Marston v. Rivers , 138 S.C. 295 ( 1927 )

The opinion of the Court was delivered by

Mr. Justice BeEasE.

The plaintiff instituted suit in the Court of Common Pleas for Richland County for foreclosure. He alleged that he was the owner of a certain written instrument, designated- a “first mortgage bond,” and a mortgage of real estate executed to secure the payment thereof, made by the defendant, Rivers, to Carolina Bond & Mortgage Company, which, before maturity, were indorsed and transferred to the plaintiff by the original, payee and mortgagee. Standard Building & Roan Association was made a party defendant on the theory that it held a mortgage junior to that of the plaintiff .

In their respective answers, the defendants denied the title of the plaintiff to the written instruments sued upon, and they also alleged that the mortgage debt had been paid in full, claiming that payment thereof had been made to Carolina Bond & Mortgage Compny as the agent of the plaintiff. • ,

The Master found in favor of the plaintiff and recommended judgment for the full amount claimed by him and the foreclosure of the mortgage. Upon exception being taken to the report, Hon. W. H. Townsend, Circuit Judge, reversed the Master’s findings and dismissed the complaint of the plaintiff. The decree of Judge Townsend'will be reported. The plaintiff has appealed to this Court on 27 exceptions, but, in our opinion, there are only two real issues in the cause.

By reference to the decree' of Judge Townsend, it will be seen that he concluded that the late C. H. Barron, Esq., who was president of Carolina Bond & Mortgage Company, was the agent of the plaintiff for the investment of funds of plaintiff in this State; and that Mr. Barron fraudulently attempted to^ transfer the papers executed by Rivers to Carolina Bond & Mortgage Company to his principal, the plaintiff; and, therefore, the plaintiff did not have title to the written instruments sued upon. The plaintiff contends that there was no claim of fraud set up by either of the defendants, and that, accordingly, there was error on the part of the Circuit Judge in his findings as to fraud, and that the Judge went out of the record to make such findings.

It is true that, generally, fraud must be alleged before one may have the advantage of a defense of that nature. Undoubtedly, if the defendants had sought to establish fraud in the execution of the written instruments, such fraud should have been alleged. There is no plea that the papers were procured by fraud, and the Circuit Judge has not so found. To the contrary, it appears absolutely that the papers were executed by Rivers to Carolina Bond & Mortgage Company honestly and fairly. But the plaintiff alleged ownership of the papers, and this ownership was denied by both defendants. This being true, it was incumbent upon the plaintiff to establish his ownership. If title to the instruments was secured by fraud, the plaintiff was not the legal owner and had no' right to recover thereon.

Although innocent himself, if his duly constituted agent was guilty of fraud in securing the papers for his benefit, the plaintiff was bound by the fraudulent act of his agent. There was sufficient evidence to sustain the findings as to fraud on the part of the plaintiff’s agent, Barron. The defendant’s denied that there had been a transfer of the papers to the plaintiff, as alleged by the plaintiff. That denial was sufficient to bring out the fact-that the transfer was fraudulent, since if it was fraudulent, there was no real transfer. The plaintiff who seeks equitable relief in a Court of Equity must come to that Court with clean hands. We think that the denial in the answers of the defendants, as to the plaintiff’s ownership of the papers, was sufficient to allow the introduction of evidence going to show defect in the plaintiff’s title.

The plaintiff also contends that the written instrument, which is styled a “first mortgage bond,” is not really a bond, but that it is a negotiable promissory note, and that, when the plaintiff purchased it before maturity, he had it free of any equities between the defendant, Rivers, and the original payee, Carolina Bond & Mortgage Company. Judge Townsend did not pass upon the question as to the character of this instrument. Under his conclusions, it was not necessary for him to determine that question. The paper bears many characteristics of a negotiable promissory note, but all through the instrument it is referred to as a “bond,” and it is evident that it was considered bond by the maker, the original payee, and the plaintiff, as assignee. The assignment, which the plaintiff took, refers to tíre paper as a “bond.” When it is well established that all parties to a written instrument intend that it should be regarded and construed as a bond, it would be inequitable and unjust for the Court to thereafter change the character of the instrument for the benefit of one of the parties.

But even if the instrument should be regarded as a promissory note and not a bond, we fail to see how the plaintiff could be benefitted, although the papers came into his hands before maturity, for the reason that fraud would vitiate the title to a negotiable instrument just as readily as it would make void title to a nonnegotiable instrument. This principle of law is elementary; and we think it is confirmed by Section 3706 of Civ. Code 1922, the Negotiable instruments Act.

In addition to the reasons given by Judge Townsend for his conclusion that the plaintiff’s complaint should be dismissed, it is our opinion that this result should have been obtained for another reason. In our opinion, the contention of the defendants that Carolina Bond & Mortgage Company was the agent of the plaintiff for the collection of the mortgage debt should have been sustained; and there is no doubt as to that company having received full payment of the debt. Unfortunately for the plaintiff, he, like so many others, trusted Mr. Barron and the Carolina Bond & Mortgage Company, of which he was president, too far, and he was negligent in his duty to the defendant, Rivers. It may be hard for the plaintiff to lose the money he intrusted to Mr. Barron, but it would be harder still for the defendants to have to reimburse him for his loss. The plaintiff cannot, legally or morally, hold the defendants for his own negligence.

Under all the circumstances of the case, justice and equity demand that the decree of Judge Townsend be affirmed, and it is so ordered.

Messrs. Justices Watts and Stabrer and Mr. Acting Associate Justice C. J. Ramage concur. Mr. Justice Cothran dissents.