Bradley v. Merrill

Foster, J. Bill in equity for the redemption of a house and lot on Congress street in Portland from what is claimed to be equitable mortgages. The rights of the parties to this litigation cannot be understood without recurring to some of the important and material facts which appear in evidence. Many of the minor details, though bearing distinctly upon the issues involved, must necessarily be omitted. March 7, 1876, the complainant owned the premises in controversy, subject to a mortgage to the Maine Savings Bank. Afterwards the bank foreclosed the mortgage and obtained the fee in the property on July 13, 1879. On October 1, 1880, the complainant procured a conveyance of the premises from the bank to James H. Smith for the sum of $4500, the said Smith at the time giving to complainant’s husband an obligation to — 331 — convey the premises to him upon the payment of that sum and interest. On October 4, 1882, complainant procured the conveyance of the premises from Smith to Henry Pennell in consideration of $4667.75, Pennell at the time giving the complainant an obligation to convey the premises to her upon the repayment of that sum and other expenses, under cei’tain conditions. On June 5, 1883, complainant procured the conveyance by Pennell to- Sherburne It. Merrill for the sum of $6000, Merrill giving her an agreement in writing to reconvey the premises to her upon the payment of that sum and interest, and upon certain conditions. In each of these transactions the money was advanced at the request of the complainant and for her benefit. The deeds in these several transactions were duly recorded soon after they were delivered, but the only obligation that was recorded was the agreement from Merrill to complainant, which was recorded February 8, 1884, eight months after its date. August 3, 1883, while complainant still held the agreement from Merrill, she borrowed from John W. Lane two hundred and fifty dollars for which she gave two notes of one hundred and twenty-five dollars each, and assigned to him the agreement from Merrill as security for the payment of the notes. In this transaction John F. Proctor acted for Lane and as his agent, at the same time giving back an agreement to reassign the Merrill obligation upon the payment of the notes. Afterwards, on July 7, 1884, complainant borrowed from Lane two hundred and fifty dollars more, for which she gave her note, and as security for the same she conveyed by quitclaim deed all her interest in the premises, Lane at the same time agreeing to reconvey upon the payment of the amount due upon all the notes. Interest was deducted from all these notes from their date to the time they became due. On December 10, 1884, Lane, without the knowledge or consent of complainant, conveyed by quitclaim deed all his interest in the premises and in the Merrill obligation to said Proctor, the deed not being recorded till June 5, 1886. May 1, 1886, before the deed from Lane to Proctor had been recorded — 332 — and before complainant had any knowledge of it, Lane gave complainant an agreement to reconvey the premises. Thus we find that at the time the property was conveyed by Pennell to Merrill, the complainant had an equitable interest in the property sufficient to support a mortgage. Stinchfield v. Milliken, 71 Maine, 567. She procured the conveyance of the property from Pennell to Merrill for her benefit. The money was borrowed from Merrill to pay Pennell, together with an additional amount needed for other purposes. The conveyance from Pennell to Merrill was made to secure the amount she had borrowed as shown by the obligation to convey given by Merrill to the complainant. No notes or other evidences of indebtedness were necessary to render the transaction an equitable mortgage. If there was in fact an indebtedness or liability secured by the transaction that was sufficient. Reed v. Reed, 75 Maine, 264, 272. Transactions like these constitute equitable mortgages. The criterion always is whether the transaction was intended to secure one party for claims against the other. As was said by the court in Reed v. Reed, supra : "It is, therefore, a question of fact, whether, on looking through the forms in which the parties have seen fit to put the result of their negotiations, the real transaction was in fact a security or sale.” So far, therefore, as Lane and Merrill were concerned, these transactions constituted equitable mortgages with the right of redemption in the complainant. To be sure, prior to the time Lane gave the complainant the written agreement to convey, he had conveyed his rights in the premises to Proctor by quitclaim deed, but Proctor at that time knew all about the transactions between Lane and the complainant and her husband. In fact he either negotiated them himself, or was present at the time the loans were made, and, therefore, he could acquire no rights against the complainant except such as Lane held. He had not only notice but actual knowledge of complainant’s rights. Such was the condition of the title to the property when Edward Hast}'-, the respondent in this suit, became interested in the premises and purchased from Merrill, Proctor and Lane — 333 — by quitclaim deeds delivered June 17, 1886. He claims to be a bona fide purchaser of the property without notice, and denies any knowledge of the transactions with Merrill, Proctor and Lane except such as he found from the records of the instruments recorded. „ But he had knowledge of the obligation from Merrill to the complainant, as he states in his answer, and he is precluded from pleading ignorance of its effect in law. Was he a bona fide purchaser without notice, or did he have such notice of the rights of the complainant in the property that he acquired only the rights of his grantors ? His attention was first called to the matter by • Gardner, a real estate agent, and whom he knew to be such at the time. The agent had had the property placed in his hands, either to procure a lease, or for sale, by the husband of the complainant, and knew that the complainant claimed to be the owner of it, so entered it upon his books, and understood that Merrill held