Montague v. Stelts

The opinion of the court was delivered fey

Me. Chief Justice MoIvee.

The plaintiffs brought this action to foreclose a mortgage of real estate,_ given by the defendant, Ina H. Stelts, to secure the payment of two notes; and, as a second cause of action, set out another note, not embraced in the mortgage, and claimed judgment for the balance due thereon. The defendant, Dorcas W. Henry, who, as the holder of a senior mortgage on the same land, was made a party, whose rights do not appear to be contested, and the defendant Holcomb, who also signed the notes, made no answer ; but the defendant Ina answered, claiming that the said notes had been satisfied in full by compromise with plaintiffs, the details of which are set out in her answer. The testimony tends to show that the notes sued on each contain the following stipulation: “And in the event of suit, I agree to pay attorneys’ fees to the extent of ten per cent, of amount due at time of suit.” It seems that on the same day the two first notes were executed, the defendant Ina executed her bond to plaintiffs, conditioned for the payment of the notes, “according to the tenor, true intent, and meaning of” said notes, which bond was secured by the mortgage sought to be foreclosed, in which the stipulation as to attorneys’ fees is expressed as follows: “But should the said C. L. Montague & Co., their heirs or assigns, prefer to foreclose this mortgage by due course of law, I, the said Ina H. Martin (Stelts), agree to pay all attorneys’ fees and commissions at the rate of ten per cent, on the amount for which such foreclosure may be had.”

Sometime in November or December, 1888, these papers were sent by plaintiffs to Messrs. Perrin & Cothran, attorneys at law, for collection, who, by the authority of the plaintiffs, entered into a written agreement with the defendants, Ina H. Stelts and Holcomb, for a settlement of these notes, as well as certain open accounts, a eopy of which is set out in the “Case,” which agreement bears date 16th of February, 1889. By the terms of this agreement, the said defendants were to pay the sum of $325 in cash, which was to be applied first to the open accounts, and the balance to the note above mentioned, as not included in the mortgage; and this amount was paid and applied accordingly, leaving a balance due on said note; and as a full settlement of the said balance, as well as of the notes secured by the mortgage, the said defendants were to pay to plaintiffs on the 1st of December, 1889, the sum of $925, and if the, same is not paid when due, the plaintiffs “shall have the right to collect all that may be due them by and under the said notes and accounts, irrespective of this agreement, except as to application of payment of $325.” And the said defendant Ina “agrees that the mortgage heretofore given to secure the two first notes above referred to shall not in anywise be affected by this agreement, but that the same shall continue of force as security for the payment of said $925, as aforesaid, and for the paymeut of the whole amount due, in case said sum in compromise is not paid when due.”

This amount not having been paid when due, the plaintiffs commenced this action by lodging the summons and complaint, with copies thereof, with the sheriff, for service, on the 19th of December, 1889, upon which “the sheriff made return of service upon the defendants, InaH. Stelts and John H. Holcomb, as of date December 20th, 1889,” the other defendant being served some time in the same month. On the 29th of May, 1891, the defendant Ina served a notice of a motion for leave to answer, alleging that she had never been served. This motion having been granted, she was served on 8th June, 1891, and filed her answer on the 15th of that month. After the suit had thus been commenced, further negotiations were had between the parties, which resulted in a verbal agreement, as to the terms of which there is some apparent conflict in the testimony, though we agree with the master that this apparent conflict may be reconciled in the manner suggested in his report, which should accompany the report of this case. The arrangement, as understood by the plaintiffs, was that if the defendants would turn over to plaintiffs certain obligations for the rent of the mortgaged premises for the year 1890, amounting to $951.20, the matter should stand as it was, and no further steps taken in the suit until saleday in December, 1890, while the defendant seems to have understood that these obligations for rent would be accepted by plaintiffs in full satisfaction of the $925, agreed to be paid by the compromise in writing, hereinbefore referred to, of date 16th of February, 1889.

These rent contracts, as they are called, were turned over to the áttorneys for plaintiffs, who collected upon them the sum of $700, and applied the same first to the balance due upon the unsecured note, aud next to the first note secured by the mortgage, leaving a balance due on that note, as well as the whole amount of the second note secured by the mortgage. The master seems to have adopted the view contended for by plaintiffs, and finding that the rent contracts were delivered to the plaintiffs as collateral security for the debt due them by defendants, held that they were bound to use due diligence in collecting the amounts due on the rent contracts, and not having done so, defendants were entitled to a credit for the amount not collected, viz., $251.20. He also held that the plaintiffs were entitled to ten per cent, commissions on the amount due at the time of the commencement of this action, which he seems to have fixed as the 19th of December, 1889, aud making the calculation upon this basis, he found that the plaintiffs were entitled to judgment of foreclosure for $675.18, and to a personal judgment for $13.23.

To this report both plaintiffs and the defendant, Ina H. Stelts, excepted, upon the grounds set out in the “Case,” aud the case coming before his honor, Judge Hudson, he rendered judgment, overruling all of the exceptions and confirming the report of the master. From this judgment both parties appeal, upon the several grounds set out in the record.

