264; 85 S.E., 233; 104 S.C. 209; 88 S.E., 462; 120 S.C. 400; 113 S.E., 279; 21 C.J., 1111; 41 C. J., 704. Equitable estoppel: 97 S.C. 116; 81 S.E., 478; 139 S.C. 223; 137 S.E., 684; 140 S.C. 388; 138 S.E., 870; 141 S.E., 625; 21 C.J., 1146; 41 C.J., 443, 444. Quasi estoppel: 21 C.J., 1210, 1209, 1208, 1207; 33 S.C. 194; 11 S.E., 687; 19 S.C. 201; 19 S.C. 211; 52 S.C. 382; 29 S.E., 805; 19 S.C. Eq., 99; 116 S.C. 177; 102 S.E., 154; 67 S.C. 456; 45 S.E., 1017. Receiver stands in shoes of insolvent: 125 S.C. 214; 118 S.E., 303; 125 S.C. 332; 118 S.E., 290; 136 S.C. 111; 134 S.E., 275; 136 S.C. 179; 134 S.E., 285. Purchase money mortgage ahead of dower claim: 102 S.C. 186; 86 S.E., 480; 2 McCord, 54; 4 McCord, 346. Lien of prior mortgage superior to rights of subsequent purchaser: 63 S.C. 162; 41 S.E., 83. Estoppel of wife: 6 Rich., 266. Equitable lien: 2 DeS., 564; 3 DeS., 74; 35 S.C. 127; 14 S.E., 768; 72 S.C. 25; 51 S.E., 614; 122 S.C. 386; 115 S.E., 322; 129 S.C. 18; 123 S.E., 324; 41 C.J., 293, 303, 305. Receiver entitled to preference: 142 S.C. 234; 134 S.E., 147.
Messrs. Allen Doyle, for plaintiff, respondent, cite: Distribution of assets of insolvent bank: 136 S.C. 511; 134 S.E., 510. Pledge of mortgage already paid ineffective: 37 Cyc., 1396; 33 S.C. 324; 11 S.E., 1077. When merger takes place: Pom. Eq. Jur., 3rd Ed., Secs. 787, 788, 790, 791; 87 S.C. 47; 68 S.E., 888; 74 S.C. 42; 53 S.E., 978; 99 A.S.R., 152. No privity between creditor and debtor: Big., Est., 374; 21 C.J., 1185; 52 S.E., 604; 10 R.C.L., 837; 21 C.J., 1182; 123 S.C. 252; 116 S.E., 279; 8 L.R.A. (N.S.), 215. No equitable lien: 91 S.C. 7; 74 S.E., 47; 90 S.C. 522; 73 S.E., 1029; 53 S.C. 583; 31 S.E., 676. After collateral is exhausted receiver of bank should stand on same footing as other creditors: 156 S.C. 181; 153 S.E., 133; 69 A.L.R., 456.
Messrs. Watkins Prince, for respondent, Mrs. Annie J. Hudgens, cite: No act or statement of husband can defeat wife's claim of dower: 12 S.C. 465. Proof of character of husband's possession: 57 S.C. 155; 96 S.C. 435. Wife not estopped to claim dower: 19 C.J., 501; 87 S.C. 47; 89 S.C. 175. Merger: 26 S.C. 413; 87 S.C. 47. Claim of merger no defense against claim of dower: 17 S.C. 558; 28 S.C. 580.
May 28, 1931. The opinion of the Court was delivered by
This action by the administrator of the estate of W.K. Hudgens, deceased, was commenced in the Court of Common Pleas for Anderson County, March 25, 1929, for the purpose of calling in the creditors, marshaling the assets of the estate, and determining the rights of the parties thereto. The particular property involved in this appeal is .81 of an acre of land in the Town of Piedmont, Greenville County. The case was tried by Honorable M.L. Bonham, Circuit Judge (who has since been elected a member of this Court), without a jury. The facts and issues involved are fully stated in the decree issued by his Honor, Judge Bonham, and for the reasons stated therein it is the judgment of this Court that the judgment of the lower Court be, and is hereby, affirmed.
Note. Let the decree of the Circuit Judge be reported.
MR. JUSTICE STABLER and MR. ACTING ASSOCIATE JUSTICE COSGROVE concur.
MR. JUSTICE COTHRAN concurs in part and dissents in part.
MR. CHIEF JUSTICE BLEASE disqualified.
