Case Name: ABERNATHY, Respondent, v. HUNT et al (The First National Bank of Elk Point et al, Interveners, HENKIN et al, Appellant.)
Court: South Dakota Supreme Court
Jurisdiction: South Dakota
Decision Date: 1918-03-26
Citations: 40 S.D. 240
Docket Number: File No. 4166
Parties: ABERNATHY, Respondent, v. HUNT et al (The First National Bank of Elk Point et al, Interveners, HENKIN et al, Appellant.)
Judges: 
Reporter: South Dakota Reports
Volume: 40
Pages: 240–243

Head Matter:
ABERNATHY, Respondent, v. HUNT et al (The First National Bank of Elk Point et al, Interveners, HENKIN et al, Appellant.)
(167 N. W. 145.)
(File No. 4166.
Opinion filed March 26, 1918 )
1. Real Property — Trustee, Compelling Conveyance By — Mortgages by Trustee, Validity — las Rendons, Effect on Mortgagee.
Where title to realty in Iowa was conveyed in trust hy plaintiff owner to the wife of one of two persons through whom a desired exchange of the land for land in this state, was to be effected, and, the exchange being negotiated, said grantee conveyed the Iowa land to the former owner of the exchanged South Dakota land, taking a deed from him to herself for the latter; and, thereafter said trustee and her husband executed, to a co-defendant a mortgage on the South Dakota land, which was -duly recorded; and later executed a second mortgage thereon to a co-defendant, which was likewise recorded, and, thereafter the first mortgagee assigned to defendant intervener, and later assigned the second mortgage to a cc-intexwener, held, that there was no warrant or auth ority for execution of either of said mortgages; and both were without validity In the hands of the mortgagee. Held, further, that oner of said mortgages, assigned after recording of notice of pendency of said action, was held by assignee subject to all infirmities therein existing while in hands of original mortgagee.
2. Mortgages — Mortgage by Trustee — Assignment Without Consideration, as Security for Pre-existing Debt — Assignee, Bona Bides of — Constructive Notice — Cancellation of Mortgage-;— Statutes.
A bank, assignee of a mortgage executed by one who held title: to the lands as trustee, and which took said assignment as security to a pre-existing debt owed by a third -person, there being no consideration for said assignment, is not a good-faith purchaser for value in due course of business, nor free from the defenses existing against the mortgage in hands of the original mortgagee; and the manner in which the assignment was made was such as to put the 'bank upon inquiry as to genuineness of the mortgage, and it is charged with constructive notice of the facts such inquiry would have disclosed; construing Rev. Civ'. Code, Sec. 2452. Held, further, that the bank was not an indorsee of the mortgage in due course; the facts not bringing, the case within Laws 1913, Ch. 279, Sec. 25 (Negotiable Instrument Law) providing that an antecedent or pre-existing debt constitutes value. Held, further that said mortgage was properly cancelled by trial court.
Appeal from Circuit Court, Brookings 'County. Boe. Cari, G. Sherwood, Judge.
Action -by Elizabeth Abernathy, against Lewis Hunt and others, The First National Bank of Elk Point et al interveners, to compel -defendant Ethel H-un)f to convey title to certain lands, and for cameeM>stioin of mortgages placed thereon- by defendants Ethel and Lewie Hunt. From a judgment tor plaintiff, adjudging the mortgages fraudulent and void, and cancelling ¡¡¡ame, and from am 'order -denying a new trial, d-afenldknt Louis Henkin, and the interveners O-na J. Hen-kin and Tine First National Bank of Elk Point, appeal.
Affirmed!.
Gantt & Ellis, for Appellants-.
B. A. Berke, E. A. ¡and W. H. Marling, -for Respondent.
(2) To point two- -of the opinion, Appellants cited: -Citizens Savings Bank v. Em-pey, 148 N. W., 606; 7 ,Cyc. 932, and note; 941, no-te 4.
Respondent citddl: Civ. Code, Sec. 2464; 27 Cyc. 1322; Ganaj-ohirie Nlait. Blank v. Diiefendorf, 25 N-. E., 405; Ord v. Ooaps'ti-ck, 36 N. E. (I11A) 279.

Opinion:
POLLEY, J.
This action is brought for the .purpose of -compelling the defendant Ethel Hunt . 'to -convey the title to a quarter section oif land] in Brookings county to plaintiff, and also to Cancel two mortgages placed 00 said land by tibe -defendants Ethel .Hunt and Lawiis Hunt.
