Ives v. Stone

Carpenter, J. This is a suit to foreclose a mortgage. The mortgage consisted of an absolute deed, and a defeasance in writing signed by the grantor, describing the debt intended to be secured by the deed, and providing for a re-conveyance of the property upon the payment of the debt. The deed was recorded; the defeasance was not. Rubenia — 455 — McGilvray, a creditor and one of the defendants, attached the property as the property of the grantors. She was made a defendant in the foreclosure suit and demurred to the complainant for the following reasons: “because, upon the facts therein set out, the deed of the said Sarah C. Stone to the said Hoadly B. Ives, being absolute upon its face, but in fact given and held as a mortgage, is void against this defendant’s attachment, and said attachment is a first lien upon that portion of said premises attempted to be foreclosed, which are subject to it.” The case is reserved for the advice of this court. In Griswold v. Pettibone, 4 Conn., 158, this court, after reciting the statute requiring deeds and mortgages to be recorded, says: “ It is the object of this law to prevent fraud and give security and stability to title. It results, unquestionably, that the condition of a mortgage deed must give reasonable notice of the incumbrances on the land mortgaged. * * And what is not of less importance, the incumbrance on the property must be so defined as to prevent the substitution of everything which a fraudulent grantor may devise to shield himself from the demands of his creditors.” In Stoughton v. Pasco, 5 Conn., 442, the court held that “ to render a mortgage valid as against strangers, it must give reasonable notice of the incumbrance on the land mortgaged.” The same point was decided in Shepard v. Shepard, 6 Conn., 37, and the principle thus enunciated was recognized in Crane v. Deming, 7 Conn., 387, Hubbard v. Savage, 8 Conn., 215, and Booth v. Barnum, 9 Conn., 286. These decisions fully justify the language of Williams, C. J., in North v. Belden, 13 Conn., 376, where he says: — “ Thus, it has been considered as settled, long since, that if an absolute deed is given with intent to secure a debt, such deed would be void as it respects bona, fide creditors, as it does not disclose the real nature of the transaction. It places the parties in a false position as it respects the public. It holds out the grantee as the real owner, when in fact the grantor is, or may be, the owner. It tends — 456 — to lull the creditors of both parties (as the case may be) into false security, and to conceal from them the real condition of their debtors.” It is idle to speak of this as an obiter dictum. It was appropriate and pertinent language to use in the case then before the court. The question was whether a note described in a mortgage as an absolute debt, but which was in fact given to secure a contingent liability, should be postponed to a subsequent mortgage, and the court held that it should be, notwithstanding the. fact that the contingent liability was paid to the full amount of the note, because the mortgage did not disclose the real nature of the transaction. It is equally idle to say that the principle thus expressed rested upon the authority of the cases cited from the state of New York; for it is apparent that the decision is independent of those cases. Immediately after the language quoted above the court adds: “In the laws of New York the same principle is recognized. Dey v. Dunham, 2 Johns. Ch. Rep., 182; James v. Johnson et al., 6 id., 417. And although the terms of the statutes of that state may vary from ours, the same object is kept in view.” In Hart v. Chalker, 14 Conn., 77, the court says: — “ Our recording system, in its spirit, requires that the record should disclose, with as much certainty as the nature of the case will admit of, the real state of the incumbrance upon the property. And all the authorities concur in this result, that reasonable notice of the incumbrance should be given by the record.” This principle has been uniformly adhered to. Accordingly it has been held that if the debt is a contingent one it must not be described as an absolute liability. North v. Belden, (supra) ; Rood v. Welch, 28 Conn., 157; Stearns v. Porter, 46 Conn., 313. The debt should be so described as that it will not be in ' the power of the parties, should they be fraudulently inclined, to bring within its protecting shield other debts. A mortgage should never be used as an instrument to conceal the debtor’s property. Hence it is not allowable -to describe the debt as larger than it actually is. If it does so it — 457 — operates as a fraud, for it covers up the debtor’s property and tends to deceive and mislead. Now this transaction, the defeasance being unrecorded, is contrary to the spirit of all these decisions. The record, so far from disclosing the true state of the title, shows it to be an absolute deed instead of a mortgage; it represents the grantee as the owner of the property, whereas the grantor owns it subject to the grantee’s debt, and the equity of redemption is concealed and placed apparently beyond the reach of creditors, while a secret trust exists in favor of the grantor. So far from describing the debt with reasonable certainty, the record is entirely silent on the subject, and places it within the power of the parties, by collusion, if they are so disposed, to set up any claim and for any amount as a substitute for the one really intended to be secured. If this transaction can be sustained as a valid mortgage against creditors, it will not only destroy all the benefits of the recording system as respects mortgages, but will enable the parties, by a change in the form of the mortgage, to convert the system itself into an instrument of fraud. It is claimed that Miss McGilvray did not give credit to the grantor till more than a year after the deed was given, that her attachment was not made until after the plaintiff had taken possession of the property, that she did not make her loan on the credit of the property and was not misled to her injury, that if she had reason to believe that the deed Avas a mortgage she was guilty of laches in not inquiring, and that under the circumstances there Avas no constructive fraud. The question before us is not one of fraud, nor of due diligence; nor is it a question whether, in this particular instance, a party has been misled or deceived. It is a question of the construction of the