1 Sand. Ch. 56 | New York Court of Chancery | 1843
Prior to 1836, the complainant became indebted to the defendant for borrowed
At the time of delivering the deed and this agreement, the defendant delivered up and cancelled the mortgage of $1100, and all the notes he held against the complainant except the note of $200 heretofore mentioned, and paid to him in cash, .and his own note, the difference between what the complainant
The complainant charges, that previous to the conveyance, he applied to the defendant for a further loan, and that he agreed to make it to an extent which, with all the previous indebtedness, would amount to $2500; that he would take a deed of the farm for his security for the $2500, and for $300, which he was to receive as a premium for the loan and forbearance during five years. That the complainant was to be the owner of the farm, and the transaction should be kept a secret.
All this is denied, by the defendant. As to keeping it a secret, he says that the complainant desired it j- that he did not agree to it, but he remarked that he was not in the habit of talking about his business. It seems that he' recorded his deed in March, 1840.
The defendant denies that he agreed to make a further loan, or that the deed was made or intended as a security. He insists that it was absolute and so intended.
The complainant continued in possession of the farm, treating it as his own. He paid the $175 rent, or interest, for the year 1840; and he- paid that for 1841, partly in money, and partly in the note of a third person. He made “ betterments,” or permanent.improvements on the farm in 1840, to the value of $50; and some in 1841, the value of which was not proved.
The cash value of the farm-, at the date of the conveyance, was about $2500.. I am convinced that the parties themselves estimated it at $2800,. aud' believed that it was worth that sum. The complainant had refused an offer of $2800 for the farm in the spring preceding, which was known to the defendant.
The important and difficult question in the case is, the nature of the transaction of. the 27th January, 1840. Was it an absolute sale, with, an agreement to re-sell, or was it intended as a security for the payment, of $2800.?
Let us first examine: this question upon the written evidence,
In equity, the character of the conveyance is determined by the clear and certain intention of the parties ; and any agreement in the deed, or in a separate instrument, showing that the parties intended that the conveyance should operate as a security for the repayment of money, will make it such, and give to the mortgagor the right of redemption. (4 Kent’s Com. 142, 2d ed.)
And Chancellor Walworth, in Holmes v. Grant, (8 Paige, 248,) says, that “ as a general rule, where the contract and con- “ veyance are made upon an application for a loan of money, “ this court, for the purpose of preventing usury and extortion, “ will construe it to be a mortgage, whenever the person to whom “ the application for the loan is made, agrees to receive back the “ money advanced, with legal interest, or a larger amount, and to “ re-eonvey the property within a specified time thereafter, what- “ ever may be the form of the written contract; if it is apparent “ that the real transaction was a loan of money.”
He used the same language in the previous case of Robinson v. Cropsey, (6 Paige, 480.)
And it is provided by our statutes, that “ every deed convey- “ ing real estate, which, by any other instrument in writing, “ shall appear to have been intended only as a security in the “ nature of a mortgage, though it be an absolute conveyance “ in terms, shall be considered as a mortgage,” &c. (1 Rev. Stat. 756, § 3.)
Again, “ these defeasible purchases are narrowly watched, “ and courts of equity lean strongly in favor of the right of “ redemption.” Longuet v. Scauen, (1 Ves. sen. 402;) 4 Kent’s Com. 144, 2d ed.; Glover v. Payn, (19 Wend. 518—per Bronson, J.;) and Chief Justice Marshall says, in Conway's Executors v. Alexander, (7 Cranch, 218,) “doubtful cases “ have generally been decided to be mortgages. The policy of “ the law prohibits the conversion of a real mortgage into a “ sale.” In Edrington v. Harper, (3 J. J. Marsh, 354,) the court say, “ in all doubtful cases, a contract will be construed “ to be a mortgage rather than a conditional sale.” (S. P. Secrest
A few of these cases will be adverted to. Manlove v. Bale and Bruton, (2 Vern. 84,) is one of the earliest. There, Bruton had conveyed a church lease absolutely to Bale, for the consideration of £550 ; and Bale, by a sealed instrument, agreed that he would reconvey on Bruton’s paying him £600, at the end of a year. The money was not paid within the time limited. Bale and his son and heir, who succeeded him, had renewed the lease twice, and nearly twenty years had elapsed since the deed was given. On a bill by an assignee of Bruton, redemption was decreed against the heir of Bale.
In Strong v. Stewart, (4 J. C. R 167,) there was an absolute assignment of a right in land. It was proved by parol, that the transfer was made on a loan of money, and that the assignee agreed to give time to return the money, and take back the assignment. It was decreed to be a security and not a sale.
