Court Opinion

ID: 8834704
Source: CourtListenerOpinion
Date Created: 2022-11-26 16:15:29.02446+00
Date Added: 2024-06-11T17:05:01.580365
License: Public Domain

Mr. Justice Thomson dissenting: I do not concur in the foregoing opinion. For some years the defendants had been doing business with the People’s Building & Loan Association, through one Kelly, its principal officer and manager, when, in March, 1911, they executed their note for $800, due in 5 years, payable to the order of themselves, and to secure payment thereof they executed a trust deed on certain property to the Chicago Title & Trust Company, as trustee. They delivered these papers to Kelly to take up a, prior loan and cover an additional sum of money they were borrowing from the Building & Loan Association. In October, 1911, the complainant purchased this loan from the association through Kelly, for its face value, paying cash in part and taking stock in the association, sufficient to cover the balance. After complainant became the owner of this mortgage paper she pursued a line of conduct which constituted Kelly her agent for the collection of the interest, for as the interest fell due she took the coupons to Kelly and received the cash for them and the defendants came into the office of the association and paid their interest and received their canceled coupons. By the terms of the trust deed, the principal and interest were payable at the office of the association. Complainant did not notify the defendants that she had acquired their note and they did not become aware of that fact before the note matured, April 1, 1916. During the period of this loan the defendants, through an arrangement they had effected with Kelly, had made three payments of $100 each on the principal. These- amounts had not been turned over to the complainant and she had no knowledge that they had been paid. The note made no provision for payment, either in -whole or in part, before maturity. When the note matured in April, 1916, the defendants told Kelly they would like to have it extended for a term of 3 years and also that they needed the $300 they had paid in and therefore wanted the note extended for its original amount, $800. Kelly notified complainant that the defendants wanted the note extended for 3 years and she agreed to such extension and at Kelly’s request she sent the trust deed to him so that an extension agreement could be prepared. Kelly prepared the extension agreement and the defendants, at his request, came into the office of the association to execute it. . The testimony of the defendants themselves shows that at this time they noticed the name of complainant in the extension agreement and asked Kelly about it and he told them, in substance, that the association could not make them a direct loan such as this was and that, therefore, he had used complainant as a party to the loan; that she was a friend of his and that it would make no difference so far as the defendants were concerned; that as to them the loan would continue to be just as though it was made with the association. Thereupon the defendants executed the renewal agreement and Kelly paid them $100, and $200 a few days later, so as to bring the loan up to its original amount. Although the defendants had paid these amounts toward the principal during the 5-year period ending April 1, 1916, when the note matured, and after making such payments had made interest payments to Kelly, accordingly, the complainant had always received the full interest from Kelly based on the full amount of the loan. As the instalments of the interest came due under the extension of the loan they were paid to Kelly by the defendants, and by Kelly turned over to the complainant, just as they had been previously. After the extension of the loan, the defendants, by virtue of an arrangement they consummated with Kelly, again made payments toward the principal,—three in number, of $100 each. These payments were not turned over to the complainant and she had no knowledge of them. As previously, defendants made correspondingly smaller interest payments to Kelly, after making their payments to apply on the principal, but Kelly made the interest payments for the full amount due as interest (based on the full amount of the principal note) to the complainant whenever she presented the interest coupons as they fell due. Shortly after the payment of the third interest coupon, under the extension agreement, in-October, 1917, Kelly committed suicide and it was then discovered he was an embezzler. The complainant then called on defendants, with regard to her investment and they then told her of the payments they had made on the principal' since the loan had been extended and they produced Kelly’s receipts therefor. As was the case with the original note, the extension agreement made no provision for payment of the loan, either in whole or in part, before its maturity on April 1, 1919. The defendants refusing to pay more than the proportionate amount of the interest which they claimed they owed, when the fourth interest coupon came due, the complainant claimed a default and elected to declare the entire indebtedness due and filed her bill to foreclose. The complainant contends that the evidence introduced