Case Name: MUSTAR, Appellant, v. McCOMB et al., Respondents
Court: South Dakota Supreme Court
Jurisdiction: South Dakota
Decision Date: 1918-03-26
Citations: 40 S.D. 205
Docket Number: File No. 4141
Parties: MUSTAR, Appellant, v. McCOMB et al., Respondents.
Judges: 
Reporter: South Dakota Reports
Volume: 40
Pages: 205–211

Head Matter:
MUSTAR, Appellant, v. McCOMB et al., Respondents.
(167 N. W. 232.)
(File No. 4141.
Opinion filed March 26, 1918.)
1. Mortgages — Deed as Mortgage — Grantee’s Grantee, Whether Bona Fide Holder.
One to whom a grantee of realty under an instrument which in effect was a mortgage, has conveyed the property, is not a bona fide holder for value and without notice, as against a judgment creditor; and has no greater rights than his grantor would have had if he had not given such deed.
2. Fraudulent Conveyances — Deed as Mortgage, Grantee’s Claim Under as Deed — Holding Title for Sale to Pay Debt — Whether a Mortgage?
Where trial court’s findings showed that one to whom realty had been conveyed by the owner, maintained that it was intended as an absolute conveyance and not as a mortgage, and that plaintiff, grantee of. said grantee never treated the conveyance as a mortgage but contended it was an absolute conveyance of title, yet, it appearing that there was an indebtedness from original owner to first grantee, and that the latter held title for the sole purpose of selling and applying proceeds of the property to the indebtedness,' there -being no fixed consideration for the conveyance, held, that the first grantee had none of the rights and was subject to no liabilities incident to absolute ownership, and said conveyance was in effect a mortgage. So held, as between the last grantee and a judgment creditor.
3. Conveyancing — Deed Without Defeasence, Made to Secure Debt— Whether Title Passes?
An instrument in form conveying title to realty, even though containing no written defeasence, if. in fact made to secure a debt; it being in equity a mortgagee, passes no title to grantee, and legal title remained in grantor, though, upon recording the instrument, title appeared of record in grantee.
4. Conveyancing — Deed in Fact a Mortgage, When Title Passes . Under — Be-conveiyance, Decree re Mortgage, As Tests — Rule.
The true test of when title passes to grantee under a conveyance which in fact is a mortgage, is: — if upon payment of the debt an action to require a conveyance by the grantee is necessary to place title in real owner, the original conveyance passes title; but if a decree adjudging the conveyance to have been a mortgage is sufficient to quiet title, then no title passed by the original conveyance.
5. Mortgages — Deed, as Mortgage — Sale Under* Execution, Mortgagee’s Right to Restrain.
A grantee of realty, holding but a mortgage interest, has no right to restrain a sale under execution of the mortgaged property; the mortgagee being a disinterested party, since such sale, if made will he subject to his rights as mortgagee. So held, as between such grantee’s grantee and a judgment creditor.
6. Mortgages — Mortgagee’s Rights Under Absolute Conveyance as Against Judgment Creditor* — Injunction Against Execution Sale; — Remedy, Defendant’s Prayer for “Further Relief,” Court’s Right to Decree re Mortgage.
Where, in a suit ’by the grantee of one to whom an absolute conveyance of realty was made, but as a mortgage, to enjoin an execution sale of the property, the .prayer in defendants’ answer was for judgment establishing his judgment lien as valid, and for “other and further relief,” etc., trial court was authorized to determine validity of the mortgage, although such determination was not essential to the relief specifically prayed for by defendants; such relief 'being such as might have been prayed for had defendants known the true nature of the transaction.
7. Fraudulent Conveyances — Grantee’s Claim of Title Under Deed, a Mortgage, Whether Involving Actual Fraud, As to Judgment Creditor.
Where the evidence, in a suit by a grantee of one to whom the owner had given a deed to- realty but as a mortgage, sustained findings to the effect that the original grantee, and plaintiff, his grantee, maintained that the deed was not intended as a mortgage but as an absolute conveyance of title, and failed to disclose the true nature of the original transaction, or relied upon the deed as a mortgage, held, that trial court was warranted in holding such transaction fraudulent as to a judgment creditor, although there might he question whether trial court's conclusion that there was actual fraud, was justified.
Appeal froto Circuit Court, Spink County. Hon. Alva E. Taylor, Juidlgie.
For former opinion, see 39 S. D. 439 164 N. W. 975. 975.
On rehearing.
Former opinion reversed) arid judgment ’and order apealad from affirmed.
Sterling & Clark, for Appellant.
Morris & Moriarty, for Respondents

Opinion:
WHITING, P. J.
