West v. Middlesex Banking Co.

WHITING, J.

This action presents for adjudication the rights of the several parties thereto in and to a certain quarter section of land in Brown county, South Dakota. In September, 1888, one Brewster, the then owner of this land, being indebted to the Minnesota Mortgage Company, gave a mortgage thereon to secure such indebtedness. This mortgage and indebtedness were assigned to the Middlesex Banking Company, in October, 1888; this assignment was placed of record but the acknowledgment thereto was defective, it being acknowledged by a director of the corporation. The mortgage indebtedness remaining unpaid, the Middlesex Banking Company, in 1895, proceeded to foreclose the mortgage by advertisement and sale as provided 'by statute; the foreclosure proceedings were regular in form, and the Middlesex Banking- Company, in April, 1895, became the purchaser of said land and received a sheriff’s certificate upon foreclosure sale, which certificate was at once filed for record. The Middlesex Banking Company, in April, 1895, assigned its sheriff’s certificate to one George Bea-lz, who almost immediately assigned the same to the Central Investment Company — the title to this certificate passing through the said Bealz merely as a matter of convenience, he in fact never having any real interest therein. The assignment to Bealz and Central Investment Company were not recorded until 1908. Subsequent to the giving of the mortgage above re- ' ferred to, Brewster mortgaged the same lands to one Adams to secure an indebtedness to him. This mortgage was afterwards foreclosed; the foreclosure proceedings were eoncededly regular; one West became the purchaser, and in August, 1894, received the sheriffs deed and went into possession of said land. In the year 1896, West surrendered the possession of said land to the Central Investment Company which then entered into and has remained in possession ever since. About the year 1909 the Central Investment Company made a contract for the sale of the land to one V. O. Terry. The Central Investment Company did not take out a sheriff’s deed until November, 1908. In July, 1899, Bealz executed to the defendant Central Investment Company a quit-claim deed purporting to convey this and other lands, and this deed was then placed of record. The Central Investment Company has, ever since it first took possession thereof, enjoyed the use and occupation of this land and paid the taxes thereon. The Middlesex Banking Company holds a mortgage on this land given by the Central Investment Company. West died some years subsequent to his surrender of the possession of said land, and his widow, Jane D. West, succeeded to such interest or estate therein as he may have died possessed of.

Jane D. West brought this action making Middlesex Banking Company, a corporation, Central Investment Company, a corporation, and V. O: Terry defendants. The complaint was drawn to conform to the provisions of chapter 81, Laws 1905, and alleged ownership and right of possession in plaintiff; that defendants each claim an “interest in or lien or incumbrance upon the premises adverse to plaintiff”; that such claims are unfounded; that the action is brought to determine adverse claims and to quiet title in plaintiff; that defendant, Central Investment Company, had been in possession since April, 1906; and the value of the use and occupation of such land. The prayer for relief demanded that defendants be required to set forth the nature of their claims; that all claims be determined by the decree; that defendants be adjudged to have no interest or estate in said premises; that defendants be enjoined from asserting any claim in and to said premises; that plaintiff recover judgment for the use and occupation of- said premises and for her costs in this action; “and for such other and further relief as to the court may in the premises seem meet and agreeable to equity.” Each defendant interposed an answer but we need consider that of the Central Investment Company only. It pleaded, for its first defense, a general denial, the contract with Terry, the giving of the mortgage to defendant Middle-sex Banking Company, and • that such mortgage remained unpaid; for its second defense, -the giving of the Brewster mortgage, the assignment thereof to its co-defendant, the foreclosure and purchase on foreclosure sale, the assignment and recording of the sheriff’s certificate, the possession taken by it, and the receipt and recording of the sheriff’s deed; for its fourth defense, that plaintiff is relying upon the invalidity of the mortgage foreclosure under which defendant claims, and that her only cause of action would be one to redeem and for an accounting, which cause of action, as well as that pleaded in the complaint, did not arise within ten years from the commencement of this action; for its fifth defense, that the cause of action -pleaded did not arise within fifteen years from the commencement of this action; for its sixth defense, possession and payment of taxes for ten years, under claim and color of title made in good faith; and for its seventh defense and by way of counterclaim, that the note, secured by the mortgage under which defendant claims, has never been paid, the amount due thereon, and the amount defendant has expended in permanent improvements and for taxes. Defendant prayed that plaintiff’s claims be held invalid; that defendant be adjudged the owner of said premises; that, if plaintiff be adjudged entitled to recover the possession of the premises, she be required to pay the amount due on said note, the value of the improvements and the taxes; and for such other judgment as may be just and equitable. Plaintiff replied ,to such counterclaim- and alleged: (i) that she had no knowledge of the allegations' thereof and therefore denied the same; (2 to 5) matters excusing any apparent laches on part of plaintiff, and excusing delay in instituting this action; and (6) that she is willing and -offers to pay all sums found due defendant owing to the facts set forth in its -counterclaim, but deducting therefrom the value of rents and profits of said land, during its possession. She prayed that the court ascertain the amount due on the mortgage note, the amount due -for taxes paid, the value of the rents and profits, and render judgment for the difference in favor of the party entitled thereto.

