Hickox v. Lowe

Field J., delivered the opinion of the Court Terry, C. J., concurring. The principal question to be considered, for the determination of the appeal in this case, is whether the conveyance from Hick-ox to Lowe, and the agreement to re-convey, executed by Lowe to Hickox, taken together, constitute a mortgage. The appellant insists that the two instruments show a conditional sale, and the respondent that they constitute a mortgage. Both instruments refer to the same property, hear date the same day, are executed before the same witnesses, and are acknowledged-before the same officer, and were filed for record together. The one is, in form, an absolute conveyance by Hickox of the mining-claim for the consideration of $4500 j and the other is an agreement by Lowe to re-convey the same property upon the payment, at any time within from two to four months thereafter, of the said sum of $4500, with- $300 per month for its use, and all expenses incurred in taking charge of the claim, and to apply its proceeds, after deducting the expenses of its charge, to the payment of the $300 a month, and any excess to the payment of the said sum of $4500. The consideration for the conveyance was a precedent debt, on the part of the grantor, to Lowe, and the solution of the question under consideration depends upon the fact whether this debt was discharged by the conveyance or subsisted afterwards. A mortgage is a security for a debt, and, 'of course, the relation of creditor and debtor must exist between its different parties. If the debt continued after the execution of the conveyance, the instruments constitute a mortgage; if, on the other hand, the debt was extinguished by the conveyance, the agreement to re-convey must be regarded as an independent contract, in no" respect affecting the absolute character of the original instrument. This is the true test by which to determine the character — 207 — of transactions in cases like the present. “ If the deed or conveyance be accompanied,” says Vice-Chancellor McCoun, in Robinson v. Cropsey, (2 Edwards, 143,) “ by a condition or matter of defeasance expressed in the deed, or even contained in a separate instrument, or exist merely in parol—let the consideration for it have been a pre-existing debt or a present advance of money to the grantor—the only inquiry necessary to be made is, whether the relation of debtor and creditor remains and a debt still subsists between the parties. For if it does, then the conveyance must be regarded as a security for the payment, and be treated in all respects as a mortgage.” The only difficulty which arises in cases like the present, is to ascertain the fact whether the debt subsists or has been extinguished ; and where there is doubt on this point, Courts of Equity lean in favor of the right of redemption, and construe instruments as constituting a mortgage, rather than a conditional sale. (Page v. Foster, 7 New Hamp., 392; Skinner v. Miller, 5 Litt., 392; Secrest v. Turner, 2 J. J. Marshall, 171; Bright and Taylor v. Nagle, 3 Dana, 252.) There is an allegation in the answer of the defendant, Lowe, that the conveyance was taken in payment and satisfaction of the precedent debt; but no attempt was made to support the allegation by any evidence other than that afforded by the instruments themselves. The provision in the agreement for a re-conveyance, upon the payment of the precise amount of the consideration of the conveyance, and $300 a month for the use thereof, is a circumstance favoring the conclusion that the debt subsisted. The term use, in this connection, means interest. The payment of the consideration, with a stipulated rate of interest, constitute the usual condition inserted in mortgages, with an additional clause that upon its performance the conveyance shall be void, and the estate conveyed determine. The fact that Lowe agrees to apply the proceeds of the claim, after deducting the expenses of its charge, to the payment of the monthly interest, and any excess upon the principal sum, is a very strong circumstance to show the existence of the debt; and when taken in connection with the other circumstance above stated, it is difficult to resist the conclusion that the debt was not extinguished by the conveyance, and that the transaction was intended as a mortgage. In his ninety-sixth note to Co. Litt., Butler mentions, as one of the principal circumstances tending to prove that a conveyance was intended as a security rather than an absolute sale, that the grantee, instead of receiving the rents for his own benefit, accounts for them to the grantor, -and only retains the amount of the interest. If the sale were absolute, Lowe was the owner of the property — 208 — from the delivery of the deed, and, as such, entitled to the entire proceeds. The agreement to apply such proceeds is inconsistent with the hypothesis that the grantee was the absolute owner. On the other hand, it implies that the grantor retained some interest, by which he was entitled to the proceeds, other than that which would naturally grow out of an independent contract to re-convey. In Kelleran v. Brown, (4 Mass., 443,) the plaintiff read in evidence an absolute conveyance. The defendant, to prove the conveyance a mortgage, offered the following contract: “I, Edward Kelleran, the subscriber, having purchased of Timothy Manly a lot of land lying in said Thomaston, containing fifty acres, (being the lot which the said Manly purchased of Ebenezer Bly,) for which I have received a warranty deed; but if the said Manly shall repay me the sum of four hundred dollars, with the lawful interest on the same, in one year from the date hereof, I then will re-convey the same lot of land to him. “ [Signed] Edward Kelleran.” The Court, per Parsons, C. J., said: "In chancery, wherever it appears from written evidence that land is conveyed as a pledge to secure the payment of money, the conveyance will be treated as a mortgage, in whatever form the land was pledged. And if we had all the equity powers of a Court of Chancery, I should be satisfied that the conveyance in this case, with the written contract for re-conveyance, would be deemed in equity a mortgage, and that the grantee would be allowed to redeem.” This case is very similar, in many respects, to the case at bar. Aside from the agreement of Kelleran, there was no collateral obligation, or any evidence whatever of any loan, or of any existing debt; yet it was held that a Court of Chancery would regard the conveyance as a mortgage, from the agreement to re-convey on the payment of $400, and interest. In the case at bar, not only does a similar agreement exist, but with the additional circumstances that the consideration of the conveyance is the precise amount to be paid, with interest and expenses, and that the grantee is to apply the proceeds of the claim upon the interest and principal