Rhodd Et Ux. v. Hembree

This action was instituted in the district court of Pottawatomie county by Peter Rhodd and his wife against Hembree and Ewton, coguardians of Una Hembree, an incompetent, and joining certain other parties as defendants, to quiet title to real property.

Issues were joined on the answer and cross-petition of said guardians seeking judgment on a promissory note and to foreclose the mortgage executed by plaintiffs to secure the same. Judgment was for defendant guardians, and plaintiffs appeal.

Plaintiffs alleged that the mortgage indebtedness had been fully paid and discharged.

The record shows that the note and mortgage in question were executed on March 9, 1931, to the State National Bank of Shawnee, for the principal sum of $1,700, due March 9, 1934. In April, 1931, the note and mortgage were assigned to Tom C. Waldrep, guardian of the estate of Una Hembree, a minor. Thereafter plaintiffs made a number of payments on the indebtedness directly to Waldrep as guardian aforesaid. The payments so made reduced the indebtedness to $1,273.52 as of November 25, 1938. On that date, and while Waldrep was still the legal guardian of said ward, plaintiffs executed to him a renewal note for the balance then owing, together with a mortgage to secure the same. The new note and mortgage failed to designate Waldrep as guardian. He appeared as payee and mortgagee therein merely as "Tom C. Waldrep."

Waldrep wrote on the new note the following notation: "Secured by mortgage dated March 9, 1931, recorded Mch 23-31 in Book 99 page 637, and by mortgage dated Nov. 25, 1938." And on the face of the old note he wrote the following: "Paid by new note this 25 of Nov. 1938. Tom Waldrep."

The old note was delivered to plaintiffs, but Waldrep failed to release the old mortgage.

Waldrep procured no order from the county court authorizing or approving the renewal transaction.

On December 13, 1938, Waldrep in his individual capacity assigned the new note and mortgage to the Federal National Bank of Shawnee to secure his personal indebtedness. This transaction was not authorized by the county court.

Subsequently, plaintiffs paid to said bank all the indebtedness evidenced by the new note, and received a release of the new mortgage.

The trial court held that the old mortgage was valid and subsisting, and rendered judgment on the old note and decreed foreclosure of said mortgage.

Plaintiffs' theory is that both mortgages secured the same debt, and that the new note represented that debt; that the assignment of the new note to the bank carried with it not only the new mortgage but the old as well, and that the payment of the indebtedness to the bank served to discharge the old mortgage as well as the new.

Defendants say that the new note and mortgage, accepted by Waldrep without order of the county court, were voidable, and that the assignment thereof without order of court was voidable as between the ward and plaintiffs, leaving the original note and mortgage outstanding. It is said that plaintiffs knew they were dealing with Waldrep as guardian, and that they were charged with knowledge of the limitations of his powers. Plaintiffs were charged with knowledge, say defendants, that the assignment to the bank was not authorized by order of court and was therefore voidable as between the ward and the plaintiffs.

The execution of a new note and mortgage to a guardian in payment of a former note and mortgage without order of court probably constitutes a voidable transaction as between the guardian and ward, for it has been held that the authority of a guardian in dealing with negotiable paper belonging to his ward, in the absence of court order, is limited to obtaining the full amount in money represented by such instruments. Crume v. Rivers, 178 Okla. 363, 61 P.2d 862.

But plaintiffs make no contention that the old mortgage indebtedness was discharged by the new note and mortgage. In fact the new note states on its face that it was given to secure the old mortgage debt. They say that the assignment of the new note to the bank carried with it the old mortgage which it was given to secure, and that the payment of the note to the bank discharged the old mortgage. Phillips v. Roper,171 Okla. 225, 42 P.2d 871.

In view of the latter case, plaintiffs are correct in their statement that the assignment of a note carries with it the mortgage security. Therefore, if the assignment of the new note to the bank passed the legal title thereto, it also passed to the bank the old mortgage and payment of the note in good faith would discharge the lien of the mortgage.