ON PETITION FOR REHEARING
The Court being satisfied that in considering the exceptions and passing upon the appeal in this case no material matter was overlooked by the Court, a rehearing is refused, and the petition dismissed.
MESSRS. JUSTICES STABLER and CARTER and MR. ACTING ASSOCIATE JUSTICE COSGROVE concur.
The opinion heretofore filed by me, "for modification," is withdrawn, and the following opinion is submitted as a dissent from the proposed order refusing the petition, and is to be considered also as an opinion proposing to modify the decree appealed from.
This is an action to marshal the assets, to sell the real estate in aid of the personalty to pay debts, and to settle the estate of W.K. Hudgens, deceased, who died July 7, 1928, insolvent and intestate. His heirs at law are the widow and four children, defendants; the personal representative of his estate is the plaintiff, W.E. Thompson, administrator.
The only questions presented in this appeal which I deem it necessary to discuss relate to the claim of Peurifory, receiver of the American Bank Trust Company, to participate in the distribution of the assets of the estate as both a preferred and secured creditor.
The issues of law were presented to his Honor, Judge Bonham, then Circuit Judge, upon an agreed statement of facts, and certain testimony taken before him.
On July 29, 1930, his Honor filed a decree in favor of the administrator and the widow's claim of dower, disallowing the claim of Peurifoy, receiver, except to a limited amount.
The issues of law arise out of the following facts, very greatly condensed; a detailed statement of them appears in the Circuit decree.
W.K. Hudgens was the owner of two mortgages executed by one Washington; one for $4,000.00 given to W.H. Poole, which was later assigned to W.K. Hudgens, and a junior mortgage given by Washington to Hudgens. Thereafter Washington conveyed the property covered by the mortgages to Hudgens, who retained them in his possession. Some three years later, Hudgens borrowed a large sum of money, nearly $10,000.00, from the American Bank Trust Company, and as collateral, with other securities, assigned the $4,000.00 Poole mortgage to the bank.
In brief, the contention of the administrator is that, when Hudgens took a deed from Washington for the property covered by his mortgages, there resulted a merger of the mortgages in the deed; that the mortgages, and particularly the Poole mortgage which Hudgens assigned to the bank, were satisfied, and that Hudgens had nothing to assign. The contention of the bank is that, whether there was a merger or not, Hudgens, by representing that the Poole mortgage was a valid mortgage, was estopped from asserting merger, and that as against the estate of Hudgens, represented in this action by his administrator and his heirs at law, the mortgage is a valid and subsisting lien upon the property covered by it, upon which the bank is entitled to realize, in preference to the claims of other creditors of Hudgens and the widow's claim of dower.
In reference to the issue of merger, his Honor, Judge Bonham, in his decree, after reciting the evidence, held that "the conclusion is irresistible that there was a merger of the mortgages in the title." The reasoning and conclusion of his Honor upon the issue are entirely satisfactory; under the circumstances there does not appear any reason for an inference that Hudgens, at the time of the transaction, intended to leave the mortgages open, nor is there a circumstance to indicate that it would have been to his interest at that time to have so intended, in the absence of any intervening deed or incumbrance against which he needed protection, so far as appears.
Upon the issue of estoppel, his Honor held: "The assignor of a note and mortgage warrants their validity; he impliedly asserts that they are true and vital papers, and that the mortgage is a lien on the property. It is so held by our Supreme Court in several cases, cited by counsel for the bank, of which that of Hall v. James T. Latimer Son, 81 S.C. 90, 61 S.E., 1057, is especially noteworthy. Estoppel arises when a person by his conduct, or language, or silence amounting to representation, or a concealment of material facts, induces another to change his position to his hurt. Cannon v. Baker, 97 S.C. 116, 81 S.E., 478, and numerous other cases. When W.K. Hudgens assigned this mortgage and note to the bank he by implication declared them to be valid subsisting obligations, and he in effect warranted that the mortgage was a lien on the real estate which it covered. When he received from the bank a loan of money which was made in reliance upon such implied representations he estopped himself to deny the validity of the papers. 41 C.J., 443."
There is no exception to the decree upon this issue, and it must be sustained as the law of the case. The conclusion is right, as demonstrated by the following authorities:
In 21 C.J., 1146, it is said: "A mortgagor or judgment debtor who makes a false statement, orally or in writing, to influence the assignment of the security or judgment, is estopped from taking advantage of it as against an innocent assignee who has relied thereon. * * * So, too, the holder of mortgage notes who induces a purchaser to take them by representation that the mortgage is a paramount lien is estopped to assert that there is a prior mortgage."