before the master fails to establish the facts alleged by the defendants to the effect that they had made payments to Kelly, since the extension of the loan, to the extent of $300. The evidence on this point is, to say the least, confusing, but it seems sufficient to warrant the finding that the payments had, in fact, been made. The majority opinion asserts that, under the law, the Building & Loan Association could not sell complainant the Pliemleng note. But if the complainant’s dealings with the association, through Kelly, were irregular, those of the Pliemlengs, so far as they had to do with the loan here involved, were still more so, for the association had no power, under the law, to make the Pliemlengs a straight loan as this was. So far as irregular dealing with the association is concerned, both parties to this suit had indulged in that. Moreover, the evidence fails to show that the complainant had any knowledge of the illegality of the transactions involved, but on the other hand, it shows that the Pliemlengs were told, by Kelly himself, that their $800 loan was illegal, as the association had no power to make such a loan but that he was getting around that by using the complainant, who was “a friend of his,” and representing her as the owner of the loan. In weighing the equities between the parties to this suit, it would seem that they favored the complainant rather than the defendants. There is much evidence in the record as to the conversations which the defendants had with Kelly about this loan. Although complainant may have waived the error in admitting that testimony, by reason of her failure to make it the subject of an objection to the master’s report, before the master, and an exception before the chancellor, I do not agree with the statement made in the majority opinion to the effect that such testimony was competent. In my opinion, it was clearly incompetent under the provisions of section 4, ch. 51, of our statutes (J. & A. ¶ 5521), as Kelly was clearly acting as'complainant’s agent, and it was admitted that at the time of the hearing of this case he was dead. The dealings of the defendants cannot be considered as having been had with the association, after the maturity of the loan on April 1, 1916, but all their dealings, from the execution of the renewal agreement on, were with Kelly, whom complainant made her agent for the consummation of the renewal agreement and the collection of her interest. In my opinion, the doctrine laid down by, our Supreme Court in Olds v. Cummings, 31 Ill. 188, and followed in a long line of subsequent decisions, to the effect that in a suit in equity to foreclose a mortgage the rights of an assignee of a mortgage will be subject to all equities existing between the original mortgagee and the mortgagor where the latter has had no notice of the assignment, has no application to the facts involved in the case at bar. The extension agreement, which was executed by the defendants and which afterwards was duly acted upon by the parties, recited upon its face that it was an agreement “between Clara E. Strey of Cook County, Illinois, party of the first part” and the defendants as parties of the second part and it recited that “the first party is the legal owner and holder of a certain promissory note,” and then proceeded to describe the note of the defendants in question. "When the defendants executed that instrument they were put on notice that this complainant was the legal owner and holder of that note and indeed they admit that they observed the recitation of that fact in the agreement and made some inquiries about it. Even if the information they received from Kelly, in Response to their inquiries, were admissible, their position would not be improved. Regarding Kelly as the complainant’s agent, certainly any declarations made by him as to the extent of his agency could not be binding on the complainant, Western Security Co. v. Douglass, 14 Wash. 215, and it would seem clear that if the defendants chose to rely upon Kelly’s statement, in substance to the effect that Clara E. Strey was a dummy, iii spite of the fact that the document he was asking them to execute, to accomplish an extension of their loan, described her as “the legal owner and holder” of the note involved, they did so at their peril. Being charged with notice that complainant was the legal owner and holder of their note, this mortgage, under the renewal agreement, should not be affected by any prior dealings the defendants had had with Kelly, representing the association. In order to hold that the payments by the defendants to Kelly were effective as payments to the complainant, it must be found either that Kelly was in fact authorized by the complainant to receive those payments or that he wa's put in such apparent authority by acts of the complainant as would preclude or estop her from now denying his authority. Stockton v. Fortune, 82 Ill. App. 272. In many respects the facts involved in the case cited were similar to those involved in the case at bar. That Kelly was authorized by the complainant to collect the interest on her loan as it fell due is clearly shown by the evidence. But that fact, in and of itself, would not afford ground for inferring authority in