Tire defendant Eltihel H-uinit is the daughter -of plaintiff and the wife of ,the defendant Lewis Hunt. Plaintiff owned real property in Iowa which she desired to exchange for farm property in South Dakota. Defendants Louis Henkin and' Lewi's Hunt undertook to- effect such exchange, anld, in cinder Ito facilitate the transaction-, hlad pMtatliff (who- is a nonresident) execute a deed conveying title to- her property toi her daughter, Ethel Hunt, who resides in Ithis state. Louis Hen-kin anld- Lewis Hunt negotiated a trade of pfaintifFs! Iow>a property for a quarter is-ectiion of land in Brookings couinty, owned 'by one H. PI. Mao-re. In -aonsumm'ation -of -said transaction: defendant Ethel Hunt -deeded plaintiff's property to tine isali-d Mioore and took a deed, from M-oiore conveying -th-e Brookings -co-unity property to herself. The deed from Mioore to Ethel Hunt was executed on the 4th day of March, 1915. Oh thle following day, Match 5th, Eithel Hunt and Lewis Hunt executed1 andl delivered to defendant Loui's H'en-bin a mortgage o-m thle Brookings county land1 for $2,000. This mortgage wias filled for -record on the 9th day of Marcih, 1915. On the 15th day of April, 1915, Ethel Hunt and Lewis Hunt executed a second mortgage to- Louis Hen-ki-n on the Bro-oki-ngs county land for $150, which mortgage Was filed- for record inBriclofciogS County on- /the 19th day of April, 1915. On tine 17th day oif M-ar-ch, 1915, defendant Louis Henkin assigned the $2,000 mortgage to tire intervener First' National Bank -of Elk Point, and -o-n the ns-t day -of 'M-ay, 19x5, h-e- -assigned -the $150 mortgage to thle intervener Ona J. Henkin.
The -trial -oouirlfc found that plaintiff is tire o-wn-er in fee -o.f the, Said land, anld' that the said mortgages were procured by the defendant Loiuii-s Plenfcin -by and tbreiugh fraud and deceit, and therefore ware Void, and entered -a decrete -canceling the sam-e. From this decree tine defendant Louis Hen-kin and- the interveners, Ona J. Htenikiin ¡and the First National Bank, appeal.
Appellants make no claim that merits consideration that there was any warrant or authority for the execution of either oif the said mortgages, or ¡that, in the (hands of the mortgagee, Louis Henkin, they wiere of any binding force or validity whatever. The $150 mortgage was not assigned to Ona J. Hlenkin until ¡after the notice of the pendency of this action 'had been filed fbr record, and therefore he tobk the sarnie subject to all the infirmities oif tine said mortgage that existed while it was in the hand's of the original mortgagee. This was conceded1 by counsel on 'the .argument, and said mortgage will receive no further notice.
The situation relative -to the mortgage assigned1 to the bank is 'siotaewhat different, but not more .difficult. It is claimed on behalf Of the bank that ¡the assignment of said -mortgage was taken anld i'S field as security for an indebtedness of $2,500. But it ¡appears from the evidence that this wlas a preexisting debt; that it was 'amply secured by oither security; that ilt was secured to tile satisfaction of the bank; that ¡the 'assignment was not solicited .by tine bank, but was made Voluntarily and without any consideration whatever -passing from the bank to Louis Henkin. Moreover, ¡the $2,500 indebtedness to the bank was not a debt Owed !by Louis Henkin, but one that was 'Owed by Henry Henkin and Ona J.-. Henkin. This dobs not make the bank a good-faith, purchaser for valúe 'in due bourse of -business noir free the mortgage from the defenses that existed against it 'while in the haodsi of the original mortgagee. The manner in which ¡the assignment to the bank wlas made wds1 such as to put it upon inquiry as to -the genuineness of the mortgage, and it is charged with constructive notice of .the facts thlat such- inquiry would have disclosed. Section 2452, Rev. Civ. Code.
Appellants cite and rely upon Bank v. Empey, 34 S. D. 361, 148 N. W. 606, in support of their contention that the bank is an indorsee of the mortgage in due course of business, but the facts in this case do not bring it within tibie rule ¡announced in that case. Neither does it come within that portion of section 25, c. 279, Laws of 1913 (the Negotiable Instrument Law), which provides that an antecedent or pre-existing debt constitutes value.
The mortgage having been void in the hands- oif the original mortgagee, and thie bank having failed to shtow itsielf a bona fide fielder thereof, it was properly ¡canceled by-the trial court.
Th'e judgment appealed from is affirmed.