Medlin v. . Buford , 115 N.C. 260 ( 1894 )

The first question to be considered is, whether the mortgage executed by the defendants to the plaintiff is absolutely void by reason of fraud in the factum. If such be the case, it would be immaterial whether the plaintiff is an innocent party, since, the deed being a nullity, no rights could be asserted under it in favor of any person whomsoever. It is this very serious consequence which influences courts to adhere strictly to the old and well-settled principle applicable (270) to cases of this character; and, tested by these, we have but little difficulty in reaching the conclusion that the fraud in the present instance was in the representation or treaty, and not in the factum. A deed made by reason of this species of fraud is often said to be void; but it will be found, upon examination, that this term is indiscriminately used in connection with any deed that may be avoided, either at law or in equity. But, as is said in Somers v. Brewer, 2 Pick., 191, the distinction between void and voidable deeds becomes highly important in its consequences to third persons, "because nothing can be founded upon a deed that is absolutely void, whereas from those which are only voidable fair titles may flow." The distinction is clearly drawn in McArthur v. Johnson,61 N.C. 317. In that case a person proposed to convey a tract of land in trust, and his brother undertook to have the deed drawn, but, without the knowledge of the vendor, inserted therein a conveyance also of another tract in trust for himself, and upon presenting the deed for execution, in reply to a question by the vendor, said that it was "all right," whereupon the latter executed it without reading it or hearing it read. It was held that the conveyance was valid at law, there being no fraud in the factum. The Court, after giving the surreptitious substitution of one deed for another, and the false reading of a deed, upon request, to a blind or illiterate person, as examples of fraud in the factum, then proceeds to speak of what is meant by fraud in the representation or treaty. "In all of the cases it will be seen that the party knowingly executes the very instrument which he intended, but is induced to do so by means of some fraud in the treaty, or some fraudulent representation or pretense. In this category is included the case of a man who can read the instrument which he signs, seals and delivers, but refuses or neglects to do so. Such a man is bound by the deed at law, though a court of equity may give relief against it." The opinion quotes with approval the following language from 1 Shepherd's Touchstone, 56: "If the party that is to seal the deed can read himself, (271) and doth not, or, being an illiterate or blind man, doth not require to hear the deed read or the contents thereof declared, in these cases, albeit the deed be contrary to his mind, yet it is good and unavoidable at law; but equity may correct mistakes, fraud," etc.

In 3 Washburn Real Prop., 252, it is said: "But if the party can read, it is not open to him after executing it to insist that the terms of the deed were different from what he supposed them to be when he signed it. . . . And one who executes a deed cannot avoid it on the ground of ignorance of its legal effect. The rule on the subject is thus stated: `A deed cannot be avoided in a court of law except for fraud in its execution, or other fraud or imposition practiced upon the grantor in procuring his signature and seal — a fraud which goes to the question whether the deed ever had any legal existence.' The law does not reach the cases of deeds procured byundue influence over the grantor, if he be of legal capacity. The only relief in such cases is in equity."

Applying these principles to the facts of this case as related by the defendants, who testified in their own behalf, it would seem clear that the mortgage in question is not void, but voidable only in a court of equity. The defendant Mrs. McGirt stated that she had a good common-school education, and it appears that neither she nor the other defendant read the deed or requested that it be read. They knew that the object of the deed was to raise $1,000, which was to be invested together with the $2,000, which, it appears, had already been invested by Davis. It is true that Davis deceived them that the deed was not a mortgage, and that they "could do away with it in thirty days," but they admit that they knew they were executing a "lien" upon their house for $1,000, although they say they did not know it was the same as a mortgage. If they had read the deed they would have discovered that it was a mortgage to the plaintiff, securing $1,000, which she afterwards advanced upon the faith of the mortgage, through her attorney, (272) Mr. Cutlar. These and other circumstances relied upon by the defendants were not sufficient, in our opinion, to establish fraud in thefactum. Indeed, the case does not seem to have been tried upon this theory, as the issue itself appears to have been framed for the purpose of presenting the proper view of the tendency of the testimony, which is that the deed was procured by fraud in the representation or treaty. To hold otherwise would, it seems to us, be productive of the most alarming results as to the security and stability of titles in the hands of innocent purchasers who have acted upon the faith of conveyances actually executed by the owners, and, as in this case, openly and freely acknowledged before the proper authority to be their act and deed.

