Power & Irrigation Co. of Clear Lake v. Capay Ditch Co.

ROSS, Circuit Judge (after stating the facts as above). Holding that the suit was based upon a chose in action the court below dismissed it because of the provision of section 24 of the Judicial Code (Act March 3, 1911, c. 231, 36 Stat. 1091 [Comp. St. 1913, § 991]) which declares: “No District Court shall have cognizance of any suit (except upon foreign bills of exchange) to recover upon any promissory note or other chose in action in favor of any assignee, * * * unless such suit might have been prosecuted in such court to recover upon said note or other chose in action if no assignment had been made.” In so holding' we are of the opinion that the court was in error. [1] Briefly stated, the case made by the bill is primarily founded upon the. fact that the complainant’s predecessor in interest, the Central Counties Land Company, being the owner and in possession of the lands therein described, borrowed from the defendant Capay Ditch Company certain moneys, executing therefor its promissory notes, to secure the payment of which with interest it executed to the Ditch Company a deed to the property absolute in form, and that each of the other defendants took, in turn, whatever interest they acquired under that instrument, with full knowledge that, although a deed absolute in form, it was given, only as security for moneys loaned by the purported grantee to the purported grantor. The Civil Code of California expressly declares, in section 2924: “Every transfer of an interest in property, other than in trust, made only as a security for the performance of another act, is to be deemed a mortgage.” And the Supreme Court of the state has many times decided that, no matter how strong the language of the instrument employed by the parries may be, if it was, intended merely as security for the payment of a debt, the law fixes its character as a mortgage only; it is not at [638] all a matter of contract, but of law. Indeed, by section'2888 of the same Code it is declared that: “Notwithstanding an agreement to the contrary, a lien, or a contract for a lien, transfers no title to the property subject to the lien.” And section 744, Code Civ. Proc., in terms provides: “A mortgage of real property shall not be deemed a conveyance, whatever its terms, so as to enable the owner of the mortgage to recover possession of the real property without a foreclosure and sale.” See, among the numerous California cases, Todd v. Todd, 164 Cal. 255, 128 Pac. 413; Shirey v. All Night and Day Bank, 166 Cal. 50, 134 Pac. 1001; Woods v. Jensen, 130 Cal. 200, 62 Pac. 473; Moisant v. McPhee, 92 Cal. 76, 28 Pac. 46; Smith v. Smith, 80 Cal. 325, 21 Pac. 4, 22 Pac. 186, 549. It results that the purported deed from the complainant’s predecessor in interest, Central Counties Land Company, to the Capay Ditch Company, passed no title to any of the lands described in the bill, and that the title thereto, remaining in the purported grantor, subsequently passed, according to the averments of the bill, from the trustees of the Central Counties Land Company to the complainant by deed, and so remained at the time of the commencement of the suit. [2] But it further appears from the averments of the bill that the promissory notes executed by the complainant’s predecessor in interest, for the security of the payment of which the mortgage was given, were dated November 18, 1907, and were due and payable August 1, 1908, and therefore had become barred by the state statute of limitations (section 337, Code Civil Proc.) prior to the commencement of the suit. In those circumstances the law is that the lien created by the-mortgage upon the property described in the bill thereupon became extinguished, for it is expressly declared by section 2911 of the Civil Code of California that: “A lien is extinguished by the lapse of timé within which, under the provisions of the Oode of Civil Procedure, an action can be brought upon the principal obligation.” [3] We have, then, a case, according to the allegations of the bill, where the complainant is the owner of the legal title to the lands described in the bill, upon which a mortgage that had been executed by its predecessor in interest to secure its debt to the defendant Capay Ditch Company had become extinguished prior to the commencement of the suit, but where the instrument creating the mortgage was in form a deed absolute, the rights of which mortgagee had, during the life of the mortgage, passed to its codefendants with full knowledge of the true character of the purported deed, which deed still stands upon the records of the county in which the lands are situate, and is therefore a cloud upon the true title thereto. While the present bill is styled a “bill to redeem,” it is, in truth, a bill to quiet