In 1 Jones on Mortgages (6th Ed.), § 853, it is said: "After the owner of lands has taken an assignment of the mortgage to himself, and then assigned it to another as a valid security, he is estopped from insisting, as against the assignee or any one claiming under him, that it had merged in the equity of redemption. It is immaterial in such case that the remedy at law upon the note which accompanied the mortgage was barred: that does not affect the validity of the mortgage or the remedy upon it. It is immaterial, too, that the person who claims the benefits of a merger is a purchaser from the former owner by a deed made after the assignment of the mortgage by his grantor was recorded; for then the same record which informed him of the facts, which at common law would constitute a merger, also notified him of the assignment which created the estoppel. If he has purchased by deed of warranty, he may have a remedy upon the covenants, but he cannot resist the foreclosure of the mortgage."
In Hall v. James T. Latimer Son, 81 S.C. 90, 61 S.E., 1057, 1060, the Court said: "We hold the defendants were bound to warrant the soundness of the chose in action assigned, and there is no evidence that the plaintiff ever voluntarily assumed the risks as to the genuineness of the paper."
In 1 Jones Mortg. (7th Ed.), § 824-a, it is said: "It is generally held that the assignor of a bond and mortgage impliedly warrants their validity, and is liable for a breach of such implied warranty, if he had knowledge at the time of the transfer of their invalidity. * * * The assignor impliedly warrants that the mortgage is a subsisting lien on the property described therein, and if the assignor has previously released part of the property, he will be liable on such implied warranty. * * * It has been held that the assignor of a mortgage is estopped to deny its validity against his assignee. An assignment impliedly warrants the genuineness of the mortgage."
In 21 C.J., 1111, it is said: "If, in making a contract, the parties agree upon or assume the existence of a particular fact as the basis of their negotiations, they are estopped to deny the fact so long as the contract stands, in the absence of fraud, accident or mistake. There can, of course, be no estoppel as to matters not included in the contract."
In Powell v. Smith, 30 Mich., 451, it was held, quoting syllabus: "The owner of lands who treats a mortgage upon the same, which has been assigned to him, as a valid instrument, and transfers it as such, is estopped from insisting, as against the assignee or any one claiming under him, that in his hands it had merged and disappeared in the fee."
In Commissioner v. Weisberg, 249 Mass. 357, 143 N.E., 910, it was held, quoting syllabus: "A bank having obtained loan on express or implied representation that mortgage assigned was outstanding, is estopped to deny validity of mortgage as outstanding security, notwithstanding that lender had constructive notice from records that mortgage was discharged."
Another ground upon which the estoppel of Hudgens may be sustained is that where one accepts the benefit of a transaction he may be estopped from questioning the existence, validity, and effect of a deed or mortgage under which he has profited. Smith v. Oglesby, 33 S.C. 194, 11 S.E., 687; Charleston v. Caulfield, 19 S.C. 201; McDaniel v. Anderson, 19 S.C. 211; Parker v. Parker, 52 S.C. 382, 29 S.E., 805; Walker v. Frazier, 2 Rich. Eq., 99.
In 21 C.J., 1210, it is said: "By the acceptance of benefits one may be estopped from questioning the existence, validity and effect of a deed or mortgage."
At page 1206: "Where one having the right to accept or reject a transaction takes and retains benefits thereunder, he ratifies the transaction, is bound by it, and cannot avoid its obligation or effect by taking a position inconsistent therewith. And the estoppel thus created is operative against his personal representatives."
At page 1209: "It has been repeatedly held that a person by the acceptance of benefits may be estopped from questioning the existence, validity and effect of a contract."
The liability of Hudgens upon the assigned mortgage may be sustained upon another ground, which really embodies the same principle of estoppel.
By the assignment of the mortgage to the bank, which had no suspicion that the mortgage was other than a valid one payable to Hudgens, he impliedly warranted its validity at that time; it must therefore in equity be so considered, and as being reissued by Hudgens.
In 41 C.J., 702, it is said: "Wherever equity keeps alive a mortgage which otherwise would be extinguished by payment or merger, the holder thereof has the right to reissue or reassign it as a valid security."
In King v. Briarwood Land Co. (Sup.), 131 N.Y.S., 946, it was held, quoting syllabus: "The owner of the fee could reissue the mortgage after its discharge, or estop itself from denying reissuance, so far as the estate then owned by him, but not to the prejudice of liens attaching prior to the reissuance."
