Dutton v. Warschauer

Field, C. J. delivered the opinion of the Court Cope, J. and Norton, J. concurring specially. The action of ejectment must be brought against the actual occupant of the premises, if there be one. (Garner v. Marshall, 9 Cal. 268.) If such occupant be a tenant of another, the landlord may appear and defend in his name, or be substituted in his place. But such appearance or substitution should be entered of record, and only allowed upon notice to the parties. After it is once properly made, the tenant cannot interfere with any subsequent proceedings to the prejudice of the landlord. In the present case the defense was made by the landlord at the request of the tenant. — 620 — Judgment having passed against the tenant, the landlord took an appeal in his name. Thereupon the tenant executed a release of errors, and upon it the plaintiff moves for a dismissal of the appeal. This motion must be denied. The right of the landlord to conduct the proceedings, after having been once allowed to appear and defend in the tenant’s name, extends to the final disposition of the case, and is not limited to the proceedings in the lower Court. (Kellogg v. Forsyth, 24 How. 186.) It is true, no order was entered allowing the landlord to appear and defend, but as the defense was in fact conducted by him to judgment at the request of the tenant, it is too late .to object in this Court for the want of such order; if it were otherwise we would allow the order to be entered nimc pro tunc. The plaintiff and the landlord of the defendant both deraign their title from a common source—from Finley, Johnson & Austin. These parties owned the premises in fee on the thirteenth of April, 1850. On that day they executed a mortgage thereon to one Meaeham, to secure their bond to him for $12,000, payable on the twelfth of June following. The mortgagors made default in the payment of the bond, and by permission of one of them Meaeham went into possession of the premises. Whilst he was in possession the mortgagors executed to him a power in terms authorizing him to sell and convey the premises in his own name. In pursuance of the terms of this power, he sold and conveyed the premises to one Finley, for the consideration of $7,800. The deed bears date July 6th, 1850, and recites the power. Through this deed the landlord of the defendant traces his title, and the principal question for determination relates to the sufficiency of the title thus acquired to resist a recovery of the plaintiff, claiming through subsequent deeds, taken with only such notice of the landlord’s interest as could arise from the possession of his tenant. The defendant takes two positions: first, that the legal title to the premises passed by the deed; and second, if this be not sustained, then that an equitable title was created, which, having been followed by possession, is sufficient to defeat the action. The transfer of the legal title is asserted on two grounds : one, that Meaeham, as mortgagee in possession after condition broken, — 621 — was clothed with the fee; and the other, that he was invested with authority to convey the whole estate by the special power, from the mortgagors. The first ground proceeds upon the common law doctrine of mortgages, which does not prevail in this State. At common law, a mortgage is considered as a conveyance of a conditional estate, which becomes absolute upon breach of the condition. But “ in this State,” as we said in Goodenow v. Ewer, (16 Cal. 467) “ a mortgage is not regarded as a conveyance vesting in the mortgagee any estate in the land, either before or after condition broken. It is regarded, as in' fact it is intended by the parties, as a mere security, operating upon the property as a hen or incumbrance only. Here, the equitable doctrine is carried to its legitimate result. Between’ the view thus taken and the common law doctrine—that the mortgage is a conveyance of a conditional estate— there is no consistent intermediate ground. In those States where the mortgage is sometimes treated as a conveyance, and at other times as a mere security, there is no uniformity of decision. The cases there exhibit a fluctuation of opinion between equitable and common law views of the subject, and a hesitation by the Courts to carry either view to its legal consequences. In McMillan v. Richards (9 Cal. 365) we had occasion to consider the subject at great length, and to observe upon the diversity existing in the adjudged cases. We there asserted, what had previously been held in repeated instances, the equitable doctrine as the true doctrine respecting mortgages, and have ever since applied it under all circumstances. (See Nagle v. Macy, 9 Cal. 426; Haffley v. Maier, 13 Id. 13 ; Koch v. Briggs, 14 Id. 256; Clark v. Baker, Id. 612; Johnson v. Sherman, 15 Id.) When, therefore, a mortgage is here executed, the estate remains in the mortgagor, and a mere lien or incumbrance upon the premises is created.” The counsel of the defendant do not controvert the doctrine thus stated as applicable to mortgages executed since the Statute of 1851, but appear to consider that it was not intended to embrace mortgages previously executed. In this view they are only partially correct. The doctrine was established not merely from a — 622 — consideration of the provisions of the statute, but also from a consideration of the real object and intention of the parties in executing and receiving instruments