Lounsbury v. Norton

Andrews, C. J. Charles Lounsbury, the plaintiff, was on the 29th day of June, 1875, owner in fee of the farm of land described in the complaint. On that day he mortgaged it to the Dime Savings Bank of Waterbury to secure his note of three thousand dollars of the same date and payable on demand with interest. In September, 1887, the bank obtained a decree of foreclosure of the premises, and on the 22d day of March, 1878, filed its certificate of title by such foreclosure. After the latter date, notwithstanding the decree of foreclosure and the recording of the certificate, the plaintiff continued to make payments on the note and mortgage and the bank continued to receive them; and at all times subsequent to the decree of. foreclosure until — 177 — the deed of the farm by the bank to Frank Lounsbury, as hereinafter mentioned, both the plaintiff and the bank considered and treated the mortgage as still outstanding and the decree of foreclosure as opened, so that the plaintiff might redeem his farm from the mortgage at any time by paying the amount due on the note and the costs of the foreclosuré proceedings. Upon such understanding the plaintiff during said time made payments at sundry dates down to the 10th day of May, 1888, which the bank received and indorsed on the note. It is substantially conceded—-at- any rate it is not denied—and the law is clearly so, that this taking of payments bjr the bank under the circumstances operated to open the decree of foreclosure and to re-habilitate the plaintiff with the right to redeem as fully as if the decree of foreclosure had never been had. In this condition of things an agreement was made by the plaintiff, Frank Lounsbury, who was his brother, and the bank, pursuant to which the bank, on the 26th day of September, 1883, conveyed by a quit-claim deed all the right, title, interest, claim or demand which it had in the farm to Frank Lounsbury, he paying to the bank the sum of $122.11, in money, and giving his note for $8,000 to the bank, secured by a mortgage on the same land,—the sum of $8,122.11 being the amount then due from the plaintiff to the bank,—and on the same day, and as a part of the same agreement, Frank Lounsbury executed and delivered to the plaintiff the bond which is set out in full in the finding. Frank Lounsbury took the conveyance from the bank with full knowledge of all the rights and obligations both of the bank and of the plaintiff. He knew that the bank held the title to the land as security for the debt owed to it by the plaintiff, and that the plaintiff had the right to redeem by paying the debt. He knew that the bank could lawfully convey to him such title in the land as a mortgagee has, and no more. “ There is no principle in equity better settled than that every contract for the security of a debt by the conveyance of real estate is a mortgage; and all agreements of the parties tending to alter, in any subse — 178 — quent event, the original nature of the mortgage and prevent the equity of redemption, are void. If it was a mortgage in the beginning the right of redemption is an inseparable incident and cannot be restrained or clogged by agreement.” Henry v. Davis, 7 Johns. Ch., 42. The maxim is “Once a mortgage always a mortgage.” Newcomb v. Bonham, 1 Vernon, 7 ; Pomeroy’s Eq. Jur., sect. 1193. Counsel for the defendants, apparently overlooking the rule of equity just mentioned, contend that because the deed from the bank to Frank Lounsbury was made with the consent of the plaintiff, at his request, in his presence, and for his benefit, he is therefore precluded from any right to redeem the premises thereby conveyed. They contend further that the bond given by Frank Lounsbury to the plaintiff was a contract for a sale of the land to him and not a defeasance. In considering their claim upon this part of the case, we think the defendants are entitled to assume, as they do, that the deed from the bank to Frank Lounsbury should be treated as though it was from the plaintiff himself. Every case of this kind must of course to a large extent depend upon its own circumstances. Whether or not the parties intended a mortgage, or intended a sale with a contract for a re-purchase, is a question that must be decided by the papers themselves, or as aided by the extrinsic circumstances. We have examined all the circumstances in this case and have come clearly to the conclusion that the contract between Frank Lounsbury and his brother Charles, the plaintiff, was, and was intended to be, a mortgage, and not a sale with a contract for a repurchase. In the first place, the whole arrangement was made by the bank and Frank Lounsbury and the plaintiff for the benefit of the plaintiff, and “ to prevent his losing the property.” The plaintiff was straitened for money; the value of the land was much greater than the debt; the plaintiff remained all the time in the possession of the farm, and although there was the form of a renting it to him, the rent