Court Opinion

ID: 3877858
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:10:20.005743+00
Date Added: 2024-06-11T14:15:15.045301
License: Public Domain

This action by the mortgagor, Leaphart, against the mortgagee, Selby, was instituted *Page 10 
for the purpose of determining whether the mortgagor was entitled to a credit of $250 upon the principal of his mortgage debt, which he claims to have paid to the attorneys and agents of the mortgagee, and which did not reach the mortgagee. The defendant mortgagee, while admitting that the parties to whom the mortgagor made the payment were his agents, authorized to collect the interest
upon the mortgage, he denies that they were authorized to collect the principal or any part of it. The facts which I will detail are undisputed. The issue is whether, from these facts, the inference can be legitimately drawn that the agency was established. The case was referred to the Master and he found in favor of the mortgagor. His report was confirmed by his Honor, Judge Whaley, of the County Court, and from his decree the defendant has appealed.
It appears that the plaintiff mortgagor, Leaphart, had bought a house and lot from one Bedenbaugh, upon which there was an outstanding mortgage to one Singleton. Singleton's mortgage was in the hands of the firm of attorneys of which the late C.H. Barron was a member. Singleton was pressing for his money, and Barron, who had done quite a good deal of business in the way of negotiating loans for the defendant mortgagee, Selby, arranged a loan from Selby to Leaphart, for the purpose of taking up the Bedenbaugh mortgage held by Singleton. Accordingly, on January 14, 1915, Selby, through said firm of attorneys, made a loan to Leaphart of $1,200, evidenced by a bond payable three years after date, interest at the rate of 8 per cent. per annum, payable semiannually on January 1st and July 1st of each year. This bond was secured by a mortgage on the house and lot. Leaphart and Selby had never met; the transaction having been closed upon Leaphart's request to Barron for the loan; the money being paid by Selby to Barron and by him to Leaphart less his fee, $22. The bond and mortgage were delivered by Barron to Selby, and have ever since remained in his possession. *Page 11 
During the entire period of time between the date of the execution of the mortgage, January 14, 1915, and July 1, 1922, preceding the death of Barron in November, 1922, Leaphart paid to Barron the installments of interest as they became due, $48 semiannually. These payments were remitted by Barron to Selby; he and Leaphart having no communication with each other. Leaphart also made the following payments to Barron, upon the principal of the debt: January 11, 1918, $100; December 31, 1919, $100; and January 3, 1921, $50. These payments were not remitted by Barron to Selby; the debt thereafter being reported to Selby as being $1,200, and regular remittances of semiannual installments of interest, $48, being made by Barron to Selby.
Leaphart testified as follows:
"The Barron firm did all the negotiations leading up to the loan, as I did not know Mr. Selby; had never met him. He did not inspect the property; he was not present when the bond and mortgage was signed; he did not instruct me to pay or not to pay Barron; and there was no communications between myself and Selby, either verbal, written or otherwise, until seven years after I had signed the bond and mortgage. A day or two before Barron always sent me a statement of interest due, and without any instructions one way or the other from Selby, I paid Barron interest twice a year till paper was due on January 14, 1918, and without any instructions from Selby one way or the other, I continued to pay Barron four years after the bond and mortgage was due, that is, till July 1, 1922, and also paid him without any instructions one way or the other from Selby, $250 on the principal, and there is now due $950. Selby did not tell me to pay or not to pay Barron interest or principal."
The defendant, Selby, testified that he had invested a good deal of money, some $25,000, in bonds and mortgages, during the last 15 or 20 years, 32 in number; that these investments *Page 12 
were made through the Barron firm; that when they had a good loan he would be notified and, if satisfied by their statements, the loan would be made; that he had authorized Barron to collect the interest, but had authorized no one to collect the principal, or any part of it; that the bonds and mortgages were delivered to him and always thereafter kept in his possession; that Barron had not at any time collected any part of the principal of the mortgages for him; that whenever a mortgagor desired to pay a loan he would be notified from Barron's office, and they would either come to his (Selby's) office, or he would go down to theirs, and satisfy the paper when the money was paid to him; that he would at times turn the money over to Barron for reinvestment, and pending reinvestment Barron would pay him interest upon it; that when such reinvestment would be made Barron would deliver the loan papers to him; that at no time had Leaphart notified him of having paid a part of the principal to Barron. This is practically the whole evidence upon the issue of agency.