registry law — Avhat does it require ? Is it necessary that the defeasance should be recorded ? The plaintiff claims that the deed, taken in con nection with the defeasance, is a mortgage, and is seeking to foreclose it as a mortgage, and Ave must so treat it. The deed only was recorded. The defeasance, whioh is the con — 458 — dition of the mortgage, is not on the record. In the cases referred to in which the question was whether the record disclosed the real nature of the transaction, the court did not inquire into the' bond fides of the parties, nor whether there was due diligence or fraud. In those cases and in this,’ the question is one of public policy, as much so as in cases under the statute of limitations or the statute of frauds. The question is, what does the statute require ? and has it been complied with ? ' If it has, his security is good against every one; if it has not, it must be postponed to creditors. Again, the plaintiff says — “The absolute deed to Mr. Ives being on record and the plaintiff in possession, it was sufficient notice to put the defendant on inquiry, and she is not therefore a bond fide purchaser without notice.” The defendant is not in court as a purchaser from Mrs. Stone with notice of the plaintiff’s deed. She was a creditor ; as such she sought to collect her debt; she found this deed on record, and, on learning that it was intended by the parties as part of a mortgage, she attached the property on the ground that the whole mortgage was not recorded as required by law. When the question arises between two creditors as to the validity of a mortgage the matter of notice is not material. Suppose the deed had not been recorded at all, and she, with knowledge of the facts, had attached the property; can there be any doubt that she would hold in preference to the grantee? In such cases there is a material distinction between purchasing property voluntarily and paying money therefor, and attaching it to secure a debt. Creditors ordinarily stand on as high ground as bond fide purchasers without notice. The plaintiff further contends that the deed and agreement are not a mortgage in the ordinary sense — that they are in the nature of an equitable mortgage only, and that neither the statute nor any decision in this, state requires the agreement to be recorded; and that this distinction is recognizecf in this state and elsewhere. We do not pare to examine the decisions in the other states. In this state we — 459 — find no case between such a mortgagee and creditors, involving the construction of our registry law, where this distinction has been made — certainly none where there has been a decision to that effect. There may be eases in which the question as to the effect and scope of the registry act might have been raised but was not. In any such case the decision can hardly be regarded as an authority. A brief reference to the Connecticut cases cited to this point is all that is necessary. In Newbury v. Bulkley, 5 Day, 384, a debtor conveyed certain lands by an absolute deed to a part of his creditors. In a few days thereafter the grantees executed and delivered to the grantor a defeasance. Afterwards another creditor attached the property. He claimed that the deed and defeasance were fraudulent at common law. Neither the court nor the’ able counsel who argued the case alluded to the registry law, and the case does not even show that the defeasance was not recorded. Benton v. Jones, 8 Conn., 186, was an action of trespass involving title to land. The.land was deeded by a debtor to all of his creditors, but not in satisfaction of their claims. It was held, as against a creditor whose claim originated twelve years afterwards, that parol evidence was inadmissible in an action at law to prove that the deed was a mort gage ; that the deed was a voluntary one and good against subsequent creditors. The question now before us was not made. In Sheldon v. Bradley, 37 Conn., 324, a conveyance was made by an absolute deed, but which was intended in part to secure a debt and in part to defraud creditors. After the death of the grantor, on a bill by his administrator to set aside the deed, the Superior Court found that the deed was valid and vested a good title in the grantee. The grantee thereupon sold the property. In another suit by the administrator he was allowed to recover the money received above the amount of the mortgage debt. No question was made concerning the registry law. In Mead's Appeal from Probate, 46 Conn., 417, A by an — 460 — ■absolute deed conve3red land worth $5000 to B, to secure a debt of $1000, a separate defeasance being executed but not recorded. It was afterwards agreed between A, B and C, that O, who had other claims against A, should pay the debt to B, and should receive a conveyance of the land, which he was to hold as security for the amount paid to B, and also for his other claims. It was held that the transaction was not in fraud of the other creditors of A. A died insolvent. It was also held that .even if the conveyance to O was in fraud of the insolvent law, yet as it was not actually fraudulent' against creditors, the administrator could not set it aside for the benefit of creditors. It was claimed that the deed was void on the ground of fraud. It was not claimed that it was inoperative as a mortgage as to •creditors for the reason that the defeasance was not recorded, and the court did not pass upon that question. In some of these cases it is tacitty assumed that an absolute deed intended as a mortgage, the defeasance not being recorded, may operate as such,, not only as between the original parties thereto but also as against creditors, but in none of them was the point directly made and decided. In the other cases referred to the principle is directly and firmly settled that the condition of a mortgage deed must show with reasonable certainty the nature and amount of the mortgage debt, in order that the record may disclose as nearly as may be the true condition of. the title. Now it is impossible, consistently with this principle, to give effect, as a mortgage, and against creditors, to an absolute deed with a defeasance in writing or by parol, the defeasance not appearing on the record. The result to which we have come is that the complaint is insufficient in respect to Eubenia McGilvray and that her lien on the property has the preference. The Superior Court is advised accordingly. In this opinion the other judges concurred.