a mortgage upon it, and, moreover, that Proctor and Lane were in some way connected with it. He introduced Hasty to complainant’s husband who was acting for her and who claimed to have the disposal of the property. After looking the property over with the husband, an offer of $7250 was made by Hasty provided he could get a good title. The husband concluded to accept the offer. Thereupon, Hasty went to Gardner’s office and Gardner told him he did not know who owned the property, and advised him that he had better search the records and see. Hasty employed counsel to look up the title, and was advised that Merrill had given the complainant an agreement by which she had the privilege of purchasing upon certain conditions within a specified time, but that the time had nearly expired. The testimony from complainant and her husband is that a tender had been made of $6000, to Merrill through an alleged agent of Merrill, two days before the expiration of the time named in the obligation, but it was not accepted by the party as he claimed that he was not Merrill’s agent; also, that on the 16th of June, the day before the deeds to Hasty were executed, They called at Gardner’s office and notified Gardner and Hasty that complainant had changed her mind and would not sell for the sum offered by Hasty. — 334 — This is denied by Hasty. However, the next morning,'June 17, Merrill and Hasty met at Proctor’s office, and from there went to an attorney’s office and Merrill delivered the deed to Hasty. While they wore there, and after the Merrill deed had been passed and the money paid, as claimed by Hasty, but before the deed from Proctor and Lane was delivered, the complainant and her husband came in and forbade the sale of the property. Subsequently, Hasty took the deed from Proctor and Lane, paying the former $935. The respondent claims that nothing was said to him in reference to complainant having a writing from Lane, or having any interest in the property, except what was disclosed by the records, but that he kept $132.31, the balance of the $7250 after satisfying the Merrill claim of $6182.69, and Proctor’s claim of $935, for the complainant and offered to pay it to her. This is his account of the transaction in brief. The complainant and her husband, on the other hand, testify that the sale was forbidden before the Merrill deed was passed. From the evidence and circumstances surrounding the transaction we think the respondent must have had such notice of the claim of the complainant under the obligation from Merrill as to defeat the claim which he sets up of being a bona fide purchaser without notice, and, therefore, he must be held, so far as that instrument is concerned, to have taken only the rights of his grantor, viz: that of an equitable mortgagee. The respondent admits that the complainant forbade the transfer of the property to him before the deed from Proctor and Lane had been delivered to him. His rights acquired under that deed would certainly be acquired with notice of complainant’s interest, or such notice as would put him upon such inquiry that he could have learned what her interest was if he had been disposed ; and hence his claim against her under this deed can be only such rights as they held in the premises,— rights of second mortgagees. The respondent admits that on the morning of June 17, 1886, when the deeds were passed, he met complainant’s husband and notified him that he had learned that Merrill, Lane and Proctor had some claim upon the property and that he should have to pay — 335 — their claims before he could get a good title, alid showed him the figures. The complainant and her husband both assert that Hasty was notified, the evening before the deeds were passed, that she had changed her mind about the sale of the property and that she wanted to have her home and redeem it, and if he would loan her the money she would give him the preference in regard to the sale of it. Taking all the transactions together and from all the evidence, we feel satisfied that the respondent must have had either actual knowledge of the complainant’s rights in the property, or certainly such knowledge of the circumstances and facts as ought to have put him upon inquiry. The respondent’s title to the property was acquired by quitclaim deeds from Merrill, Proctor and Lane. In some courts it is held that such an instrument of conveyance does not make the grantee a bona fide purchaser without notice, (Baker v. Humphrey, 101 U. S. 494,) but in this State we have not gone to that extent, and it is held to be a circumstance only bearing upon the question. Knapp v. Bailey, 79 Maine, 195, 205; Mansfield v. Dyer, 131 Mass. 200. Actual knowledge is not necessary. It is only necessary that' a party should have actual notice of the trust. And actual notice as used in this connection does not necessarily mean actual notice of the fact itself, but notice of facts which would or ought to put him upon inquiry in reference to it. The rule is thus stated by Bispham in his work on equity, on page 330 : "He is bound, if circumstances point out a path, to investigate, to follow it. If he makes no inquiries, the presumption 'is that he has improperly turned away from the knowledge of the true state of the case, and he is, therefore presumed, as a conclusion of fact, to know what he might have informed himself of.” And in the case of Knapp v. Bailey, supra, where this principle was directly before the court, the principle is so clearly stated that its application seems appropriate to the case under consideration. In the course of the opinion Peters, C. J., — 336 — says : "The doctrine of actual notice implied by circumstances (actual notice in the second degree) necessarily involves the rule that a purchaser before buying should clear up the doubts which apparently hang upon the title, by making due inquiry and investigation. If a party has knowledge of such facts as would lead a fair and prudent man, using ordinary caution, to make further inquiries, and he avoids the inquiry, he is chargeable with notice of the facts which by ordinary diligence he would have ascertained. He has no right to shut his eyes