43 A.2d 193 | Md. | 1945
William A. Thomas and wife, of Baltimore, prayed in the Circuit Court for Baltimore County that a deed which they executed on November 29, 1941, conveying their dwelling on Rolling Road near Hebbville to Mrs. Dorothy K. Warren, be treated as a mortgage, and that Mrs. Warren, her husband, and her father, Francis L. Klemm, who acted as her agent and attorney, be ordered to render an account of their equity in the property. The appeal is from a decree dismissing the bill of complaint.
It appears from the record that in September, 1940, appellants agreed to purchase the property from Klemm for $4,250. Thomas, an employee of a firm of certified public accountants, said he had no cash to deposit, but expected to receive a bonus of $500 from the company, whereupon Klemm promised to obtain a mortgage for $3,500 and to accept $500 in cash and a note for the balance of the purchase price and the expenses of settlement. When the deed was delivered by Mrs. Warren and her husband on December 3, 1940, Thomas informed them that he did not receive a bonus. However, he and his wife executed a mortgage for $3,500 to Arlington Federal Savings and Loan Association, and Mrs. Warren accepted a judgment note for $877.49 for the balance of the purchase price and the expenses. In February, 1941, Thomas sustained injuries in an automobile accident causing loss of employment and medical expenses, as a result of which appellants were unable to make all of the payments required by the mortgage. Klemm *139 warned that the building association threatened to foreclose. Accordingly, on November 29, 1941, appellants conveyed the property back to Mrs. Warren. The deed was not recorded until March 16, 1942. On that day Mrs. Warren entered suit on her note and obtained judgment by confession for $947.68. About a year later Klemm notified appellants to quit the premises on or before June 30, 1943. In July Mrs. Warren and her husband sold the property for $5,000.
Appellants allege that Klemm, while acting as agent and attorney for his daughter, orally agreed that the reconveyance was only for security, and that he would make every effort to sell the property and pay them the net proceeds after payment of the total indebtedness. The doctrine is firmly established that a conveyance, although purporting to be an absolute sale, and without any accompanying written defeasance, contract of repurchase, or other agreement, may be treated in equity as a mortgage as between the original parties and against all persons deriving title from the grantee who are not bona fide
purchasers for value and without notice, if it is shown to have been intended merely as security for an existing debt or a contemporaneous loan. Hinkley v. Wheelwright,
In the case now before the court there are five reasons why the conclusion is inevitable that the reconveyance was intended by the parties as security, not as an absolute sale.
First: Mrs. Warren, who resides at Halethorpe, took back the title to the house on Rolling Road, not because she wanted to live there, or even to own it, but in order to prevent foreclosure. Appellants were allowed to continue as the occupants on condition that they would pay to Klemm $40 per month, beginning January 1, 1942.
Second: While it is argued that the parties spoke of the payments after reconveyance as "rent," and hence appellants must have become tenants, nevertheless, regardless of what the payments were called, the record shows (1) that the mortgage indebtedness was not extinguished, but the payments were turned over to the building association; and (2) that the indebtedness on the note was not extinguished. We recognize that the invariable test for determining whether a mortgagor's absolute deed of his equity of redemption actually constitutes a sale is whether the debt is extinguished. If the indebtedness is extinguished, the transaction is a sale, for if there is no obligation which the grantee can *141
enforce, the conditions are inconsistent with the idea of a mortgage security. If, on the contrary, the grantor continues to owe the money, the court will treat the deed as a mortgage and allow the debtor to redeem. Ellis v. Purnell,
Third: It appears that although the property increased considerably in value between September, 1940, when purchased, and November, 1941, when reconveyed, there was no cash consideration for the reconveyance. In Conway's Ex'rs v.Alexander, 7 Cranch 218, 237,
Fourth: Klemm, while acting as his daughter's agent and attorney, paid the Treasurer of Baltimore County the 1942 tax of $23.78 on the property, and charged this amount to appellants.
Fifth: Klemm paid $63.52 for repairs to the dwelling after the reconveyance, and likewise charged this amount to appellants.
The chancellor, in dismissing the bill of complaint, took the view that, even though the reconveyance was *142
executed merely as security, appellants should be denied relief in equity because Thomas apparently had no basis for his expectation of reciving a bonus other than rumors among the employees of the company, and he deceived Klemm by giving greater assurance of the possibility of receiving the bonus than there actually was, and hence he did not come into court with clean hands. The maxim that "he who comes into equity must come with clean hands" closes the doors of a court of equity to any person who has violated any of the fundamental principles of equity relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant. The doctrine is rooted in the historical concept of equity as a vehicle for affirmatively enforcing the requirements of conscience and good faith. While equity does not demand that its suitors shall have led blameless lives as to other matters, it does require that they shall have acted fairly and without fraud or deceit as to the controversy in issue. The maxim gives wide range to the equity court's use of discretion in refusing to aid the unclean litigant. Any wilful act concerning the cause of action which rightfully can be said to transgress equitable standards of conduct is sufficient cause for the application of the maxim by the chancellor. Schaeffer v. Sterling,
We will, therefore, reverse the decree of the chancellor and remand the case for declaration of the reconveyance as a mortgage. Of course, a court of equity may decree an absolute conveyance to be a mortgage either (1) to allow the mortgagor to redeem or (2) solely to order the mortgagee to pay the amount to which the mortgagor is equitably entitled. Thompson v. Banks,
2 Md. Ch. 430; Funk v. Harshman,
Decree reversed, and case remanded for the passage of a decreein accordance with the views expressed in this opinion, withcosts to appellants. *144