McKee v. Jordan

This is a bill to redeem a mortgage in the shape of an absolute conveyance. The right to redeem is admitted. The sole question in dispute is as to the amount due. Complainant contends that the debt secured by the conveyance was originally $600 and no more. The defendant contends that it was $850.

The actual debtor is the son of the complainant. At the date of the deed he was already indebted to the defendant Jordan in the sum of $250, and applied to him for the further loan of $600. Jordan required security which should cover as well the old as the proposed new loan. The sou said his mother would secure it by a loan on her property, and employed Mr. McCrea, a solicitor, to prepare the necessary document. Mr. McCrea, on the son’s instruction, prepared an absolute conveyance from the mother to the defendant Jordan, with a nominal consideration, and went with the son, in the absence of Jordan, to the complain*307ant and explained to her that her son wished to borrow $600 from Mr. Jordan, and that the deed was to be given as security for that amount, which was to be repaid in installments of $50 at stated periods. Yo mention was made of the other $250 on that occasion, or, so far as the case shows, at any other, in the complainant’s presence. She seems to have been at all times, until after the execution of the deed, in complete ignorance of any indebtedness from her son to the defendant, except the proposed loan of $600. She is quite illiterate and unfamiliar with ■business methods, and signed the deed by her mark and acknowledged and handed it to Mr. MeCrea, supposing that it was used as security for $600 and no more. The defendant was not present on this occasion.

Mr. MeCrea was present when the deed was delivered to the defendant and the $600 paid by him to the son (though it does not appear that he on that occasion produced the deed); and he then stated to the defendant that the complainant had executed it on the supposition that it was security for $600 and no more. 'The son, however, declared that he had told his mother about the other $250, and that she was willing the deed should stand as security for the whole $850, whereupon the defendant Jordan, upon the security of the deed and not knowing that it had been -entrusted by the complainant to Mr. MeCrea and not to her son, paid the $600 to the son and took his note, payable at a future ■date, for $850.

On the occasion of the payment of the first installment of $50, the complainant discovered that the defendant claimed to hold her deed as security for $850, consulted counsel at once and filed this bill.

The defendant relies upon the familiar principle that where one of two innocent persons must suffer by the fraud or the abuse of authority of a third party, the loss must fall upon him who has put it in the power of such third person to commit the fraud or exceed and abuse his authority. But, manifestly, the essential quality of the garment of innocence with which a party must be clothed, in order to invoke the aid of this wholesome maxim, is ignorance of the real nature and extent of the authority of the *308third party. He must be misled by some act of the other innocent party which upon its face authorizes him to deal, as he has done, with the fraud-doer, and he must be ignorant of any limitation upou such apparent authority. No citation of precedent is necessary to sustain these positions. They lie at the basis of the doctrine in question. Here the defendant knew that when the conveyance was executed it was the intention of the grantor to limit its use and confine its office to that of a mortgage merely) and on its face it did not indicate any particular sum which it was intended to secure. If it had been handed by the mother to the son without restriction or limitation as to the amount for which it was to stand security, and had been by him delivered to the defendant, it may be that the latter would be entitled to hold it as security for all such sums as the son might represent to him that he was authorized to borrow upon it. In such case the delivery to the son without restriction might be held to invest him with unrestricted power to deal with the deed, but in such case the equity of the defendant would spring not out of the statement by the son of his power and authority, but out of the deed itself and its delivery to and possession by the son. In this class of cases it must be borne in mind that the misstatement by the fraud-doer of his authority, standing by it itself, cannot avail the innocent third party. He must show authority for his statement from the other innocent party.

Guaged by these tests the defendant’s case fails. The executed conveyance which her’e constituted the son’s apparent authority did not bear on its face authority to pledge it for any particular sum, but at the time of its delivery defendant had explicit notice that the son’s authority was limited, or intended to be limited, to-an authority to pledge for $600. Defendant chose in the face of this notice to accept and rely upon the son’s false statement that his mother had authorized him to pledge it for $850. In so-doing he relied upon the statement of the son and not on the apparent authority of the possession of the deed. He was not misled by that or any act of the complainant, and cannot, therefore, cast upon her his loss.

*309The case is distinguishable from Morse v. Bank, 55 N. Y. 41, cited and relied upon by the defendant.

This renders it unnecessary to consider the more difficult question whether the mere giving time to the son for the payment of the previous debt of $250 was sufficient, under the circumstances, to place the defendant in the position of a bona fide purchaser for value.