Court Opinion

ID: 5436727
Source: CourtListenerOpinion
Date Created: 2022-01-08 17:55:29.464405+00
Date Added: 2024-06-11T08:31:51.966392
License: Public Domain

Mr. Justice Rhodes delivered the following dissenting opinion, in which Mr. Justice Crockett concurred:
The complaint is in the form generally used in actions of ejectment. The answer denies all the allegations of the complaint, except that of the defendant’s possession; and it also sets up title in the defendant, but this amounts to no more 'than an argumentative denial of the plaintiff’s title. The defendant claims title through a deed from Turman, and the plaintiff claims title through a subsequent deed from Turman, and insists that the deed to the defendant was intended by the parties thereto as a mortgage, and parol evidence was admitted, against the objection of the defendant, to show that fact.
Two questions arise upon this state of facts:
First—Does an absolute deed, which is shown by parol evidence to have been intended as a mortgage, convey the legal title to the grantee?
Second—Is parol evidence admissible, for this purpose, at law'?
In many of the States, the Courts at law have adopted the rule which obtains in equity, in the construction of mortgages, and they accordingly treat them as mere securities for the payment of money, or the performance of some other act, the interest passing to the mortgagee being regarded as a lien upon the real estate. They pass no interest or estate in the land, except the lien, and the lien is an incident to the *58debt or obligation which is thereby secured. (McMillan v. Richards, 9 Cal. 409.) In harmony with this doctrine, it was always held in this State that payment of the debt secured by the mortgage discharged or released the mortgage, and no reconveyance of the mortgaged premises was necessary. The definition of a mortgage as known at common law—an estate defeasible by the performance of a condition subsequent—does not correctly describe that instrument, as it is interpreted in this and most of the other States. This result has been attained by disregarding the form of the instrument and the words-.of conveyance, and looking at the real nature of the contract. The formal technicalities that at an earlier day embarrassed the Courts of law, gave way to the true meaning of the instrument, and the mortgage was considered, as in equity, not as an estate in fee, but as a lien, created for the purpose of security. In Hew York the cases have not been uniform, but this doctrine is sustained by a decided preponderance of authority. (Jackson v. Willard, 4 Johns. 41; Hitchcock v. Harrington, 6 Johns. 290; Collins v. Torry, 7 Johns. 278; Coles v. Coles, 15 Johns. 319; Lane v. Shears, 1 Wend. 433.)
The doctrine was not carried to its legitimate results in all respects. The mortgagee, after forfeiture, was permitted to recover the possession of the mortgaged premises, though it involved the absurdity of a recovery upon that which was conceded to-be a mere security. But such had been the practice before the equitable rule was adopted by the Courts of law. It was for the purpose of correcting this practice that the provision of the revised statutes was adopted, that no action of ejectment should be brought by the holder of the mortgage for the recovery of the mortgaged premises; though, as w-e have said, it would follow as a logical sequence from the doctrine mentioned, that the mortgage alone would not entitle the mortgagee to the possession. In Stewart v. Hutchins, 13 Wend. 485, that provision was under consideration, and it was held that its object was to cut off one of the *59three remedies theretofore enjoyed by the mortgagee; but it was not regarded as changing the character of the mortgage.
The statute of this State, though differing in its phraseology from that of Hew "York, is substantially the same. Section two hundred and sixty of the Practice Act provides that “a mortgage of real property shall not be deemed a conveyance, whatever its terms, so as to enable the owner of the mortgage to recover possession of the real property without a foreclosure and sale.” This section did not affect the real nature of the mortgage, nor did it cut off any remedy that mortgagees had previously enjoyed in this State; and if it accomplished anything, it was only by declaring the law, so as to preclude a recovery of the possession of the mortgaged premises, upon an instrument that did not confer the right of possession. It destroyed in this State the force of the authorities which hold that the owner of the mortgage may recover the possession of the mortgaged premises. In Fogarty v. Sawyer, 17 Cal. 593, it was held that the object of the section was “to control the terms of grant, bargain, and sale, generally employed in mortgages, * * * and the statute is directed to the language of alienation and transfer.” It was not intimated that the statute worked a change in the nature of a mortgage; and it may safely be said that the Court were hot of the opinion that any such change resulted from the operation of the Statute, for the distinguished jurist who delivered the opinion in that case—Mr. Chief Justice Field—also delivered the opinion in McMillan v. Richards, and he has uniformly held that the title to the mortgaged premises remains in the mortgagor.