was in terms “ the amount of the interest on the said sum of eight thou — 179 — sand dollars,” and to be paid semi-annually in advance, just as the interest was to be paid to the bank. Then there is no where disclosed any intention on the part of Frank to become a purchaser, while all the time the plaintiff remained still a debtor to Frank for the amount of the bank mortgage, and for the taxes, repairs, insurance or other expenses connected with the property, as well as the interest on said sums. “ If there is an indebtedness or liability between the parties, either a debt existing prior to the conveyance or a debt arising from a loan made at the time of the conveyance, or from any other cause, and this debt is left still outstanding, not being discharged or satisfied by the conveyance, but the grantor is still regarded as owing and bound to pay it at some future time, so that the payment stipulated for in the agreement to convey is in reality the payment of the existing debt, then the whole transaction amounts to a mortgage, whatever language the parties may have used and whatever stipulation they may have inserted in the instrument.” “ This,” says Pomeroy’s Equity Jur., sect. 1195, “is a general criterion established by an overwhelming con sensus of authorities, which furnishes a sufficient test in the great majority of cases.” And the same section adds that whenever the application of this test leaves a doubt, the American courts have generally "leaned in favor of the mortgage. The cases in this state are in accord with the rule so given. Mills v. Mills, 26 Conn., 213 ; French v. Burns, 35 Conn., 359 ; Pritchard v. Elton, 38 Conn., 434. In February, 1887, it was arranged between the plaintiff and Frank Lounsbury that the plaintiff should on the first day of April following pay to Frank the amount due to him for the payments he had made on the property, and that Frank should on that day make a full deed to the plaintiff of the property. This was an emphatic acknowledgment by Frank that he claimed to hold the title only as security for his advances. Frank Lounsbury in violation of his agreement, on the fourth day of March, 1887, without the knowledge of the plaintiff and without any notice to him, for the consideration of sixteen thousand dollars exe — 180 — cuted and delivered to the defendant Philo B. Norton, a warranty deed of the premises, subject to the mortgage of eight thousand dollars, which was assumed by Norton. In behalf of the defendant Norton it is insisted that whatever right of redemption the plaintiff may have had against Frank Lounsbury, yet that Frank had such a power of sale that he could legally convey to Norton, and that by such conveyance Norton would take the title not subject to any equitable claims that the plaintiff may have had as against Frank. In respect to Norton the finding is that before he purchased the property he was fully informed of the circumstances under which and the purpose for which Frank Lounsbury had received title to it from the savings bank. He understood the terms and conditions of the bond from Frank to the plaintiff, which had been shown to him, and had knowledge of all the facts in the case, except that he did not know of the arrangement by which Frank had agreed to re-convey to the plaintiff on the first day of April, 1887. He made no inquiry of the plaintiff. A purchaser under such circumstances, who knows the original nature of the transaction, will be compelled in equity to surrender the estate on receiving the money which the mortgagor justly owes. Croft v. Powell, Comyn’s Rep., 603, (case 262); 1 Hilliard on Mortgages, 141. But this is not all. Norton knew that he was obtaining for sixteen thousand dollars property which he believed to be worth twenty thousand dollars, and which the court, finds was worth from twenty-three to twenty-five thousand dollars, the title to which was taken by Frank Lounsbury for the purpose of benefiting the plaintiff and to prevent the plaintiff from losing it, and of which the plaintiff had remained in the possession all the time. It is certain that he must have examined the property, otherwise he would not have known its value, and there is no reason given why he did not see and consult the plaintiff. The knowledge which Norton had of the facts surrounding the case, as well as his apparent willingness to remain ignorant of other facts, while not perhaps amounting to actual fraud, serve to show — 181 — that he was not a bond fide purchaser, and that he has no greater rights in the premises than Frank Lounsbmy bad. The Superior Court is advised that Charles Lounsbmy had the right to redeem the premises as prayed for in the complaint. If by reason of his death it is necessary that other averments be made or that other parties be brought in, this should be done, and such further hearing be had as the additional counts may require, and judgment rendered according to the principles herein stated. In this opinion the other judges concurred.