The Master held that —
"Under numerous decisions of our Court the Barron firm was the agent of the borrower and the lender. Several cases make the further ruling that under such circumstances attorneys are especially agents of the lender."
He further held that the failure of Selby to return to Leaphart the money which Barron had collected and remitted to him, for a period of seven years, was sufficient in law to continue the agency and amounted to a ratification of the agency. The money so collected and remitted was for the interest which Barron was authorized to collect. How those collections would constitute agency for the collection of the principal, or any part of it, is certainly "in nubibus." He concludes that Selby was guilty of the greater negligence, in that he received the interest for seven years, which he was entitled to, had authorized Barron to collect and now makes no claim for; that Selby had not returned *Page 13 
or offered to return any part of the interest so collected, although he knew that Leaphart was paying it. Why should he have returned any part of it? How the failure to return that which was his, which Barron had authority to collect, and which Leaphart was under obligation to pay, can be evidence of Barron's agency to collect what he was not authorized to collect, and which he had never paid to Selby that he might be in a position to return it, can be deemed negligence on the part of Selby or evidence of ratification, is beyond my comprehension.
His Honor, the County Judge, confirms the Master's report in a decree which, however, does not mention the ground upon which the Master reached his conclusion.
The decree appears to be based upon these grounds: (1) That Selby had committed to Barron the handling of his funds, which I assume was intended to include the authority to collect the principal of the mortgage debt; (2) that Selby held Barron out as a money lender, with general authority to act, which also I assume was intended to include the authority to collect the principal of the mortgage debt; (3) that the payment of a part of the principal by Leaphart to Barron was in effect caused by Selby's not communicating to Leaphart, well-grounded suspicions entertained by him as to the upright dealing of Barron, and that he, being more greatly at fault, should bear the loss.
As to the first ground: There is but a scintilla of evidence to sustain the charge. The course of dealing between Selby and Barron is clearly set forth in the testimony of Selby, and it is uncontradicted by a single witness. Selby had money to lend, and, as is done in hundreds of cases, he selected an attorney, who was largely engaged in procuring and securing loans on real estate, to invest surplus funds in his, not Barron's, hands, to pass upon the security offered, and to close the transaction. Barron was authorized to collect the interest as it fell due, and that was all. The papers remained with Selby, and were satisfied upon repayment of the loans to Selby. *Page 14 
The only circumstance invoked to establish the charge is a letter written by Selby to Barron from Warrenton, Va., in which he inquires about the interest which was due upon another loan, and whether the proceeds of another loan had been reinvested. (Let this letter be incorporated in the report of the case.) The portion of it referring to the Boozer mortgage might sustain the inference that Barron had authority to collect this mortgage and reinvest the proceeds. It is the only instance of that character produced and doubtless is explainable upon the ground of his absence from the state and an authority limited to this particular loan. It is at least not of sufficient weight to overcome the great preponderance of the evidence to the contrary.
It is significant that there is no evidence that Barron had authority from other mortgagees, or was accustomed, to collect the principal of other mortgages representing loans made by him; and, if there had been, it would have been incumbent upon Leaphart to establish his familiarity with such custom. He can hardly be said to have been misled by a custom that he knew nothing about. The truth is that Leaphart assumed that Barron had authority to receive payments upon the principal, without making the slightest inquiry, and without the slightest inducement upon the part of Selby. It seems hard that Leaphart should be required to pay the $250 again; but the evidence shows that he was guilty of negligence in making the payments and that Selby was not. It would be equally hard, if not harder, to hold Selby liable for the mistake of Leaphart, for which he was in no wise responsible.