against the light before him. He does a wrong not to heed the 'signs and signals’ seen by him. It may be well concluded that he is avoiding notice of that which he in reality believes or knows. Actual notice of facts which, to the mind of a prudent man, indicate notice, is proof of notice.” Under all the circumstances of the case, as disclosed by the evidence, we are satisfied that the respondent had such notice of the rights of the complainant in the property as ¿stops him from claiming the protection afforded to a bona fide purchaser without notice, such noticé as estops him from claiming any other rights than those of a mortgagee in possession, and leaves the complainant the right to redeem the premises from the mortgages. The case shows that the respondent built a double house partly upon these premises and partly upon premises adjoining, the dividing line between the two lots coinciding with the partition wall between the two tenements. In the statement of the'account of the amount due on the mortgages is he entitled to an allowance on account of this house so far as it is upon the mortgaged property ? This house was commenced about two years after the respondent bought Merrill’s interest and just prior to the time this bill in equity was filed. He had bought on the 17th of June, 1886, an equitable mortgage, together with such interests as Proctor and Lane had, with notice of the complainant’s rights in the premises and of the character of her title in the same. Four days after this purchase, June 21, 1886, this complainant through her attorneys caused a demand in writing to be served upon him — 337 — for an account under the mortgages. Within four days from the time of his purchase he not only had notice but actually knew that this complainant claimed that his title was only that of a mortgagee in possession. Even if he did not know her precise rights he had knowledge of facts that were sufficient to put him upon inquiry. Instead of having reason to believe that he was the absolute owner, he had every reason to believe that he was not, and could have readily learned his precise status to the property and the rights of the complainant had he seen fit so to dp. He could have easily protected himself. Foreclosure was open to him, and after foreclosure no one could dispute his rights as absolute owner. This he did not do. He preferred to take the chances of the complainant’s redeeming. He knew', or ought to have known, had he exercised reasonable prudence, that he was only mortgagee of the premises, and that he had no right to add $3000 to the burden of redeeming the property, the cost of a new house that w’as neither necessary to the preservation of the proper!}' nor built with the consent of the mortgagor. It is a well established rule that the mortgagee will not be allow’ed for permanent improvements in the way of new structures not necessary for the preservation of the property and made without the consent of the mortgagor. He is entitled to allowance for all improvements and repairs necessary for the preservation of the estate, or to make the premises tenantable, but further than this he cannot go at the expense of the mortgagor without his consent. Ruby v. Abyssinian Society, 15 Maine, 306; Pierce v. Faunce, 53 Maine, 351; Sandon v. Hooper, 6 Beavan, 246; 2 Jones on Mortgages, § 1126 ; Am. & Eng. Encyl. vol. X, "Improvements.” If the rule were otherwise it would be subject to great abuses, and would increase the difficulties in the way of the right to redeem, and w'ould oftentimes be resorted to by unscrupulous mortgagees disposed to take advantage of the necessities of the mortgagor, as a means of defeating his power to redeem. There are exceptions to the general rule as above stated ; (1) — 338 — ¡is where improvements have been made by the mortgagee under a bona fide but mistaken supposition that he was the absolute owner, and that the equity of redemption had become barred ; or (2) where the mortgagee had reason to believe from the form of his conveyance or the circumstances of his purchase, that he was the absolute owner. McSorley v. Larissa, 100 Mass. 270; 3 Pom. Eq. §1217, note 1. But the case at bar does not fall within either of those exceptions. By taking the most ordinary precaution, the respondent could have readily ascertained what his title was and what his rights were. Guckian v. Riley, 135 Mass. 71, 73. A court of equity as a general rule will not relieve against the consequences of mere ignorance of law. Bispham on Eq. § 187. Nor is this a case where the complainant has slept upon her rights and in silence seen the respondent make valuable improvements without objection, as in Morgan v. Walbridge, 56 Vt. 405. She was active in asserting her rights from the beginning. From the time when the negotiations with the respondent were progressing until she filed her bill, she was active, vigilant and persistent in claiming her rights and in obtaining a recognition of them by the respondent. Nevertheless, he persisted in refusing to recognize her rights aud in acting in defiance of them, even after forbidden, and after a legal demand for accounting had been served upon him immediately after the purchase. It would be inequitable now to oblige her to assume the burden of permanent improvements made by the respondent with full knowledge of her claims and in defiance of her protests. In fact, it might practically in effect deny her the right to redeem. The equities in this case are with the complainant, and in stating the account the permanent improvements in the erection of the new house should not be allowed. The exceptions must be overruled. The rule is, that the complainant can discontinue as to parties upon payment of costs; or without, if they are not claimed by the respondent. Mason v. York & C. R. R. 52 Maine, 82, 107. — 339 — The decree should be that the bill be sustained, that the respondent be ordered to render an account as mortgagee in possession, in accordance with this opinion, that the cause be sent to a master to determine the amount due to the respondent. Further decrees can be made on the coming in of the master’s report. Bill sustained with costs.