the complainant’s alleged title to the lands in question, and among its allegations is an offer on the part of the complainant .to pay to the defendants whatever may be found to be justly due [639] them on the original indebtedness of its predecessor in interest to the defendant Capay Ditch Company. In the case of Raynor v. Drew, 72 Cal. 307, 309, 310, 311, 13 Pac. 866, the Supreme Court of that state said: “On Muy 14, 1873, tlie plaintiff gave to the defendant an instrument in writing, which in form was an absolute deed. It is admitted by the pleading that this instrument was to secure the payment of a promissory note, and therefore it was a mortgage, and under the present doctrine did not convey the title (Taylor v. McLain, 64 Cal. 514 12 Pac. 309]; Healy v. O’Brien, 66 Cal. 519 (6 Pac. 380]), and did not give a right of possession. Civ. Code, § 2927. “2. It is urged that the plaintiff’s claim to relief is barred by lapse of time. The argument is that the right of foreclosure is barred, and that, the rights of redemption and foreclosure being reciprocal, if one is barred the other must be. Suc-h was undoubtedly the rule before the Code. Cunningham v. Hawkins, 24 Cal. 406, 85 Am. Dec. 73; Arrington v. Liscom, 34 Cal. 369, 94 Am. Dec. 722; Espinosa v. Gregory, 40 Cal. 58. But perhaps it may be doubted whether the reason of the old equity rule applies under a system where no title passes to the mortgagee. If the title and right of possession remain in the mortgagor, and the lion of the mortgage is extinguished by lapse of time (Civ. Code, § 2911), what is it that the mortgagee has which can be redeemed? The old phraseology has come down to us and found a place in the statute. But it is manifest ihat an action to ‘redeem’ under these circumstances is, in effect, under our system merely an action to.remove a cloud. And since a court of equity may require justice to be done as a condition of removing the cloud, why should there be any period of limitation for such an action?” In the later case of Hall v. Arnott, 80 Cal. 348, 354, 22 Pac. 200, the same court again held that a deed intended as a mortgage for a debt from the grantor to the grantee does not pass the legal title as between the parties, nor confer a right of possession upon the grantee, but merely operates as a mortgage between them, yet, being absolute in form, it constitutes a cloud on the, title of the grantor which he may remove upon doing equity by redemption and payment of the mortgage debt, regardless of possession by the grantee, and that he must do equity by payment of the balance of the debt, as a condition of removing the cloud, though the lien of the mortgage be extinguished by failure of the grantee to foreclose it. See, also, Baker v. Firemen’s Fund Ins. Co., 79 Cal. 34, 21 Pac. 357; Booth v. Hoskins, 75 Cal. 271, 17 Pac. 225; De Cazara v. Orena, 80 Cal. 132, 22 Pac. 74. [4] It is urged on behalf of the appellees that the reason why the mortgagor and its successor in interest should be required to pay the mortgage debt as a condition to redeeming the mortgaged property is because section 2920 of the Civil Code of California defines a mortgage as— “a contract by which specific property is hypothecated for the performance of. an act, without the necessity of a change of possession.” But that is not at all so. The reason is that a court of equity requires every party who seeks equity to do equity. Moreover, as has been shown, the lien created by the mortgage here in question was, according to the allegations of the bill (which, as the case is presented, must be taken to be true), extinguished prior to the commencement of the suit, by reason of the provision of section 2911 of the Civil Code of California above quoted. [640] [5] The bill here being based upon the effect imposed by the statute of California upon the instrument executed by the complainant’s predecessor in interest to the 'defendant Capay Ditch Company, and upon the conveyance of the legal title to the lands in question by the trustees of the Central Counties Land .Company to the complainant, we regard it as clear that the court below was in error in holding that the suit is based upon any chose in action and in, for that reason, dismissing it. See Smith v. Kernochen, 7 How. (U. S.) 216, 12 L. Ed. 666; Sheldon v. Sill, 8 How. 449, 450, 12 L. Ed. 1147; Deshler v. Dodge, 16 How. 631, 14 L. Ed. 1084; Briggs v. French, 4 Fed. Cas. 119 [Fed. Cas. No. 1,871]; Dundas v. Bowler, 8 Fed. Cas. 28 [Fed. Cas. No. 4,140]; Gest v. Packwood (C. C.) 39 Fed. 535, 537; Portage City Water Co. v. City of Portage (C. C.) 102 Fed. 769. It need hardly be said that the merits of the controversy between the parties is here in no respect involved. The judgment is reversed, and the cause remanded for further proceedings in the court below.