The deed then being voidable only in a court of equity, and the jury having found that neither the plaintiff nor her attorney had notice of the fraudulent conduct of Davis in procuring the execution of the same, it becomes necessary to determine whether the instruction asked by the plaintiff should not have been given. This instruction relates to the issue involving the agency of Davis in making the transaction with Mr. Cutlar, the plaintiff's attorney, and must be considered in connection with the facts admitted in the testimony of the defendants. Could the defendants, under these circumstances, be permitted to say that they were not bound by the acts of Davis? "It is a general and just rule that when a loss has happened which must fall on one of two innocent persons, it shall be borne by him who is the occasion of the loss, even without any positive fault committed by him, but more especially if there has been any carelessness on his part which caused or contributed to the misfortune. A man can scarcely be cheated out of his property, especially of real estate, in such manner as to give an innocent purchaser a right to hold according to the principles which have been (273) mentioned, without a degree of negligence on his part which should remove all ground of complaint. Suppose him to be prevailed upon by fraudulent representations to execute a deed without asking advice of friends or counsel: he has locus penitentiae when he goes before a magistrate to acknowledge it." Somers v. Brewer, supra. These general principles are well sustained and illustrated by several decisions of this Court and the numerous authorities therein cited, and are applicable, we think, to the question under consideration. Railroad v. Kitchen, 91 N.C. 39;Vass v. Riddick, 89 N.C. 6; Barnes v. Lewis, 73 N.C. 138. According to the statements of the defendants, they intended to give a lien upon their property for $1,000. This money, it must necessarily be inferred, was to be raised on the faith of the lien, and it was to be submitted to Davis, who was "to put it out" with the $2,000 he had already invested, so that the defendant could get $25 per month. The defendants, without reading the mortgage, executed the same, and it remained in the hands of Davis. Davis came the next day with the clerk of the court (Taylor), and the defendants acknowledged the due execution of the said mortgage, and it cannot be doubted that it remained in the hands of Davis in pursuance of the arrangement agreed upon. As we have said, had they read the instrument they would have discovered that it was a mortgage to the plaintiff for the sum of $1,000; and, so far as this case is concerned, it must be assumed that they were aware of its contents. At any rate, they admit that they knew that it was a lien for that amount, and under these circumstances they permitted the said Davis to take away the instrument obviously for the purpose of raising the money. In other words, by their gross negligence and blind confidence in Davis, they invested him with all the indicia of agency to obtain the money of the plaintiff upon the faith of this mortgage, and, as between the plaintiff and these defendants, who are all innocent parties, it cannot be questioned as to who should bear the loss. We think the instruction should have been given, and (274) that because of its refusal there should be a new trial.

Of course, if upon another trial it should appear that Mr. Cutlar had notice of facts sufficient to put him upon inquiry, the plaintiff would be affected by such notice and the defendants be entitled to relief. We have examined the authorities cited by the counsel for the defendants, and see nothing in them which seriously conflicts with the principles we have declared in this opinion. The fact that the note was not executed by the defendants does not in itself prevent a foreclosure of the mortgage. 1 Jones Mortgages, 353.

New trial.

Cited: Dixon v. Trust Co., post, 279; Medlin v. Buford, 117 N.C. 287;Cutler v. R. R., 128 N.C. 480, 481; Gwaltney v. Assurance Co., 132 N.C. 928;Griffin v. Lumber Co., 140 N.C. 519; Tarault v. Seip, 158 N.C. 378.