It is settled then that there was a merger of the Poole mortgage in the deed of the mortgagor Washington to Hudgens, dated December 5, 1923; it is as clearly settled by the decree, unappealed from upon the issue, and unquestionably the law, that Hudgens in his lifetime was estopped from asserting that merger, and was conclusively bound, by his assignment of the mortgage to the bank, to recognize it as a valid enforceable mortgage, as of the date of the assignment, April 12, 1926, more than two years prior to the date of his death, July 7, 1928. At the time of his death then, the bank held a valid and enforceable mortgage upon the property as unassailable as any other subsisting obligation of Hudgens, by his administrator or by his heirs at law. Nothing has happened, so far as the record shows, since his death, to impair the validity of the obligation admittedly valid. "* * * In the place where the tree falleth, there it shall be."
The Circuit decree adjudges that the bank, notwithstanding the fact conceded in the decree that it held a valid and enforceable mortgage at the time of the death of Hudgens, must take its place in the bread line, along with all other unsecured creditors, upon the ground that the administrator, not being in privity with the intestate Hudgens, is not bound by the estoppel which bound him.
The bank is not called upon to invoke the principle of estoppel as operating against the administrator; its position is that the conduct of Hudgens created an obligation upon him that the assignment of the mortgage inescapably recognized it as a valid and enforceable mortgage, a fact that he was estopped from denying, and that he died with this obligation subsisting, as much so as if he had on that day executed a new mortgage. There manifestly was no necessity for the bank to rely upon any estoppel against the administrator. Hudgens had made the contract; the execution of the note to the bank was a contract; the assignment of the mortgage to the bank was a contract; the pledge of the mortgage as collateral to the note was a contract; all of this had been consummated before the death of Hudgens; and, when he died, the mortgage as well as every other subsisting obligation became binding upon the estate, regardless of any question of the descent of the estoppel against Hudgens upon his administrator.
I recall the case of Lites v. Addison, 27 S.C. 226, 3 S.E., 214. There the maker of a past-due note was asked by one who contemplated its purchase, whether the note was "all right"; the maker replied that he had given the note, that it was "all right" and that he expected to pay it in January; the maker being sued upon the note set up the defense of failure of consideration. The Court held that he was estopped by his representations. If the action had been against the administrator of the maker, could it have been insisted that the administrator was not bound by the estoppel which bound the maker? I hardly think so.
If Hudgens had been sued during his lifetime for the foreclosure of this mortgage, there could have been no doubt of the recovery by the bank of a judgment of foreclosure. It appears to me incongruous to hold that, if after his death suit had been brought, his administrator could successfully defend by asserting that the estoppel against Hudgens would not extend to him.
In 11 R.C.L., 163, it is said: "Another statement of the rule is that, with the exception of contractual obligations of a personal nature, all contracts which are capable of being enforced against a decedent in his lifetime may be enforced against his estate."
Hudgens could just as well have given a mortgage to the bank to secure the loan, and this doubtless would have been insisted upon if Hudgens had not at least impliedly represented that he owned the mortgage instead of the title to the property.
His general creditors could not have complained so long as it appeared that the mortgage had been given for a present advance. He did what was equivalent to giving a new mortgage.
Another reason why the matter of the estoppel against Hudgens extending to the administrator is negligible in this case, is that as administrator he has no interest in the controversy between the bank and the unsecured creditors. They are parties to the action, and are assumed to take care of their respective interests. The administrator is interested in seeing that no improper claim is made against the estate; but where the estate is insolvent, it does not make a particle of difference to the administrator whether certain priorities are awarded to certain creditors or not. There is no controversy in this case as to the validity of the bank's note. Again, he has no interest in the controversy for the reason that the decision involves rights and interests in the real estate with which he had nothing to do. The agreement of Hudgens, implied from his assignment of the mortgage, that it was a valid charge upon the land, affected the land the title to which was in the heirs at law, between whom and Hudgens there was such privity as to hold them bound by the estoppel which bound him.
The disposition of the question of dower by the Circuit decree is satisfactory.
The lien of the bank's assigned mortgage would take precedence over the claims of unsecured creditors as of the date of the assignment by Hudgens; the claims of secured creditors who have obtained liens since that date should be passed upon in a subsequent decree.
I think it plain that the decree should be modified as herein indicated, and that for that reason the petition for a rehearing should be granted.