Monteith v. Welch

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94 S.E.2d 345 (1956)

244 N.C. 415

John W. MONTEITH and wife, Nettie A. Monteith v. William C. WELCH and wife, Velma Welch, Leslie R. Rogers and wife, Mary D. Rogers, and Thomas H. Franks, Trustee.

No. 36.

Supreme Court of North Carolina.

September 19, 1956.

*347 Potts & Ramsey, Brevard, and Redden & Redden, Hendersonville, for plaintiff appellees.

B. A. Whitmire and L. B. Prince, Hendersonville, for defendants Welch.

RODMAN, Justice.

Defendants insist that Franks, the trustee, was authorized to receive payment of the notes and to cancel the deed of trust; and hence they are protected by the cancellation entered of record.

The assertion that Franks, the trustee, was authorized to collect the notes and thereupon to cancel the deed of trust finds no support in the evidence or in law.

Plaintiff testified: "I never authorized Mr. Franks or any other person to collect any money represented by these notes secured by the deed of trust."

The trustee never had possession of the notes or deed of trust. The notes were not due when Welch purchased the land or when the entry was made on the record reciting payment.

The recorded deed of trust was notice of all of its provisions. Collins v. *348 Davis, 132 N.C. 106, 43 S.E. 579; Massachusetts Bonding & Insurance Co. v. Knox, 220 N.C. 725, 18 S.E.2d 436, 138 A.L.R. 1438; Blankenship v. English, 222 N.C. 91, 21 S.E.2d 891.

"The general principle supported and recognized by the cases is that the mere naming of one as trustee in a trust mortgage or deed does not constitute him the agent of the bondholders for the purpose of receiving payment. On the contrary, the authority of the trustee to receive payment must affirmatively appear, either expressly or as an implication specially to be gathered from the terms of the trust instrument and bonds." 36 Am.Jur. 896.

Walker, J., speaking in Wynn v. Grant, 166 N.C. 39, 81 S.E. 949, 954, said: "(1) Payment of money due on written security, to an agent who has not either possession of the security or express authority to receive such money, is not good, and the principal may compel the debtor to pay it again.

"(2) The facts that a loan is made through the agent, and that he has collected the interest, and that he has, in special cases, been authorized to collect the principal of particular mortgages, are not evidence of general authority to collect moneys due his principal, and one who pays to him the amount of a mortgage, without his having the mortgage in his possession, does so at his own risk.

"(3) Even though an agent has authority to receive payment of an obligation, this does not authorize him to receive payment before it is due."

Since Franks was not, because of his position, the implied agent of plaintiffs and had no authority, actual or apparent, collection by him of the debt evidenced by the unmatured notes was not a payment.

Notwithstanding the lack of authority of Franks, the trustee, to receive payment, were the defendants protected by the cancellation entered on the records?

The statute, G.S. § 45-37, provides: "Any deed of trust or mortgage registered as required by law may be discharged and released in the following manner:

"1. The trustee or mortgagee or his or her legal representative, or the duly authorized agent or attorney of such trustee, mortgagee or legal representative, may, in the presence of the register of deeds or his deputy, acknowledge the satisfaction of the provisions of such deed of trust or mortgage, whereupon the register or his deputy shall forthwith make upon the margin of the record of such deed of trust or mortgage an entry of such acknowledgment of satisfaction, which shall be signed by the trustee, mortgagee, legal representative or attorney, and witnessed by the register or his deputy, who shall also affix his name thereto.

* * * * * *

"Every such entry thus made by the register of deeds or his deputy, and every such entry thus acknowledged and witnessed, shall operate and have the same effect to release and discharge all the interest of such trustee, mortgagee or representative in such deed or mortgage as if a deed of release or reconveyance thereof had been duly executed and recorded."

Defendants insist that this statute, as interpreted in First National Bank of Kinston v. Sauls, 183 N.C. 165, 110 S.E. 865, 867, is conclusive and affords them complete protection.

The case on which they rely is not authority for the position taken by them. There the mortgage was cancelled by the mortgagee, the payee of the note. There a creditor relied on the cancellation which had been made by one who had the apparent right to receive payment and to cancel. There the notes secured by the mortgage were past due and the mortgagee certified to the bank that they had been paid and satisfied, and there was nothing which pointed to any transfer of the mortgage securing the same.

*349 Here the record shows the notes were not due, the deed from the owners of the equity of redemption to the defendants bears date October 7, 1952. The cancellation does not purport to have been made until October 15, 1952. True the deed to defendants was recorded on October 15, 1952, the same day on which the asserted cancellation was made.

Defendants, in their answer say:

"That all monies paid to the said Thomas H. Franks by these defendants was paid to him in his capacity as a representative of the plaintiffs. That if any funds paid by these answering defendants were not properly and legally applied to the indebtedness, then these defendants are in no way in fault nor are they answerable therefor."

Clark, C. J., in First National Bank of Kinston v. Sauls, supra, says:

"The statute is plain, and, in the absence of fraud participated in by the creditor or purchaser, if the statute is followed the creditor is protected by the entry of cancellation of the mortgage which, if made in the manner provided in the statute, is conclusive."