In Smith v. Kidd, 68 N.Y., 130; 23 Am. Rep., 157, it is said:
"Any other principle would be dangerous in the extreme. If the fact that a capitalist makes investments on bond and mortgage through an attorney, and employs him to collect the interest, and in special cases authorizes him to collect the principal of particular mortgages, is sufficient to warrant *Page 15 
a finding of a general authority to collect the principal of all the mortgages of the client, notwithstanding that the client takes the precaution to retain his securities in his own possession, no investor would be safe."
As to the second ground: His Honor correctly held, "It is true that the authority, whether expressed or implied, to collect interest, is not authority for collecting the principal or any part thereof"; but he adds: "The entire record herein indicates a holding out the Barron firm on the part of Selby as a money lender with general authority to act. He is now without the right to assert the contrary."
It is to be presumed that everybody, including Leaphart, knew the fact that the Barron firm was so engaged. It was not necessary for Selby to "hold out" that fact; and, if it was a fact, I do not see that the "general authority to act," which I assume was intended to include the authority to collect the principal of a loan, made under the circumstances here developed, could, by any stretch of the power of inference, be held to authorize such collection. Certainly in view of the undisputed evidence that Barron did not have that authority, it is too weak an inference to overcome that evidence.
As to the third ground: This ground is based upon the slender foundation that because Barron had in his possession a mortgage by one Millford, which had been assigned to Selby, and Selby had to make a number of trips to Barron's office to get it, Selby should have notified Leaphart not to make any payments of either principal or interest to Barron.
I think it is a sufficient answer to this proposition to say that, as Selby had not authorized Barron to collect any part of the principal, he was not supposed to fear that he would do so, and was therefore under no obligation to notify Leaphart not to do what he was under no obligation to do; to pay what Barron had no authority to collect. As to the collection of the interest, Selby had certainly no ground of suspicion *Page 16 
which would have induced him, or did induce him, to withdraw his business from Barron, for the collection and remittance of interest continued after the Millford incident, as before.
The principle is familiar, of course, that, when one of two innocent parties must suffer by the wrong of a third party, he must suffer who has placed it in the power of such third person to do the wrong. This rule, it is manifest, cannot apply where the person claiming the benefit of it has himself supplied the opportunity of wrong, as Leaphart did in this case.
The evidence shows that Barron received the payments on the principal when he had no authority to do so; that he deceived Selby by afterwards rendering statements showing that the principal debt had not been reduced by partial payments, and continued to remit the semiannual interest of $48 as if the debt remained $1,200. His conduct constituted a fraud upon Leaphart, a tort for which he might have been sued. It has been established that a principal is not responsible for the tort of his agent, unless his conduct was within the actual scope of his authority; there being a difference between the responsibility of a principal for the contracts of his agent, and for his torts. In the one case the principal is liable if the act was within the apparent
scope of the agent's employment, while in the other it must have been within the actual scope.
In Goble v. Express Co., 124 S.C. 19; 115 S.E., 900, it is said:
"Hence a principal cannot be held liable in damages for the tort of his agent unless the agent was at the time acting within the actual scope of his agency."
I think therefore that, considering the question of agency in this case to be one of fact, the overwhelming preponderance of the evidence sustains the conclusion that Barron was not the agent of Selby to receive the principal of the mortgage debt or any part of it. *Page 17 
The rule in chancery cases as to a review of the Court of a finding of fact by the lower Court has been firmly settled ever since the case of Finley v. Cartwright, 55 S.C. 198;33 S.E., 359, where it is declared:
"It may now be regarded as settled that this Court may reverse a finding of fact by the Circuit Court [in a chancery case, I interpolate], when the appellant satisfies this Court that the preponderance of the evidence is against the finding of the Circuit Court" — followed in a dozen or more cases.
In my opinion, however, the question of agency is not, in this case, one of fact, but of law.