of this kind. In truth, mortgages had long before lost, for nearly all purposes, their common law character as conveyances, and been regarded as transactions by which security was furnished by a pledge of real estate for the payment of debts. Courts of Equity from an early date had so regarded them, and Courts of Law, by “ a gradual and almost insensible progress,” as Kent observes, had adopted the equitable view of the subject, though, we may add, not always carrying the equitable doctrine to its logical result. (4 Kent, 160.) The equitable doctrine had prevailed to such an extent, that in nearly all the States the interest of the mortgagee was treated by the Courts of Law as real estate only so far as it was necessary for the protection of the mortgagee, and to give him the full benefit of his security. Thus, in Ellison v. Daniels, (11 New Hampshire, 274) the Court said: “ The right of the mortgagee to have his interest treated as real estate extends to and ceases at the point where it ceases to be necessary to enable him to protect and to avail himself of his just rights, intended to be secured to him by the mortgage. To enable the mortgagee to seE and convey his estate is not one of the purposes for which his interest is to be treated as real estate. There is no necessity that it should be so treated for that purpose. That can be equally well effected in the usual way of assigning and transferring the debt secured by the mortgage. The mortgagee is secured and fortified in all his rights without the adoption of any such principle, and the plain purposes of a mortgage forbid it. The object of the mortgage is the security of the debt; and it is obvious reason that he only who controls the debt should control the mortgage interest.” In that case the demandant was mortgagor, and the tenant claimed title under the mortgagee by various mesne conveyances executed after the law day, and it was held, in accordance with the views expressed in the above citation, that nothing passed to the tenant. So, in Jackson v. Willard, (4 Johns. 41) it was held that lands mortgaged could not be sold under execution against the mortgagee, though the estate, according to the terms of the instrument, had become absolute. And in — 623 — Johnson v. Bronson, (19 Johns. 325) a mortgagor in fee sustained ejectment against the grantee of the mortgagee, the Court holding the assignment of the interest of the mortgagee in the land, without an assignment of the debt, a nullity. (See also Ewer v. Hobbs, 5 Met. 3; Howard v. Robinson, 5 Cush. 123, and Hilliard on Mort., vol. 1, ch. 13, and cases there cited.) It was from a consideration of the character of the instrument, as settled by these decisions and the modern cases generally, that we were induced to adopt the equitable doctrine as the true doctrine ; and it was from a consideration of the provisions of the statute which led us to go beyond those cases, and carry the doctrine to its legitimate and logical result, and regard the mortgage as a security under all circumstances, both at law and in equity. Mortgages, therefore, executed before the statute, can only be treated as conveyances when that character is essential to protect the just rights of the mortgagee; mortgages since the statute are regarded at all times as mere securities, creating only a lien or incumbrance, and not passing any estate in the premises. (Fogarty v. Sawyer, 17 Cal. 592; Lord v. Morris, 18 Id. 487, 488.) As the mortgage is a mere security, it is plain that default in the payment of the debt secured cannot change its character. Payment after default will operate as an extinguishment of the lien equally as payment at the maturity of the debt. “ Indeed, in those Courts, with some few exceptions, where the common law view of mortgages is the most strictly adhered to, payment of the debt,” as we said in McMillan v. Richards, “ is held to revest the estate without a reconveyance in the mortgagor, though it is difficult to see upon what principle. If the mortgage is a conveyance after default, it must be equally so before; the only difference being that, in the one case, the estate conveyed is conditional, and in the other, absolute. If, after default, the estate be absolute, it is not easy to perceive how the grantee can be divested without deed under the Statute of Frauds; and yet, according to the general doctrine of the modern cases, payment has that effect.” (9 Cal. 411.) This general doctrine is inconsistent with the theory that the mortgage is a conveyance after default, but is consistent with the theory that it is only an instrument of security. — 624 — Was the interest of the mortgagee affected by the fact that he was in possession of the premises ? According to the language of many of the adjudged cases in other States, the taking of possession after condition broken is considered as in some way enlarging the rights of the mortgagee. Thus, in Hew York, he is said to have before possession only a chattel interest, but- after possession taken to have the title of the mortgagor. For this reason the mortgagee of a term in possession is there held liable as assignee upon the covenants of a lease, but is not held liable if out of possession. (Astor v. Hoyt, 5 Wend. 603.) Upon this point the observation of Mr. Chief Justice Hosmer of the Supreme Court of Connecticut, in Clark v. Beach, (6 Conn. 161) appear to us to have great force, though he differed with his