This cause iiis before us upon rehearing. Our farmer opinion will be found reported in Mustar v. McComb, 39 S. D. 439, 164 N. W. 975, to which reference is made for a statement of slclme of the facts and for our holding thereon. In such former opinion it was stated that the action "was brought to determine the ownership" of certain land. Such statement is not accurate. Plaintiff, claiming to be the owner of certain land', brought this action, to restrain, defendants from selling such lanld under an exeouitiloln issued upon a judgment taken against one G. H. Brown; lalnlcl plaintiff sought a dlaoree 'adjudging his'title to -be paramount add superior to the claimed lien of such judgment. Defendants were McOotnb, the judgment loradStor, and Hlanson, tihle officer holding the executiojm. Defendants denied ithalb plaintiff was the owner of the property. They alleged that
G. H. Brown, the owner of the property, had, with fraudulent purpose, attempted to donvey this property to one W. H. Brown; that such' dead was void, and that plaintiff (took a deed from W. H. Brown with full notice of -the facts rendering the deed to W. Hi. Brawn void. Defendants asked that a restraining order be denied; that the judgment be declared a lien on the land; and for sudh other and further relief as to the court might seem just. Under -the undisputed fadtis, plaintiff is not a. bona fide holder for value and without notice, and has no greater rights than W. H. Brown woulkl have, if he hlad not given a deed to plaintiff.
We are convinced that upon the former hearing we failed to give sufficient consideration to the nature of the transaction 'evidenced by the Conveyance from G. H. to W. H. Brown, While the trial court did riot, in express arid specific language, find as a fact, or enter as a 'Conclusion!, ithat sudh conveyance Was a mortgage, lilt did find certain facts which show such conveyance to .have been in f-act, .as between the (parties thereto, but a mortgage; 'arid that the Court considered it to be a mortgage is clearly shown filom the following, a part of one of its findings:
"That at alll times since the making o(f the deed from Giles H. Brown to' Walter IT. Brown, as above set forth, the said Walter H. Bildwn has declared anid maintained thlat the said deed was not intended far a mortgage, but wa's intended to be a'nld was an absolute conveyance of ¡tíre lanld tlrerein described to hum, and that at no time did the 'salid Walter IT. Brown disclose or acknowledge the ¡true character of the transaction; .and that tine plaintiff, as the grantee of the said Whiter H. Brown, has at no timie soiug(ht 'to treat the conveyance 'as a mortgage, but has at all tilines and in this action! contended that the same was an absolute oonvejahoe of the title of ¡the :aforesa'idl land to Whiter H. Brown, 'and has at no time disclosed the true nature of the transaction, or relied upon the aforesaid deed as. la mortgage,-but bias dotare into Court repires'entinig that the ©aid dead was a valid conveyance of title."
It -is unnecessary for trs to review the evidence, but we will call attention to a few matters which Show, beyond possibility oi dispute, that tlie conveyancé was, as between the parties thereto, a mortgage: There wias an indebtedness existing from grantor to grantee. There was no fixed consideration for the conveyance. The grantee held title for the sole purpose of selling the (property and applying the proceeds to the indebtedness. The amount-of credit could nclt be known until the net proceeds of the sale were determined. It is perfectly 'clear, fiiom the above facts and the /evidence as a whole, that, if ait any. time before the grantee mfaide a sale, the grantor had paid his indebtedness, the grantee would have ceased to have bad any rights ¿n and to such land. Under tire undisputed facts tíre grantee had none of the nights and! was subject to none of tine liabilities incident to absolute ownership; he could not have held the property and re-7 fused tel sell it amid apply the proceeds on the 'debt; Ire was bound to acldount for proceeds of craps or rentáis received; if improvements on the property had been burned, the grantor would have been the loser; if a gold miñe had been discovered thereon, any mineral toierefrOm would have belonged to thie grantor and not to the grantee.
It is therefore clear that the conveyance was a mortgage. Being a mortgage, even though there w'as no written defeasance, the legal itiMe to this land remained in the grantor, though, upon tine recording of the instrument, the title appeared of record in tine grantee. We recognize that there are authorities holding (halt a conveyance, in form a d'eeld absolute, though in fact -a mortgage, conveys the legal- title, -leaving in the grantor but an equity -of .redemption. There may be toanis-adtlions which, from the peculiar facts connected therewith, show feat, although the conveyance was intended as -a security, yet, in order that the purposes contemplated by the parties may be -carried o-u-t, fee grantor intended! to -convey the legal title to fee grantee. Such was the transaction involved in Muller v. Flavin, 13 S. D. 595, 83 N. W. 687. But, with fee proposition that a -conveyance absolute in form a-lwayis -conveys fee legal title, -even though -suich conveyance is in fact (a mortgage, we cannot agree. As stated by fee court in Wakefield v. Day, 41 Minn. 344, 43 N. W. 71:
"As between the parties', one Who receives a -deed absolute in form-, -anld apparently having the legal title, is, when fee facts showing fee real .character of fee transaction appear, to be treated as having only a lliien on fee land; and uipon fee payment, of the -debt 'his interest in fee land and his lien thereon ceas-es. A 'reconveyance is not, in such oases, necessary to reinvest the grantor or Ms -heirs wife the title, but only to clear up the record title, ias in fee nature of -a- satis faction piece."
TM's question has been before fee -courts in numerous cases, which, wliil be found cited ini Jones on Mortgages, § 20, in -support of fee proposition that:
"E-ven an 'absolute dleed- without any defeasance, if in fact made to -secure a debit, so that in equity it is a mortgage, passes no title to the grantee."
