CHARLESTON.

#### Mrs. M. O. Carney *et als. v.*The Mortgage Security Corporation of America, *et als.*

(No. 6474)

Submitted September 17, 1929.

Decided September 24, 1929.

*J. Raymond Gordon,*for appellants.

*Price, Smith & Spilman,*for appellees.

Hatcher, Judge:

The plaintiffs executed a deed of trust on certain real estate to Union Trust Company of Maryland and Kanawha Banking & Trust Company of the city of Charleston as Trustees, to secure the holder or holders of sixteen negotiable notes aggregating $9,000.00 which are referred to in the instrument as “principal notes” and to secure also the payment of $1,500.00 referred to as “a second and subordinate lien”. Of the sixteen principal notes, fourteen were for $500.00 each and two were for $1,000.00 each. The notes were payable to bearer and matured at intervals of six months with interest from date, payable semi-annually. The interest was represented by coupon notes attached to the principal notes. Monthly installments of $117.00 were to be paid to Mortgage Security Corporation of America (the lender of about $9,000.00 to plaintiffs) and by it deposited with the Union Trust Company to the credit of the two trustees. The trus*606tees were to apply the installments "to the payment of said interest coupon notes when and as they severally mature, then to the payment of said principal notes,” etc.

The plaintiffs made twenty-six of the monthly payments and then defaulted. Thereupon, the trustees advertised the real estate for sale. This suit was instituted and a temporary injunction awarded restraining the sale. The defendants named in the bill are, The Mortgage Security Corporation of America, The Union Trust Company of Maryland, Kan-awha Banking and Trust Company, C. C. Redden and G. P. Williams. Redden and Williams are local brokers who negotiated the loan. The bill sought discovery of the money really lent the plaintiffs by The Mortgage Corporation. It alleged that the loan was usurious, and that all of the principal notes described in the deed of trust were held by the Mortgage Corporation. That company, answering, disclaimed the charge of usury, denied the material allegations in the plaintiffs’ bill, and alleged, among other things, that the amount due under the deed of trust was not owing to it, but was owing to the several holders and owners (not named) of the notes.

The evidence of plaintiffs shows that they admit owing $7,583.43 on the principal notes as of August, 1928. The Mortgage Corporation took no depositions but waived in court any claim to the $1,500.00 item referred to in the deed of trust as the secondary lien. The corporation claimed that the balance due on the notes as of December 21, 1928, was the sum of $8,337.74. The difference in the amount admitted and that claimed is attributable largely, if not entirely, to different methods in applying the installments to the principal notes.

The court entered a decree in favor of the corporation for the amount it claimed was due, and directed that unless the plaintiffs should pay same to it, with interest, the real estate described in the trust deed should be sold.

The first question which confronts us is: are the holders of the notes before the court ? Counsel contend that they are and point to the facts that the Mortgage Corporation lent the money to the plaintiffs; that the plaintiffs treated and *607considered tbe corporation as tbe bolder of tbe notes; that while tbe answer of tbe corporation denied ownership of tbe notes, it set up in effect that tbe corporation is the *agent*and trustee for the owners of tbe notes, and that such agency may be inferred from tbe entire case.

While tbe corporation did loan tbe money, tbe notes were payable to bearer. So tbe question is not, wbo loaned tbe money, but *who holds the, notes?*Tbe answer of tbe Mortgage Corporation was replied to generally, wbicb put tbe defendant on proof as to its claim of agency and trusteeship. That claim was not sustained by showing payment of tbe installments to tbe corporation. That method of payment was arranged in tbe trust deed and of itself evidences no authority in the corporation to represent tbe holders of tbe notes. Tbe denial by tbe answer of tbe allegation in tbe bill that tbe corporation bolds tbe notes put tbe plaintiffs on proof of that allegation. Tbe record is barren of such proof. Therefore the waiver of tbe $1,500.00 item by tbe corporation is ineffectual, a judgment in favor of tbe corporation is not warranted, and tbe decree of tbe lower court must be reversed.

It is suggested that if this cause again comes to a bearing, tbe difference between counsel as to tbe manner of calculating tbe amount due on tbe notes may be reconciled upon consideration of *Hurst*v. *Hite,*20 W. Va. 183, *Lightfoot*v. *Trice,*4 H. & M. 431 (one of tbe first Virginia cases to state concisely tbe rule on tbe application of partial payments), 33 C. J., p. 250-1, and 15 E. C. L., p. 32, sec. 29.

*Reversed.*