associates. In that case a mortgage deed was admitted in evidence to sustain the defendant’s plea of title. The mortgagee was in possession, and the law day had expired. The Chief Justice was of opinion that the deed should have been rejected; and in reply to the statement on the argument that the mortgagee’s possession had enlarged his title, said: “ In my judgment, a more gratuitous assertion cannot be made. There is nothing in the nature of this fact per se that adds to the mortgagee’s title, or the title of any other person. Before entry, the grantee of land, except where possession is requisite to commence a right, has title not enlarged by subsequent occupation; as such occupation confers not any right, but merely gives the enjoyment of a right antecedent. If the supposition, which neither principle nor analogy countenances, were true, that the possession of the mortgagee gives him seizin of the freehold, he would always be seized, for he would never fail to enter. After possession, just as before, the estate mortgaged is a pledge only; the relation of creditor and debtor exists; the equity of redemption is unimpaired; or, if the law day has not elapsed, the payment of the debt annihilates all the rights of the mortgagee, and everything is in statu quo. All this is true until foreclosure is effected. Then it is that the mutual relation of the parties becomes changed. There is no longer a mortgage or pledge, a creditor or debtor, a mortgagor or mortgagee, or an. equity of redemption. The mortgaged premises, by a legal appropriation thereof, are lost — 625 — to the mortgagor forever; and the mortgagee has become tenant in fee simple.” But it is not necessary to argue the point upon principle, for it has been expressly decided in this Court. In Johnson v. Sherman (15 Cal. 287) an assignment was executed to the defendant of a leasehold interest in certain premises as security for a loan of money. The assignment was therefore in fact a mortgage. The defendant took possession, and continued in possession after the loan made had matured, and the question presented was whether, as mortgagee of the term in possession, he was liable upon the covenants of the lease. According to the authorities of Mew York, to which we have already referred, a mortgagee of a term out of possession is not thus liable, because he has then only a chattel interest; but in possession is held liable, because he is then considered to have the title of the mortgagor. The point for determination, therefore, was whether in this State the fact of possession affected the interest of the mortgagee. The Court held that it did not. After stating that default in payment did not change the character of a mortgage, the Court said: “ Nor can possession under the mortgage affect the nature of the mortgagee’s interest; it does not abridge or enlarge his interest, or convert what was previously a security into a seizin of the freehold; it does not change the relation of creditor and debtor, or impair the estate of the mortgagor, but leaves the rights and interests of the parties exactly as they existed previously. Possession taken by consent of the owner, or by contract with him, may confer rights as against third parties, but they are independent and-distinct from any rights springing from the mortgage, from which they derive no support.” It follows, from the views we have expressed, that Meacham, as mortgagee after condition broken, whether in possession or out of possession, could not convey the legal title. He did not hold it. He held, by virtue of the mortgage, only a lien upon the premises, and that was a mere incident of the debt. His deed, therefore, as mortgagee alone, without a transfer of the debt, passed nothing. (See cases cited above.) Although a mortgage in this State of itself confers no right of possession, yet, when possession is taken by the mortgagee after — 626 — condition broken, by consent of the mortgagor, it will be presumed, in the absence of clear proof to the contrary, to be with the understanding that the mortgagee is to receive the rents and profits, and apply them to the payment of the debt secured. There is, indeed, no other good reason why the mortgagee should be let into possession in preference to any other party. And unless a limitation to the period of possession is fixed at the time, it will be considered as extending until the satisfaction of the debt. Having thus entered, the mortgagee can hold against the mortgagor, and all others, until such satisfaction is obtained. And though the legal title to the premises is not held, and as a consequence cannot be conveyed by the mortgagee, the temporary possessory right thus acquired may be transferred. The transferree will be substituted to his position, and be subjected to the" same liabilities—that is to say, the rents and profits received by the transferree will be treated as received by the mortgagee, and applied to the discharge of the debt. (Smith v. Smith, 15 N. H. 55.) In the present case the mortgagee went into possession by consent of one of the mortgagors, and it would seem without objection from the other mortgagors ; but he did not convey or attempt to convey any possessory rights which he may have thus acquired, or his interest generally. His deed only purports to transfer such interest as he could convey as mortgagee, and by virtue of the power already referred to from the mortgagors. The question then arises as