The mortgage we have been considering is one made in the usual form, containing words which, by themselves, import an alienation and transfer of the title to the premises, and also a defeasance, by which it is provided that the instrument shall be void upon the performance of the condition mentioned. Does it follow that no mortgage transfers the title or right of possession, because those of the kind referred to do not have that effect?
*60It is not the policy of the law to prevent parties from making such contracts, in respect to the title or possession of the mortgaged premises, as they please, nor does the statute have that effect. It was accordingly held, in Fogarty v. Sawyer, that there is nothing in the law of mortgages in this State which prevents the mortgagor from investing the mortgagee with power to sell the premises, and pass the title to the purchaser, upon a breach of the condition of the mortgage, without a judgment of foreclosure. The mortgagor may transfer to the mortgagee the possession to be held until a breach of the condition; or, for the same purpose, he may convey to a trustee either the title or the possession of the premises. If this be so, what reason is there, whether it be such as is founded on considerations of public policy or statutory provisions, which forbids the owner of lands from transferring to his creditors the legal title, if they deem that the best mode of affording the requisite security? The reasons that would forbid such a transfer would also forbid a transfer of the possession to a mortgagee, or of the title to a trustee. This will not infringe upon the doctrine that a mortgage, without any special covenants as to title or possession, does not pass either the title or the right of possession of the mortgaged premises.
The difference between an absolute deed and a mortgage consists in the defeasance, which is an essential part of the latter. It was the defeasance which had the effect, first in equity and afterwards at law, of restricting the operation of the words of alienation, so that the title did not pass to the mortgagee. In the absence of a defeasance, the words of conveyance being without qualification or restriction, must have their usual signification, and the conveyance of the legal title is the necessary result of their operation. Whatever may be the effect of a parol defeasance in equity, it is clear that it cannot at law operate as a defeasance of a deed of conveyance. (Culler v. Dickinson, 8 Pick. 386; Flagg v. Mann, 14 Pick. 467; Scituate v. Hanover, 16 Pick. 222; Flint *61v. Sheldon, 13 Mass. 443; Eaton v. Grew, 22 Pick. 526; 1 Wash. Real Prop. 480.)
In considering transactions in which it is alleged that the deed was executed by way of security, Courts of equity have often discussed and decided the question whether an absolute deed may be turned into a mortgage. The question assumes that the deed transfers the title at law. When the evidence satisfies the Court that the transaction was intended as a mortgage, and the grantor is permitted to redeem, the grantee is ordered to reconvey the premises. This requirement is necessary only on the theory that the absolute deed, intended as a mortgage, did, in fact, transfer the title. The Court, in such case, requires the plaintiff to redeem within a specified time, otherwise that the bill be dismissed; and upon the bill being dismissed, the judgment is a bar to another action to redeem. (Perine v. Dunn, 4 Johns. Ch. 140.) It would be difficult to regard this as a penalty for a default on the part of the plaintiff, if the title remained in him, for his failure to redeem would not divest him of the title, and his default in paying the sum found due would leave him just in the position in which he stood before he commenced his action. And, indeed, upon the theory that the title was in him, he might safely await the operation of the Statute of Limitations to discharge the lien, if the other party did not sue for the recovery of his debt within the statutory period.
It will be admitted on all hands, that if a third person purchase the premises and take a conveyance from the grantee, in good faith, for a valuable consideration, and without notice of the facts relied upon to convert the first deed into a mortgage, he will acquire the title to the premises. So question arising under the Registration Act is involved in the supposed case. If this be true, the first deed must necessarily have passed the title, for a deed cannot pass the legal title unless it is held by the grantor, except in cases falling within the provisions of the Registration Act.
If the purchaser had notice that the deed was intended as *62a mortgage, he still would take the legal title, but subject, ©f course, to the claim of the first grantor. That the interest of the latter is an equitable interest in the lands is very clearly shown by the fact that Courts of equity, both in England and the United States, have taken cognizance of those claims in a multitude of cases, and their jurisdiction will not be questioned, and they are the only tribunals competent to administer adequate relief. There are a few cases in New York in which the rights of the parties were determined in Courts of law, but they were overruled in Webb v. Rice, 6 Hill, 219. The grantor, seeking relief, relies upon ah equity superior to the deed, and alleges that the real intention of the parties is independent of the one expressed in the deed, and prays that the deed maybe turned into a mortgage, and that he may be permitted to redeem. A case of that complexion clearly falls within the equitable jurisdiction. The interest of the grantor being equitable in its character, the legal title, passing by the deed, remains in the grantee and his assigns, until the Court declares the deed to have been intended as a mortgage, and the grantor redeems according to the terms of the decree. Notice of the equitable title of the first grantor does not impair the effect of the second deed, as a conveyance of the legal title. It would be absurd to hold that notice kept on foot an equitable interest while the party entitled to its benefit held the legal title.