In Henry v. Davis & Clark, (7 J. C. R. 40,) and Clark v. Henry, (2 Cow. 324; S. C. in the Court of Errors,) there was an absolute assignment of a mortgage, and a written agreement to re-sell it to the assignor. A parol agreement was proved that the assignee should hold the mortgage absolutely, if it were not repurchased at the time stipulated; and there was testimony that the assignor had said repeatedly, that he had sold the mortgage. There was very great inadequacy in the case. It was held to be a security merely.
Palmer and wife v. Guernsey, (3 Wend. 248,) is a strong case. In May, 1829, Guernsey owed Mrs. Palmer a note of $634, besides interest, for money previously lent; and he then conveyed to her husband, by a deed in fee with full covenants, expressing a consideration of $678,38, certain lands subject to two mortgages, amounting together to $4,300, and by
In Roach v. Cozine, (9 Wend. 227,) R. gave to Cozine, an absolute deed of certain tenements in New-York, on a parol agreement that C. should pay a judgment of $600 against R. and other incumbrances, in all amounting to about $3,900; that C. was to receive the rents of the premises, except a portion in the rear which R. was to occupy two years free of rent; and if R. repaid to C. in that time his advances, C. was to re-convey to him or to a purchaser procured by him. C. was to receive the rents in lieu of interest. The court held it to be a loan of $3,900, and that the deed was no more than a mortgage.
In Cooper v. Whitney, (3 Hill’s R. 95,)which was much like the case of Palmer v. Guernsey, the court decided that the conveyance was not absolute. Judge Bronson was inclined to consider it a trust rather than a mortgage, there being no covenant to permit a redemption. It maybe suggested that the same argument would apply to the idea of a trust, in that case. In the absence of a direction or covenant to sell, there would have to be a resort to equity, to enforce the trust; and no more would be requisite to enforce the redemption, assuming it to be security.
In Wright v. Bates, (13 Vermont R. 341,) there was a loan of $300, and an absolute deed given expressing a consideration
Edrington v. Harper, (3 J. J. Marsh. 353,) was a well considered case, and analogous in its features to the one before me. And see Skinner v. Miller, (5 Litt. 84.)
To illustrate the difference, let us refer to some of the cases where the transaction was held to be a defeasible purchase.
Thus, in Cotterel v. Purchase, (Cases Temp. Talb. 61,) there was a deed absolute, but intended as a mortgage; and subsequently a new agreement was made for a further consideration, on which that deed was cancelled, and a new absolute deed was given. After the lapse of 30 years the grantee agreed to permit a redemption. He was then in possession, and continued for sixteen years more, during which no attempt was made to redeem. The court refused to decree a redemption.
In Floyer v. Lavington, (1 P. Will. 268,) a rent charge of £48, in fee, was granted in consideration of £800, and a condition made in the deed, that the grantor, by paying the £800 during his life, might make the grant void. At that time the legal rate of interest was eight per cent. Sixty years had elapsed; Lord Cowper decided that the rent charge was not redeemable, and relied very much on the fact that it was but £48, while the interest of the money would have been £64.
Mellor v. Lees, (2 Atk. 494,) which is usually cited on this side of the question, was decided by Lord Hardwicke on its peculiar circumstances, and the great lapse of time, 48 years.
In Robinson v. Cropsey, (2 Edw. Ch. R. 138, affirmed in 6 Paige, 480,) there was an agreement by which Sharp, one tenant in common, agreed to execute an absolute deed for his half to his
In Holmes v. Grant, (8 Paige, 243,) on an absolute deed being executed, in consideration of a previous debt, the grantee gave to the grantor a power to sell the farm, and if he found a purchaser within a year, he was to have what he might obtain over and above the amount of the debt, with interest on the same until the sale; but if he should not make the sale, he was not to have the improvement of the farm, if any in value. The notes, &c., constituting the debt, were given up. It was not shown satisfactorily that the agreement was made or given till after the conveyance was perfected. The amount of the debt equalled the value of the land. The Chancellor, reversing Vice-Chancellor Denio, held the transaction to be a sale and irredeemable.
In Glover v. Payn, (19 Wend. 158,) before cited, Delavan bought of Payn certain premises, for $7,000, in July, 1831, and on receiving a warrantee deed, executed to Payn a writing, demising the premises to him till May 1,1832, at the rate of $500 per year, Payn paying all taxes and assessments, and insuring
The perplexity in the case before me, arises from two circumstances, viz., the absence of any covenant on the part of the complainant to pay the $2,500, and the -near approach of the expressed consideration to the estimated value of the farm.
Indeed, it was strenuously urged by the defendant that the first circumstance adverted to, was decisive of the case; and in support of this position the authority of the Vice-Chancellor in the case of Robinson v. Cropsey, was relied upon as conclusive ; and Glover v. Payn was said to sustain that authority, and to be precisely in point here.