to the effect of the conveyance as executed under the power. The testimony of the mortgagee as to the contents of the power, for the instrument itself was lost, shows that in terms it authorized him to sell and convey the premises in his own name and apply the proceeds to the payment of the debt, but it fails to show positively that the power was under seal. The mortgagee testifies that he has no distinct recollection whether the power was under seal or not, but thinks that it was sealed, as he was in the habit of putting a seal to all instruments connected with the transfer of real estate. He was an auctioneer at the time, and frequently sold real estate. The presumption from this habit, if any presumption could be indulged at all, would be that the power in question was sealed. The evidence clearly does not war — 627 — rant the finding of the referee that it was not under seal. But as the case must go hack for a new trial upon the last proposition of the appellant, it is unnecessary to express any opinion, whether if the power were in fact under seal the conveyance from Meacham in pursuance of it was sufficient to pass the legal title. Assuming that it was not under seal, and that therefore it was insufficient to authorize the execution of the conveyance of the fee, it was sufficient to authorize the execution of a contract of sale. And the instrument in question, reciting the sale, is a sufficient “ note or memorandum” of such contract; in other words, if the deed executed was inoperative as a conveyance, it was good as an agreement to convey. And the purchaser having paid the purchase money, and entered into possession of the premises, a Court of Equity will protect him and parties claiming under him against subsequent purchasers with notice. This protection the Court will afford by enjoining any interference with the premises on the part of the adverse claimants, or by directing a conveyance of the title from them, or in such other manner as will most effectually quiet the possession. The inquiry then arises, whether the plaintiff purchased the legal title—treating the instrument executed by Meacham as a mere agreement to convey—with notice of the equity of the landlord of the defendant. The plaintiff traces his title by conveyance from the surviving assignee of Finley, Johnson & Austin, and from the surviving member of the firm. On the fifteenth of July, 1850, Finley, Johnson & Austin, being unable to pay their debts, made a general assignment of all their real and personal property to Spence & Bowie upon certain trusts. On the second of March, 1859, Johnson, the sole surviving member of the firm of Finley, Johnson & Austin, executed a deed of the premises in controversy to the plaintiff. On the twenty-first of March, 1859, Spence, the sole surviving trustee under the assignment, also executed a deed of the same premises to the plaintiff. At the time the assignment in July, 1850, was made, Finley, the purchaser from Meacham, was in the open, notorious, and exclusive possession of the premises; and at the time the two deeds were executed to the plaintiff the defendant was in like possession. There is no doubt that this possession was sufficient to put the plaintiff upon — 628 — inquiry as to the interest, legal or equitable, which the defendant held. (Lestrade v. Barth, 19 Cal. 660 ; Hunter v. Watson, 12 Id. 404; Pritchard v. Brown, 4 New Hamp. 404.) But when the plaintiff ascertained that the defendant was a tenant under Wheelock, was he bound to extend his inquiry to the interest of the landlord — in other words, was the possession of the tenant notice of the landlord’s title ? In Smith v. Dall (13 Cal. 510) this question was answered in the negative by Mr. Chief Justice Terry, but as there was only a special concurrence in the judgment in that case, the opinion filed by him is not an authoritative statement of the law binding upon us. The opinion was based upon a dictum of Sugden, and observations in Flagg v. Mann (2 Sumn. 555) where Mr. Justice Story, in adopting the view of Sugden, substantially admits that there is no authority for the position, except the great experience and acknowledged ability of the author. To our minds a persuasive argument against the doctrine is found in the statement by Sugden of the consequences to which it would lead. “ Therefore,” he says, “ if a person equitably entitled to an estate let it to a tenant who takes possession, and then the person having the legal estate sells to a person who purchases bona fide, and without notice of the equitable claim, the purchaser must hold against the equitable owner, although he had notice of the tenant being in possession.” (2 Sug. on Vendors, 558.) On the other hand, the opposite doctrine is asserted or assumed to be law in numerous cases. (Pitman v. Gates, 5 Gilm. 186; Baldwin v. Johnson, N. J. Ch. 441; Diehl v. Page, 2 Greens. Ch. 143; Hanley v. Morse, 32 Maine, 287; Vezio v. Parker, 23 Id. 171.) And it is not easy to give to the fact of possession any influence as notice without making it notice of all such matters as a prudent man, desirous of purchasing the property, would naturally inquire about respecting the title. Ascertaining that the possession of the occupant is that of a tenant, he would in the ordinary course of things proceed to inquire as to the title of the landlord. The judgment must be reversed and the cause remanded for further proceedings; and it is so ordered.