sum. In Rice v. Rice, (4 Pick., 349,) it appeared that on the 19th of October, 1807, one “Nathan Dewing, being indebted to Abel Perry, senior, in the sum of $400, conveyed to him the land described in the petition, and on the same day Perry executed and delivered to Dewing a bond, conditioned to re-convey the land in two years, provided Dewing should in that time pay him that sum, with interest.” The Court, per Parsons, C. J., speaking of these papers, said: "It is manifest that the deed to Perry, senior, and the deed of defeasance made by him, constituted a mortgage. There had been no foreclosure, nor even an entry by the mortgagee for condition broken. It is not the less a mortgage — 209 — because there was no collateral personal security for the debt at the time.” In Eaton v. Green, (22 Pick., 526,) the complainant had conveyed to one Lincoln certain real estate for fifty-six dollars, and taken the same day an agreement, not under seal, to re-convey, by a quit-claim-deed, the property upon the payment of the same sum within ten days; and the Court said : “ There can be little doubt that the conveyance to Lincoln, with his written contract of re-conveyance, must be deemed in equity a mortgage. The only doubt is, whether it is to be construed as a sale, with an agreement to re-purchase within a given time, or an equitable mortgage. But whenever it appears doubtful whether the parties intended a mortgage, or a sale with an agreement to re-purchase, Courts of Equity incline to consider the transaction as a mortgage. So, where a conveyance is made to secure a debt, and the debt continues to subsist, it is deemed in equity a mortgage, and not a conditional sale.” In Colwell v. Woods, (3 Watts, 188,) it appeared in evidence that one Lindell and his wife gave an absolute deed to one Woods for $9,500, and took from him at the time a bond for a re-conveyance, upon payment within one year of the same sum, with interest and the expenses incurred in consequence of the purchase. The Court, per Kennedy, J., held that the deed and bond were to be considered as one instrument, as they were both constituent parts of the same agreement, and were executed at the same time; that if the bond, instead of being in a separate instrumen L, had been embodied in the deed in the form of a clause of defeasance, the deed would have been a mortgage, and that the two instruments must be regarded precisely in the same point of view and of the same effect as if they had been joined together; and the fact that the consideration mentioned in the conveyance was to be repaid, with interest, was a circumstance tending to show that it was in reality a loan. In Kerr v. Gilmore, (6 Watts, 405,) a warranty deed of three-eighths of a tract of land had been given for the consideration of $430. On the same day, the grantee executed to the grantors an agreement under seal, which, after reciting the purchase and consideration, proceeds as follows: “ Mow, provided the aforesaid Armstrong and Gilmores, (grantors,)” do refund me my money, with interest, and pay me for all trouble and expense I may be at respecting said land, within one year from this date, then and in that case I oblige myself to convey back the said three-eighths of said land,” etc. " The Court, after referring to several authorities, said : ■“ The cases, however, seem to admit the possibility of a deed absolute on its face, and a defeasance agreeing to re-convey, if the money be j>aid on a certain time, and that the latter may be unavailing, unless the money be paid at the time specified. This, however, can, as I apprehend, only — 210 — occur where the contract and conveyance were clearly for an absolute sale, and the agreement to re-convey a subsequent and distinct matter, not in the contemplation of the parties when the sale was made and the deed delivered. In such case, the agreement to re-convey will amount only to an executory agreement to sell, on which the covenantee may have an action. * * Where the deed and defeasance are of separate and different dates, they may amount to a mortgage, and nothing more. When they are of the same date and executed at the same meeting of the parties, before the same witnesses, they must be a mortgage, and only a mortgage, or there will be no more mortgages.” The cases we have cited may be subject to the observation that they go very far towards breaking down the distinction between mortgages and conditional sales. It may be questioned, perhaps, whether a conveyance, with an attendant agreement for a re-conveyance upon the payment of the amount of the consideration and interest, constitute prima facie a mortgage. The better rule, gathered from the most maturely considered cases, would seem to be that such instruments, taken together in the absence of other circumstances, do not, of themselves, create a mortgage, but only a defeasible purchase, which should bo narrowly "watched, lest it may be made the means of converting what was in fact intended as security, into an absolute purchase. The cases cited show the leaning of Courts of Equity, and it is undoubtedly true that slight circumstances will determine the transaction to be one of mortgage, when that can be done without violence to the understanding of the parties. In the case at bar, the'terms of the agreement naturally lead to the conclusion that the transaction was intended as secxirity for the debt, and clear and decisive proof would be requisite to overcome their import. There is no force in the objection that it does not appear upon the face of the papers that there was any personal obligation on the part of Hickox to pay the amount of the principal and interest. Such obligation would only enable the mortgagee to look to the mortgagor for any deficiency remaining after the application of the proceeds of sale of the premises to the payment of the sum secured. In the case where the question has arisen whether the transaction was one of purchase or of security, there could not have been a personal obligation distinct from the conveyance, as such fact would have determined conclusively the character of the transaction. The only object in taking a personal obligation is to provide against the contingency that the proceeds arising upon the sale of the property may not be sufficient to satisfy the debt. Mo end could be obtained by requiring such obligation where the value of the property pledged greatly exceeds the debt. It is in — 211 — these cases that the personal obligation is likely to be omitted, and it is in these cases that the equity of redemption is evidently much the strongest. (Brown v. Dewey, 1 Sand. Ch., 69, and cases there cited; opinion of Kennedy, J., in Kerr v. Gilmore, 6 Watts, 405.) The complaint alleges a tender of the amount due, and the defendant, Lowe, in his answer, does not deny the allegation, but admits that he refused the money. Judgment affirmed.