If I were satisfied that the want of an obligation or liability on the part of the grantor, to pay the money stipulated for a redemption or a re-sale, was of itself a decisive and conclusive test against construing an absolute conveyance to be a mortgage or security, it would relieve me from difficulty here. But after an attentive consideration of the authorities, I am convinced that it is not the only criterion, nor one that is controlling. Where the personal obligation exists, it may be decisive to show that the transaction was intended as a security; but its absence is not conclusive to establish the contrary intention.
The learned Vice-Chancellor, in Robinson v. Cropsey, thus expresses his views: “ There appears to be a marked test in all “ such cases. If the deed or conveyance be accompanied by a “ condition or matter of defeasance expressed in the deed, or “ even contained in a separate instrument, or exist merely in
The Vice-Chancellor relied mainly upon what fell from Lord Manners in the case of Goodman v. Grierson, (2 B. & B. 274.) As to the case itself, I must say that it goes a great length, and if it had arisen here, I believe it would have been decided the other way. The consideration there, was a charge by will upon the lands conveyed, so that there was no personal obligation previous to the conveyance. Lord Manners says, that it may be a mortgage though there is no covenant to pay, and the absence of a covenant or bond, makes it no less a mortgage, if that were the intention. He recognizes the decision of Lord Talbot and Lord Hardwieke, that every mortgage implies a loan, and thus a debt; yet says, that on foreclosure there would be no remedy for the deficiency, if any arose. He also cites with approbation, Lord Hardwicke’s remark in Mellor v. Lees, before cited, that the absence of a personal covenant or obligation, is in these instances a strong circumstance, but if that were the only one, he would not rely upon it to defeat the redemption. Taking all this in connection with Lord Manners, confining his expression, to “ this deed,” and “ that transaction,” I think we are bound to conclude that he was not laying down a general rule applicable to all cases, but that he intended to apply the criterion of no personal obligation, to the case before him, and to that only. Judge Bronson, in the case of Glover
The learned Vice-Chancellor, in Robinson v. Cropsey, also quotes from the opinion of Chief Justice Marshall, in Conway’s Executors v. Alexander, heretofore cited, in support of the controlling force of this test. But the language quoted is much qualified by the sentences from among which it is extracted, and the opinion does not come up to the point. Thus, the Chief Justice says, speaking of the case before him, “ the want “ of a covenant to pay the money, is not complete evidence that “ a conditional sale was intended, but it is a circumstance of no “ inconsiderable importance.” The decision there, was put upon the ground that there was no pre-existing debt; no agreement to repay the money ; and no loan or proposition for a loan or mortgage, or conversation about a loan; and it was conceded, that if there were either of the latter, the case would have been different. Yet, in that decision, the Chief Justice says, “ there “ are circumstances which nearly balance these, and have in- “ duced much doubt and hesitation in the mind of some of the “court.” One of these was the necessities of the grantor. The evidence as to inadequacy was deemed too doubtful for the court to rely upon.
Glover v. Payn, which is said to be exactly in point, has already been stated. In reference to the proposition now under-consideration, it does not sustain the criterion set up in Robinson v. Cropsey. Judge Bronson there concedes, that the case would have been different, if there had been a pre-existing debt, or a loan of money, or a greatly inadequate consideration. He says, “ where there is no debt and no loan,” there it is not a mortgage, but an agreement to re-sell.
That the test insisted upon, cannot be decisive, is manifest from this, that it is not a necessary ingredient to constitute a mortgage, that the creditor should have a remedy against the person of the debtor. We not unfrequently see mortgages without any accompanying obligation, or contract, for the payment of the debt. (See 19 Wend. 521—per Bronson, J.)
In the case of King v. King, (3 P. Will. 358,) Lord Talbot held, that every mortgage, although there be no covenant or
Most of the cases, in which these transactions were adjudged to be mortgages, were destitute of this feature of personal liability. Such were Manlove v. Bale, Strong v. Stewart, Henry v. Davis & Clark, Wright v. Bates, Skinner v. Miller, Edrington v. Harper, and Roach v. Cozine, above cited. In Palmer v. Guernsey, ubi supra, the court established a debt, collectible at law, by making out that the transaction was a security. When the deed was executed in that case, the only evidence of personal liability on the part of Guernsey, was given up. In Serier v. Greenway, (19 Ves. 412,) where the contract was held to be a security, there was no personal covenant or liability. In Wharf v. Howell, (5 Binney, 499,) there was a sealed agreement to reconvey, &c., and the grantee took possession. No interest was to be paid. It was urged by counsel there, that there was no mutuality, no remedy for the recovery of the money ; that all the risk was on the part of the grantee, as from fire, &c. &c. It was held to be a security. Chief Justice Tighlman repudiated the argument that there was no covenant to pay, &c. He said, the objection that there was no remedy for the recovery of the money, was begging the question. A similar position was taken by the court in Edrington v. Harper, before cited.
In the case of Holmes v. Grant, Denio, V. C., says :—“ It is “ not essential that the personal remedy against the mortgagor “ should be preserved. There is a debt quoad the redemption, “ but not in respect to the personal remedy.”