him to collect the principal, where he was not shown to have been intrusted by complainant with possession of the principal note. Jones on Mortgage, par. 964; Joy v. Vance, 104 Mich. 97; Trowbridge v. Ross, 105 Mich. 598; Wilson v. Campbell, 110 Mich. 580; Trull v. Hammond, 71 Minn. 172; Security Co. v. Graybeal, 85 Iowa 543; Smith v. Kidd, 68 N. Y. 130. Even if he had been shown to have possession of the principal note, in the absence of evidence showing the existence of a general agency with full powers to do all things in and about the handling of this loan, such possession could only imply authority in the agent to receive payment of the same, when it fell due. Park v. Cross, 76 Minn. 187; Schermerhorn v. Farley, 58 Hun 66, 11 N. Y. Supp. 466. An agent authorized merely to collect the interest on a mortgage loan has no implied authority to receive payment of the principal, and authority to collect the principal when due gives the agent no right to receive payment before maturity of the debt. 27 Cyc. 1389; Park v. Cross, supra; Schermerhorn v. Farley, supra. Of course the rule might be otherwise in a case establishing a general agency on the part of the one making the collections for his principal, who was the owner of the securities, the agent having been shown to have full powers in handling the loan, including the collection of both the interest and the principal. That was the situation in Noble v. Nugent, 89 Ill. 522. A similar situation was disclosed in Thornton v. Lawther, 169 Ill. 228. In the latter case, as in the case at bar, the payment involved was made before the debt was due and the court passed on the question of whether the agent had authority to receive such payment and thereby bind his principal. The court said: “It is well settled that authority to an agent to receive payment of a debt is not, of itself, authority to do so before it falls due. (Mechem on.Agency, sec. 380, and cases in note 1; Thompson v. Elliott, 73 Ill. 221.) ‘But if there be a known usage of trade or course of business in a particular employment, or habit of dealing between the parties, extending the ordinary reach of authority, that may well be held to give full validity to the act.’ (Story on Agency, sec. 98,—cited and approved in Thompson v. Elliott, supra.)” The court then observed that the evidence showed that the principal, who was the owner of the securities, had reposed in his agent Griggs a confidence seldom found in the business world, giving him full authority to negotiate loans on real estate, and trusting implicitly to his judgment with regard to such loans. On this point the court said that it appeared from the evidence that Griggs “could collect the principal at maturity or extend the time of payment, as he saw fit. In making a loan he determined the time it should run; passed upon the title; was made trustee in the mortgage; retained possession of the papers during the life of the loan,” and that “with all this authority conceded and its scope not limited by any definite writing or language, but in the most general way, with power to fix the date of maturity and lengthen or postpone it, with power to reloan the principal when paid,” it could not reasonably be said that the course of business and habit of dealing between the parties did not so extend the ordinary reach of the authority of Griggs as to give validity to his act ’of receiving payment before the full maturity of the debt. In the case at bar there is no such general agency established as was shown by the evidence in the two cases last cited. Bather, the evidence shows that the defendants had notice that Kelly did not have the powers of a general agent, for it became evident to them that he did not have power to extend the loan himself, when he presented a written agreement to them, covering that extension, in which the complainant appeared as party of the first part agreeing to such extension and was described as the legal owner and holder of their note. The defendants had the. burden of establishing the authority of Kelly to receive payment on the principal before maturity. Jones on Mortgages, par. 964a. There is no evidence whatever in the record on the question of any express authority, to that effect, from the complainant to Kelly, and the only implied authority, shown by the evidence as a result of the course pursued by Kelly and the complainant, indicated that his authority was not unlimited. In my opinion, the only authority on his part which could be implied from the course of dealing of the parties, as shown by the evidence, was an authority to collect the interest on the note as it fell due. That being the case, there is nothing which can operate to preclude the complainant from setting up the true situation as to the extent of the authority of Kelly, with regard to collecting money due on this mortgage, and from, the evidence in this record it seems to me to be clear that such payments as the defendants may have made to him, to apply on the principal of their note before its maturity under the terms of the extension agreement, no provision having been made for such payments, either in the note itself or in the extension agreement, were made by them at their peril and the complainant cannot be bound by them.