We stated above that the transaction involving the execution of the new note and mortgage may have been voidable as between the guardian and ward for failure of court order approving the same. We say, however, that it was neither void nor voidable as to the plaintiffs. A guardian is not without power to accept a new note from the debtor in lieu of an old one as evidence of the same indebtedness; and such transactions made in good faith are valid so far as the maker of the note is concerned. The only condition is that the guardian, in order to protect himself and his surety from responsibility for any resulting loss, must obtain an order of court sanctioning or approving the transaction. The maker of the note is not a necessary party to the proceeding for approval, and is not obliged to concern himself with that matter. There is nothing in our statutes to the contrary.

Nor is the rule announced in Crume v. Rivers, supra, contrary to our statement, above. A guardian may accept something other than money in full in discharge of a negotiable instrument, but if he would protect himself from loss that might thereby result, he must obtain the court's approval of the transaction.

It is true that the new note named Waldrep, and not Waldrep, guardian, as payee. But the parties knew that the note was part of a guardianship transaction. The designation of Waldrep as payee without indicating his fiduciary status was of no material consequence since plaintiffs acted in good faith. They had a right to assume that Waldrep would be faithful to his trust and apply the note to the benefit of his ward as the law requires. Legal title to the note was in Waldrep; the beneficial title in his ward. This is true even if Waldrep had been designated as guardian in the note. Bank of Welch v. Cabell, 52 Okla. 190, 152 P. 844. There the court stated the rule as follows:

"The legal title to a promissory note, made payable to the order of a designated person, is in the payee named, although he is designated as guardian in the face of the note, and as both the legal title and right to sue are in the payee as guardian, he may assign it, and his assignee has the right to sue on the note."

See, also, 8 C. J. 174, sec. 295, and authorities there cited; Howell v. Flora, 155 Kan. 640, 127 P.2d 721.

So far as plaintiffs were concerned, the new note represented the evidence of their indebtedness to the ward's estate. When they found it in the hands of the bank under legal endorsement of Waldrep, they were entitled to assume that the assignment was in all respects regular, and properly sanctioned by the court.

Parties dealing with a guardian may be charged with knowledge of the limitations upon his powers, as defendants suggest, but that rule applies to limitations provided by statute. The statutes do not prohibit guardians from accepting new evidence of indebtedness for old without court approval. All such acts are subject merely to the management and control of the probate court. 58 O. S. 1941 § 811. And that management and control pertain wholly to the official relations between the court and its officer, the guardian.

We do not mean to say that an attempted release of an indebtedness for less than the amount due would not be voidable as against the debtor. But, the acceptance of a new note without impairment of the indebtedness and security, and full payment thereof by the debtor to the guardian is not voidable for failure of court approval as against the debtor. And so, payment of the indebtedness in good faith to one holding the evidence thereof by actual assignment from the guardian without court approval is not voidable as to the debtor. In such case the guardian passes legal title to the assignee (Bank of Welch v. Cabell, supra), and the debtor is under no legal obligation to ascertain whether the assignment was approved by the court.

Here, the bank could have maintained an action on the note against plaintiffs, and plaintiffs could not have questioned Waldrep's authority as guardian to make the assignment. Bank v. Cabell, supra. Therefore, payment in good faith to the bank discharged the debt. To hold that plaintiffs must again pay the debt in the face of the fact that the debt was paid in full to the ward's guardian or his legal assignee, would be to extend to the ward an extraordinary protection not contemplated by law. A debtor is under no legal obligation to see that a guardian does not misappropriate the proceeds of the indebtedness when it is paid or the securities representing such debt.

We make no statement here concerning the rights and remedies the ward may have against the assignee in such case. That matter is not involved in this case.

The judgment of the trial court is reversed and the cause remanded with directions to enter judgment for plaintiffs canceling the mortgage.

CORN, C.J., and OSBORN, WELCH, and DAVISON, JJ., concur. RILEY, BAYLESS, HURST, and ARNOLD, JJ., dissent.