And in the same case, on the appeal, the Chancellor makes use of the absence of a personal remedy, only as one strong circumstance in favor of construing the contract to be a conditional sale.
In fine, it is clear to my mind, that the absence of a personal liability of the complainant, for the payment of the $2500, is not decisive, per se, in this case. It is a strong circumstance, in the language of Chancellor Walworth; one essential circumstance, as expressed by Lord Hardwicke. In connection with the adequacy of the consideration, it would be controlling with me, were it not for certain other strongly marked features in this case.
One of these, is the reservation of the interest of the $2500 during the five years which the complainant was to possess the premises. The rent of the land was worth only about $115 per year. The interest reserved was $175. Again, there is the requirement, that permanent improvements to the extent of $50, should be made every year. Another, and strong feature, is the keeping the $200 note, as security that the defendant should receive $300 at the end of the five years, in addition to the $2500, and the interest thereon. This is proved by the agreement. The explanation of the defendant in his answer may be true, but it is not evidence.
These circumstances fully rebut the inference arising from the inadequacy of the price, as well as the want of a personal liability. I think the parties considered the farm to be worth $2800. We are to look for their intentions in the state of things at that time; and it is improbable that they then expected a general depreciation in real estate. They sedulously guarded against dilapidation, or particular diminution in value, by the provision for “betterments” to the amount of $250, during the five
The parol evidence of the intention of the parties is not very conclusive. The defendant is shown to have called once or twice upon the complainant, not for rent of the farm, but for interest on the money. Beyond this, I need not advert to the .oral testimony on the subject.
Upon the whole, I have, though with some hesitation, come to the conclusion, that this transaction was intended as a security for the payment of money, and not as a sale. In Chapmar's Administratrix v. Turner, (1 Call’s R. 280, 286,) Roane J., says, 11 As the line of discrimination between mort- “ gages and these defeasible sales cannot well be marked out “ by any general rule, every case, as to the true nature of the “transaction and the intention of the parties must, in some “ measure, be determined on its own circumstances.” He then says, that the intention to make a conditional sale must be clearly proved or necessarily implied from attending circumstances, or the general rule authorizing a redemption, will not be departed from.
Here I do nqt find clear proof that a sale was intended, and the implication from the attending circumstances, is manifestly against that conclusion. This leaves the general rule adopted in these cases to apply with full force. The rule may occasionally operate harshly, and do injustice; but no one can doubt its benign equity, or its soundness as a principle of public policy. And although it has usually been enforced to . establish a redemption and save the borrower from rapacity and extortion;
The defendant makes a point, that if the transaction constituted a mortgage, it is not usurious; because there was a contingency or hazard in the security, by which he might never be re-imbursed. I have commented upon the provisions made in the agreement to prevent any hazard of loss from the near approach of the amount of the loan to the value of the premises. There being a personal obligation for the interest, and a considerable amount in addition; the contract is no more hazardous than many loans which daily come under our observation; indeed much less so, than loans generally upon mere personal security. I do not think that the case comes within the principle of the authorities referred to by the defendant.
The reservation of the sum of $300, to be paid at the end of the five years in addition to the principal and annual interest, renders this transaction usurious, and it is therefore void.
The avoidance of the deed and contract of January 27,1840; includes all the acts which were consequent upon their execution, such as the cancelling of the mortgage of $1100, and the other paper then held by the defendant. And he must be restored in regard to those securities, so far as this court can restore him, to the position in which he stood previous to the loan on that day. The complainant is entitled to a decree upon these principles, and to his costs of the suit.
MINUTES OF DECREE.
The decree declared that the deed was intended as a security for the payment of money in the nature of a mortgage, and that and the defeasance is usurious, &c.; and directed the deed of 27th January, 1840, and defeasance be delivered up to defendant, to be cancelled, and the defendant to deliver a conveyance in fee by way of release, duly acknowledged and subject to the mortgage of $1100.
Declared the mortgage of $1100, and note of $200, given by complainant and P. Brown and the other demands, which defendant had on 27th January, 1840, valid.
That all such demands on that day amounted to $1850, bearing interest from that date. Complainant entitled to have all his payments since; for rent, interest, or otherwise, applied rateably on the mortgage, the note and the other demands.
That the clerk of Schoharie, on production of the decree, may enter in the margin of the record of the $1100 mortgage, and of the satisfaction thereof, that by the decree, (referring to it,) the satisfaction is vacated and the mortgage declared to be a legal, valid and subsisting security, without prejudice to incumbrancers or purchasers of the premises in good faith, whose rights- accrued after the entry of such satisfaction.
See Yates v. Aston, (7 Lond. Jur. Rep. 83; 4 Q. B. Rep. 182; and 3 Gale & Dav. 351.)