This language must be interpreted in the light of what was said in Smith v. Fuller, 152 N.C. 7, 67 S.E. 48, 51. Manning, J., there said: "It will be observed that the entry of satisfation of the mortgage on the record of its registry was made by Whitley, the mortgagee, was in proper form, and was made more than 4½ years before Smith purchased. This is not the case of the attempted cancellation of a mortgage or deed of trust by a person not authorized to make the entry of satisfaction. An existing, uncanceled mortgage, properly admitted to registration, is constructive notice to subsequent purchasers of the mortgaged premises of the rights of the mortgagee; but a mortgage or deed of trust, properly canceled by a person authorized to cancel it, is notice to no one; it continues no lien upon the property."

The cancellation made by Franks could not, in any event, protect defendants unless it was made before they purchased and in fact purchased relying on its validity. The burden of establishing that they purchased without notice of the unauthorized cancellation was on defendants.

The date recited in a deed is at least prima facie evidence that it was executed and delivered on that date. Fortune v. Hunt, 149 N.C. 358, 63 S.E. 82; Lyerly v. Wheeler, 34 N.C. 290; Sandlin v. Weaver, 240 N.C. 703, 83 S.E.2d 806; Turlington v. Neighbors, 222 N.C. 694, 24 S.E.2d 648.

If, in fact, the land was acquired by defendants on the date of their deed, as may be inferred from its date, the purchase was made before the deed of trust was cancelled. If the defendants or their grantors thereafter made payment to Franks, it would not avail as Franks was not authorized to receive payment.

If, notwithstanding the prima facie case made by the date of the deed, defendants, in fact, purchased on the date that the deed was recorded, to wit, October 15, which was the same date that the instrument was cancelled of record, the cancellation could not avail unless it be shown that the cancellation was made prior to their purchase, and they relied on the cancellation.

In their brief defendants say: "Rogers sold this land to Welch for a cash consideration and at the time of closing of the transaction the purchase money deed of trust to plaintiffs was satisfied by a marginal entry made by Thomas H. Franks, Trustee, and witnessed by the Assistant Register of Deeds of Henderson County."

The record does not show that the cancellation was made "at the time the transaction was closed." It merely shows that the cancellation was made on the day the defendants' deed was recorded. Defendants, in their answer, allege: "these defendants relied upon the cancellation entered by the *350 Trustee, in good faith, and after paying the consideration for said property as hereinbefore alleged." They offer no evidence to support this allegation, and the allegation must be read in connection with the next section of the answer: "That all monies paid to the said Thomas H. Franks by these defendants was paid to him in his capacity as a representative of the plaintiffs."

Assume, as defendants contend, that the cancellation was in fact made at the same instant defendants purchased, and their money was delivered to the trustee under the mistaken belief of law that Franks was, because of his position as trustee, authorized to receive payment and cancel the deed of trust, the cancellation could not destroy plaintiff's lien.

Walker, J., in Wynn v. Grant, supra, on facts very similar to the facts in the instant case, says [166 N.C. 39, 81 S.E. 956]: "It is a general and just rule that, when a loss has occurred which must fall on one of two innocent persons, it shall be borne by him who occasioned it, even without any moral wrong or positive fault chargeable to him, and more especially so, if there is bad faith or even a lack of due care on his part, which caused the misfortune."

Finally, defendants assert that plaintiffs ratified cancellation by Franks. The record shows that plaintiffs had no knowledge of the cancellation until May 1953. Learning that defendants Welch had purchased property, they immediately went to Welch. Welch informed plaintiffs that they knew of the mortgage and had paid their lawyer to look after that for them. Plaintiffs immediately went to Franks, the trustee. He refused to talk to them. They then employed counsel. Plaintiffs did not institute their suit until about ten months after learning of the cancellation. As to the defendants' suggestion that indulgence had been granted to Franks, plaintiffs testified: "As to informing Mr. Welch that we did not authorize Mr. Franks to cancel the deed of trust, I did not go with any lawyer to Mr. Welch. I don't know of my own knowledge what our lawyer did. We did not agree to let Mr. Franks work this out over a period of time. We were opposed to permitting him to pay $7,100, but we finally accepted the money over six different payments up until October. We did not notify Mr. Welch in person. We thought it was our lawyer's business. We did not grant Mr. Franks this indulgence. We did accept these payments, six payments from May until October."

It is said in 2 Am.Jur. 176: "In order that there may be an effective ratification, the principal's act must be accompanied by an intent to ratify the unauthorized transaction, which intention may be shown by facts amounting to an express or implied ratification. As a consequence, ratification cannot be inferred from acts which may be readily explained without involving any intention to ratify. To illustrate, it was held that there was not an effective ratification where a principal sold cream belonging to him with which other cream had been purchased and commingled, without authority, by his agent; in such case, the sale was to be explained upon the ground that it was necessary in order that a total loss might be prevented."

There is no sufficient evidence in this record to show an intent on the part of plaintiffs to ratify, which would require the submission of an issue to the jury. Wynn v. Grant, supra; Ritter v. Plumb, 203 Iowa 1001, 213 N.W. 571; Satek v. Fortuna, 324 Ill.App. 523, 58 N.E.2d 464; Mechem, Agency (2d ed.) sec. 439; 2 C.J.S., Agency, § 49 b.

The sufficiency of the purported cancellation to comply with the statute, G.S. § 161-6, does not appear to have been considered on the trial nor was it discussed in the briefs.

The judgment is


JOHNSON, J., not sitting.

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