The question we have been discussing was not involved in Lodge v. Turman, 24 Cal. 385. In that case, suit was brought on a promissory note, and the defendants answered, among other things, that the note was paid by the execution of the conveyance of Turman to Lodge—the deed, under which he claims title in this action. The defendants, in making their case, proved that the deed was intended as a mortgage, and the principal question discussed was, whether parol evidence was admissible to show that a deed, absolute on its face, was intended as a mortgage, and it was held admissible. The only authorities relied on are Pierce v. Robinson, 13 Cal. 125, and Will. on Equity, 429—in each of which it'is said that such evi*63dence is admissible inequity. The question whether the legal title passed, admitting the conveyance to have been intended as a mortgage, was not considered. Upon the new trial in that cause the Court found that the conveyance was not intended as a mortgage, but was executed in payment of the note. The language of Mr. Justice Currey, in delivering the opinion of the Court in that case, may be repeated here with marked propriety in support of one of the positions already taken. He says: “The right of the mortgagor in such a case to redeem the property by due performance of the condition, on his part to be performed for the purpose, is an incident, as between the parties to the transaction, inseparably connected with the mortgage.” It would be useless to insist upon that right unless by its exercise he was able to reinvest himself with a title which he did not then hold. He might well forego the privilege of redeeming if the consequences of a failure to redeem within the period prescribed by the Statute of Limitations would be that he would hold the land discharged of the lien or claim of his creditor.
We are aware that Cunningham v. Hawkins, 27 Cal. 603, is opposed to the views we now express, and it is because of the decision in that case that we have discussed the question at such length. The action was ejectment, and the question arose upon the admissibility of parol evidence, offered by the plaintiff, to show that the conveyance was intended as a mortgage; and we held that the evidence was admissible, and that it was admissible at law as well as in equity. The latter position will be hereafter noticed. It was considered that section two hundred and sixty of the Practice Act applies to all mortgages—not only to legal mortgages, but also to those which are declared or made such by Courts of equity, by turning absolute conveyances into mortgages; and it was held that the plaintiff, if he had any title at all, had the legal title, and that there was no equitable title to be set up by him. This rests upon the ground that that section operates upon the title, as between the mortgagor and mortgagee, so that it remains in the mortgagor, whatever may be *64the character of the mortgage or the nature of the transaction out of which the mortgage relation grows.
A defeasance must he of as high a nature as the instrument which it is designed to defeat. (1 Wash, on Beal Property, 480, and note; 1 Hilliard on Mort. 85.) This is the rule at law. A defeasance of that character, and the deed with which it is united or coupled, constitute a legal mortgage; while a defeasance of a lower grade and the deed will amount to an equitable mortgage. The mortgagor, in the latter case, must seek relief in equity, the title in the meantime remaining in the mortgagee. This position must be true, unless it can be shown that the title may be defeated at law by matters resting in parol.
Some portion of the reasoning in Johnson v. Sherman, 15 Cal. 287, is opposed to our conclusion upon this question; but the case, in one respect, lends it strong support. The Court treated the assignment of the lease to Sherman as a mortgage, and while relieving him from responsibility for the rents, while he held the lease, on the gi ound that he was the mortgagee, and as such was not liable for the rents, it was distinctly held that after his assignment to Jeffries he was not liable for the rents, because the effect of the assignment was to discharge him from all subsequent breaches, both as regards rents and other covenants. There is no pretense that the debt to Lucas, Turner & Co., to secure which the lease was assigned to Sherman, was assigned to Jeffries, but, on the contrary, the latter is treated throughout the case as a pauper, and of course could not be regarded as a bona fide purchaser. If Sherman’s relation to the lease was that of a mortgagee only—that is to say, the relation he would have occupied had the lease been mortgaged to him in the usual form—his assignment of the mortgaged property, without an assignment of the mortgage debt, was nugatory. There is no conflict among the numerous authorities in this Court on this point. But as the Court held that he did in fact assign the lease, he must have held the legal title, for that was the *65only interest he had the capacity to pass, without an assignment of the debt.