In Murdock v. Clarke, 90 Cal. 427, 27 Pac. 275, the court adopted the following words of its commissioner:
"As it is admitted that the conveyances were intended only to secure fee payment of money, they were mere mortgages, and did not pass the legal title. 'It is fee settled- rude in this state that if 'a dee-d, absolute in foam, was made merely to secure an indebtedness (to fee grantee), it is a mere mortgage, and does not pass tibe titile.' Smith v. Smith, 80 Cal. 325 [21 Pac. 4, 22 Pac. 186, 549]. See, also, Hall v. Arnott, 80 Cal. 352 [22 Pac. 200]; Booth v. Hoskins, 75 Cal. 275 [17 Pac. 225]; Raynor v. Drew, 72 Cal. 309 [13 Pac. 866]; Healy v. O'Brien, 66 Cal. 519 [6 Pac. 386]; Taylor v. McClain, 64 Cal. 514 [2 Pac. 399]. Anid fee fact that the mortgagee's- were p-ut in possession' does not change fee rule. As was saiid in Smith v. Smith, above cited: Such a dead gives a mere Men upon the property, just as if the parties bad put their agreement in the farm of a mortgage.' And it has been decided that in this state the interest of 'tire mortgagee is -not enlarged nor affected by the feat that he is in possession under tire mortgage. Dutton v. Warschauer, 21 Cal. 609 [82 Am. Dec. 765]."
Tlo the same effect is the holding in Snyder v. Parker, 19 Wash. 276, 53 Pac. 59, 67 Am. St. Rep. 726. The fullest, and, to our minds, the most conclusive, discussion of this question is to be found in Flynn v. Holmes, 145 Mich. 606, 108 N. W. 685, 11 L. R. A. (N. S.) 209, wherein the following is quoted from Shattuck v. Bascom, 105 N. Y. 41, 12 N. E. 284:
"Although the conveyance from the defendant to Coleman was in form a dead, it was in fact 1a mortgage, and had all the incidents of a mortgage. Coleman could not,, upon that dead, have maintained an action of ejectment against (hits grantor or any other person. All he acquired by the deed was a lien upon the land for the security of his debt, and, upon payment of the debt, Shiis interest in the land and lilis lien thereon would absolutely cease. Reconveyance by him to thiiis defendant was not necessary to reinvest him with the absolute title, a'nd was necessary only fa dear up the record title. "
We would suggest tine following as, a true test of when title passes to the grantee under a conveyance which in fact is-a mortgage: If upon payment of debt an action to require a odniveyanice by the grantee is necessary to place the title in the real owner, the original conveyance passed title. If a decree adjudging the conveyance to have been a mortgage is sufficient to quiet 'the title, then no title passed by Ithle original conveyance.
Under the above holdings atnid!, test, the 'legal title to this land iremalinad in G. H. Brown, and the judgment became a lien on such laud. It follows that the plaintiff bad absolutely ho right to a restraining order, anld this regardless of whether the purported deed to W. H. Brown was fraudulent or not. Even if -vial-id, plalilntiff, as the grantee of W. II. Brown, holds but a mortgage interest, and a mortagee has nlo right to restrain a sale •Under an execution against the mortgaged property. Tire mortgagee is a disinterested party; because such sale, if made, will 'be subject to whatever his rights as mortgagee may be. In other words, if plaintiff bad alleged what was proven' — tftiaJt his interest in the land was 'that of a mortgagee — hie would not have plealdle'd facts sufficient to entitle him to the restraining 'Order sought.
It is clear then that, when the trial Court found1 facts showing the 'Conveyance ito W. H. Brown to have been a mortgage, defendants were 'entitled to the relief specifically prayed for in their answer — 'that "the judgment be declared1 to be a valid lien upon the said real property"; and' the trial court need not have determined the validity ae against the judgment creditor, of the mortgage, but could have left the question of its Validity and priority -to| he determined in -another action. But the defendants prayed "for such other and further relief as to the court may seem just." Under 'this prayer, the trial court was undoubtedly authorized to determine the validity of the mortgage, even though such determination was not 'essential to the relief specifically prayed for by defendants. It is clear that this is relief that could have been prayed for by the defendants, if they bad known the true nature of the transaction.
If the conveyance bad been in fact, wbat it purported to be, an absolute conveyance of title to' W. H. Brown, we are of the opinion yet that there might be some question whether the facts upon which respondents rely in support of their claim of fraud would justify the trial court's conclusion that there was actual fraud. But when we consider the further fact that tbis conveyance was in realty a mortgage, and yet the grantee in such conveyance has at all -times "declared and-' maintained that the siaid deed was not intended for a mortgage, but was -intended- to be an absolute conveyance," and further that -such grantee -did at no -time "disclose or acknowledge the tru-e character of the transaction»," we are of the opinion that the trial -court was correct in balding such- transaction- fraudulent -as to the judgment creditor.
Our fanner oplimio-n herein is -reversed, and the judgment -and order appealed from -are affirmed.