The trial Judge held: "There is no real dispute as to any of the material facts" — a statement entirely borne out by the record; and, of course, a conclusion from such conceded facts is obliged to be a conclusion of law. There can be no issue of fact, no finding of fact, where there is no dispute as to the fact. The appeal presents squarely the question whether the conclusion of law reached by the lower Court, from those admitted facts, can be sustained, unaffected by any primary presumption that the conclusion was right.
Authorities could be multiplied without limit to the effect: (1) That it is fundamental that the power of an agent to bind the principal rests upon the authority conferred upon him by the principal; (2) that one, who makes payment to an agent, must at his peril ascertain whether the agent had authority to receive payment; (3) that a debtor owing money on written security, who pays it to another as the agent of the holder of the security, must see that the person so paid is in the possession of the security, or has authority, to receive such payment; (4) that the authority to collect the interest upon a mortgage does not authorize the agent to receive payment in whole or in part of the principal debt. 31 Cyc., 1322, 1325, 1368, 1371; C.J., 621. Morrisv. Carlisle, 128 S.C. 417; 122 S.E., 511. Bacot v. TrustCo., 132 S.C. 340; 127 S.E., 562. *Page 18 
Nowhere is the law more clearly stated than in 1 Jones on Mortgages (6th Ed.), § 964:
"In making payments to an agent the mortgage debtor should be assured of his continued authority to act for the owner of the mortgage; and such assurance of this as may be derived from his possession of the mortgage note or bond and indorsement thereon of the payment would be omitted only through great negligence. Authority of an agent to receive interest or principal on a mortgage cannot be inferred from the fact that the agent had collected and paid over to the mortgagee interest on other mortgages. Even authority to collect the interest upon a mortgage does not afford ground for inferring authority to collect the principal, where the agent is not intrusted with the possession of the securities. The mortgagor is bound to know the extent of the agent's authority. If he pays the principal to an agent, he must be prepared to prove express authority. He pays to an agent at his peril. The agent's own declarations as to his agency cannot be accepted. The rule has been generally adhered to in the adjudged cases that the possession of the securities by the agent is the indisputable evidence of his authority to collect the principal."
In the case of Morris v. Carlisle, 128 S.C. at page 417;122 S.E., 511, this Court held that authority to collect interest on a mortgage when it falls due carries no authority to collect on the principal. In this case the mortgage was made to the bank and assigned by the bank to Mrs. Morris. Payments were made on the principal to the bank when the bank did not have actual possession of the papers, and the Court held, that the mortgagor was the more negligent and that the payments made to the bank on the principal were not payments to Mrs. Morris.
In Bacot v. South Carolina Loan  Trust Co., 132 S.C. 340,344; 127 S.E., at page 562, the Court says:
"The only facts tending to establish that Kroeg was actually the agent of Opdebeeck and from which his authority *Page 19 
to act for Opdebeeck in collecting the principal of the bond could be implied, were the facts that he represented Opdebeeck in making this and other loans and acted for him in receiving the interest from the mortgagor. That these facts do not as a matter of law require the conclusion that Kroeg had implied authority to collect the principal of the loan is well settled. "The fact that an agent makes or negotiates the contract, such as the negotiation of a loan, gives him no implied authority to receive payment thereunder, unless he has possession of the evidence of indebtedness.'"
We have in the case at bar unquestionable evidence: (1) That Barron did not have authority to collect the principal or any part of it; (2) that Leaphart made payments on the principal to Barron without the slightest inquiry as to his authority to receive them; (3) that Barron never had possession of the bond and mortgage longer than was necessary to transmit them to Selby — and an entire absence of evidence that Selby knew of such payments or did the slightest act to induce Leaphart to make them.
I think, therefore, that the judgment should be reversed, and the case remanded to the County Court, with directions to render judgment of foreclosure for the full amount, called for by the defendant's mortgage, with interest and reasonable attorney's fee.
MR. ACTING ASSOCIATE JUSTICE R.O. PURDY concurs.