1 2 We will first consider the questions raised by the plaintiffs’ exceptions. First, was there any error in finding as matter of fact that the plaintiffs had failed to use due diligence in collecting the amount due on the rent contracts lodged with them as collaterals. So far as this presents a question of fact, we could not, under the well settled rule, disturb the conclusion .reached by the concurring judgment of the master and the Circuit Judge, where there is, as we think there is, testimony sustaining such conclusion. Mr. Cothran, with commendable candor, says: “I didn’t make all theeffort to collect it that I would have made if it had been my own matter though it is due to that gentleman to add that, according to his view, it was not his duty to do so, and that it was more the duty of defendants, who were most interested, to press the collection. This, we think, was a mistaken view. When a creditor receives from his debtor notes or other securities as collaterals, he becomes a bailee of such securities, and as such he is bound to use ordinary diligence, such as persons usually exercise in reference to their own matters, in endeavoring to collect such securities, unless there is an express agreement relieving him of such obligation; and here there is no evidence of any such agreement. See 18 Am. & Eng. Enc. Law, 643.

3 It is contended, however, by plaintiffs, that the alleged negligence of the plaintiffs in not collecting the whole amount due upon the rent contracts, not being set up in the answer, either by way of defence or by wmy of counter-claim for damages, there was error in charging the plaintiffs with the amount uncollected. The assumption that the failure to use due diligence in collecting these rents is not set up by way of defence, is not well founded, as it is expressly alleged in the fifth paragraph of the complaint that the plaintiffs could have collected the whole amount due on the rent contracts if they had used due diligence. The main point of the objection, however, seems to be that negligence should have been set up either by wray of a separate defence to the action or by a counter-claim for damages resulting from plaintiffs’ negligence. It seems to us, however, that the true rule is, that where the creditor receives from his debtor either notes or obligations of any kind of third persons, as collateral security for the payrnent of his debt, he cannot, in the absence of an express agreement to the contrary, maintain his action for the recovery of his debt without accounting for the collaterals by showing either that he has collected them, and applied them as credits on the debt, or that he could not, by the use of due diligence, collect them. We do not think there was any error, therefore, in charging the plaintiffs with so much of the collaterals as they failed to collect by reason of their failure to exercise due diligence ; there being no evidence that they could not be collected by the use of due diligence.

1 We come, then, to the questions presented by the defendants’ exceptions. So far as these exceptions present questions of fact, we think they are concluded by the concurrent findings of the master and the Circuit Judge ,• for there certainly was testimony to support such • findings, and, we think, ample for that purpose.

4 As to the question, when the action was commenced, we think it is conclusively determined by the express terms of section 120 of the Code, which declares that an attempt to commence an action by delivering the summons to the sheriff, with the intent that it shall be actually served, is deemed equivalent to the commencement of an action. See, also, Cureton v. Dargan, 12 S. C., 122. Here, the undisputed fact is, that the summons and complaint were delivered t.o the sheriff on the 19th of December, 1889, and there can be no doubt that this was done with the intent that these papers should be actually served, for the sheriff proceeded to make the service, aud made return thereof on the next day, and the plaintiffs proceeded under the belief that all the parties had been actually served. There is no doubt, therefore, that the action was then commenced.

5 The next inquiry is, whether there was error in charging the ten per cent, commissions on the amount due when the action was thus commenced. If we look alone to the terms of the notes, there can be no doubt that the plaintiffs were entitled to the ten per cent, on the amount due at the time of the commencement of the action, for that is in accordance with the express stipulation contained in the notes. But it is contended that, inasmuch as the mortgage contained a somewhat different stipulation as to the ten per cent, commissions that should govern, and the ten per cent, could be charged only on the amount for which judgment of foreclosure was had, which was less than the amount due when the action was commenced, by reason of the fact that certain payments were made after the action was commenced, and before the judgment of foreclosure was obtained, from the collections made on the rent contracts. It will be remembered, however, that the notes constituted the evidence of the debt, and the mortgage was a mere accessory, designed to secure the payment of what was really due on the notes; and to them, therefore, must we look to ascertain the amount due. In addition to this, it will be observed that the bond which the mortgage was given to secure was conditioned for the payment of the notes, “according to the tenor, true intent, and meaning of” the said notes. So that, we think, there was no error in computing the ten per cent, commissions on “the amount due at the time of suit.”

6 The only remaining inquiry is, whether there was error in holding that the plaintiffs had the right to apply the proceeds of the rent liens to the unsecured note. While it is quite true that the rule is, that where a creditor holding a mortgage on property, to secure the payment of his debt, is bound to apply the proceeds of the sale of the mortgaged property to the mortgage debt, without any directions to that effect from his debtor, as was held in Thatcher v. Massey, 20 S. C., 542, and Ellis v. Mason, 32 Id., 280, yet here it was not made to appear that the money applied to the unsecured note was derived from the sale of the mortgaged property; nor does it appear that the mortgage covered the rents and profits of the land embraced in the mortgage. We do not think, therefore, that any error has been shown in regard to the application of the money derived from the rent contracts.

The judgment of this court is, that the judgment of the Circuit Court be affirmed.

Case Details

Case Name: Montague v. Stelts

Court Name: Supreme Court of South Carolina

Date Published: Sep 22, 1892

Citation: 37 S.C. 200

Court Abbreviation: S.C.