The rule in England, and in most of the United States, forbids the admission in an action at law of evidence to show that an absolute deed was intended as a mortgage. (2 Phil, on Ev., C., H., and E. Notes, note 487.) In blew York the authorities are conflicting. In Roach v. Cosine, 9 Wend. 227; Walton v. Cronly, 14 Wend. 63; Swart v. Service, 21 Wend. 36; Webb v. Rice, 1 Hill, 606, it was held admissible; but in Webb v. Rice, 6 Hill, 219, in the Court of Errors, those cases were overruled. The question again arose, in Despard v. Walbridgc, 15 N. Y. 378, and it was held that such evidence was admissible, both at law and in equity, on the ground that under the code a defendant in an action at law may avail himself of an equitable as well as a legal defense.
The solution of the first question is decisive of this. It the interest remaining in the grantor, after the execution and delivery of the absolute deed, is the legal title, the evidence is clearly admissible at law; but if it is an equitable interest, the evidence is inadmissible, unless the party, relying on the fact that the deed was intended as a mortgage, sets up that fact in the pleadings. That would constitute an equitable defense, if the grantor is the defendant; and if he is the plaintiff, it would constitute, or form a part of, a cause of action in equity. In this view, the decision in Despard v. Walbridge is clearly right in holding that the evidence is admissible, either at law or in equity—that is, when the pleadings tender an issue upon the fact to which the evidence relates. The necessity of pleading such fact is forcibly stated by Mr. Justice Bronson, in his dissenting opinion in Swart v. Service, 21 Wend. 36.
The distinction between the qualities of a mortgage in form and an absolute deed intended as a mortgage are not merely theoretical, but are full of practical consequences. The great object of the Act providing for the recording of deeds and other instruments affecting real estate, is to com*66pel those claiming a priority of right through such instruments to make the record speak the truth and show the real nature of their title or interest. It is designed that the record shall be such that all persons may resort to it, to ascertain the true condition of land titles. Subsequent purchasers and incumbrancers are charged by the record with notice of the instruments recorded; but it would seem the height oí absurdity to charge them with notice of the contents of an instrument which is not what it purports to be. The statute provides that deeds and mortgages shall be recorded in separate books, and in Dey v. Dunham, 2 Johns. Ch. 189, it was held that a deed absolute on its face, and an agreement that operated as a defeasance, ought to have been recorded as a mortgage, in order to protect the land against the title of a subsequent purchaser. A deed with a parol defeasance cannot be recorded as a mortgage, under the provisions of the statutes of this State. The Recorder must ascertain the character of the instrument from inspection. He is not empowered to hear testimony and determine judicially what the intention of the parties was in the execution of the instrument. The record, if the deed does not transfer the title, is thus made to impart notice of a falsehood.
When the grantor pays the debt, must the grantee reconvey? Under the opposite construction he ought not, for he has nothing in the lands—not even the naked title. The record, therefore, caunot show the true state of the title, and the owner, until the Statute of Limitations comes to his relief, is subject to the uncertainties attending the production of parol evidence.
In nearly all cases of this character the contest is over the question whether the transaction accompanying the execution of the deed amounts to a mortgage, or to a conditional sale; and it will be readily seen that the grantee, who was justified, from all the facts relating to the transaction, in considering it as a contract to reconvey the premises, might lose the lands in an action brought by the grantor, after an action for the recovery of the money was barred by the Statute of Limita*67tions, without any fault on his part, but because the only witnesses who could then be procured misapprehended the conversation of the parties, or imperfectly recollected it at the time of the trial.
The first section of the Act concerning conveyances provides that “conveyances of lands, or of any estate or interest therein, may he made by deed, signed by the person from whom the estate or interest is intended to pass,” etc. The only mode in which lands, or any estate or interest therein, can be conveyed by one person to another is by deed. The deed of the owner of lands transfers the title, and neither reason nor authority will justify us in breaking in upon the uniform operation of the rule, by allowing, as an exception, a deed absolute on its face, and in the exact form that the parties intended, but which is shown by parol evidence to have been executed to secure the payment of a debt.
In our opinion, a rehearing should be granted.