Trial was had to the court without a jury; -findings, conelusions and judgment entered, in favor of plaintiff; a motion for new trial was overruled; and the defendants all appealed from the judgment and order denying a new trial. The judgment decreed title and right of possession” in plaintiff, and a lien for mortgage indebtedness and-for taxes paid, less value of use and occupation of land, in favor of Central Investment Company.

Before the introduction !of any evidence the defendants moved that all the reply, except the first paragraph, be stricken out, on the ground, “that the codes do not require a reply; that the reply led to relief not asked for or to which the plaintiff would not have been entitled by the complaint; that it' was a departure in that it attempted to change the nature of the action, and that no party could change the nature of the action by reply or attempt to amend the complaint in that manner.” This motion was overruled, and this ruling is assigned as error.

[1] -Certainly appellants cannot complain- simply because a reply was interposed where none was. required, provided the reply was such an one as would have been proper if appellants 'had asked that plaintiff -be required to reply, or if it be one that raised no issue that oould not have been submitted under -the complaint and answer. Appellants contend that by such reply respondent was seeking to change this action from one to quiet title to an action for redemption. Respondent strenuously contends that the action brought, though it ■ be the action provided for by Chap. 81, Laws 1905, partakes of the nature of the common law action of ejectment; that such an action can be brought against a mortgagee in possession; that, therefore, .her reply, wherein- she -offers to pay off the amount of defendant’s lien, in no manner seeks to change the nature of the action as set forth in- the complaint — that it still remains an action in the nature of- ejectment.

[2] A mere glance at the prayers- of the complaint and reply reveals the- weakness of respondent’s - contention, revealing, .as it does; the fact that she- is -wrong in her premise wherein s-he assumes that this -action- partakes - of the nature, of one in ejectment. While it is- undoubtedly- true, that, ■ in an action brought under chapter 81, -Laws 1905,. an-issue as to the -right of possession m'ay be raised and a judgment giving possession as a matter of legal, as distinguished from equitable right, may -be demanded, nothing- of the kind is presented by the pleadings herein. The relief prayed for was all equitable in its nature —possession of the premises was not asked for, and, if it should be given by the decree of the court, it could -only be by virtue of the equitable powers of the court. The construction of the complaint herein is controlled absolutely by the decision of this court in Byrne v. McKeachie, 29 S. D. 476, 127 N. W. 343.

[3] Although respondent is in error in the above contention, yet it is clear to us that the reply neither enlarged upon nor changed the nature of the action set forth in the complaint; and that allowing the reply to stand and receiving evidence to sustain its allegations could not in any manner have prejudiced the rights of appellants for the reason that such 'evidence would all have been admissible under the complaint and answer. That this is true appears clear when we consider the nature of the action contemplated by said chapter 81, supra. This law provides for an action to determine all adverse claims to the property in question, to quiet title thereto in plaintiff, or, in a proper case, to determine tire liens or interest of all parties in and to such property. There can be no question but that, under the complaint and answer herein, the court had the power to determine and adjudge the claims of both parties; and, having so determined the claims of both parties, it had the power, as a court of equity — the facts proven warranting such equitable relief — to grant plaintiff the right to redeem from the lien held by defendants and to decree „that, upon payment of same, plaintiff should 'be let into possession. Surely this is true in view of the relief demanded in the answer of Central Investment Company, wherein it prayed that, “if plaintiff be adjudged entitled to recover possession of said premises, she may be required to pay the said mortgage indebtedness * * * and that this defendant’s claim for improvements and taxes and assessments be tried and that it recover for same * * the effect of such a judgment would certainly be to redeem the land from the mortgage lien. Section 311, C. C. P. provides: '“The relief granted to the plaintiff, if there be no answer, cannot exceed that which he shall have demanded in his complaint; but in any other case the court may grant him relief consistent with the case- made by the , complaint andi embraced within the issue.”

Appellants concede that- the mortgage foreclosure, under which they claim, was invalid owing to the defective acknowledgment of the assignment of mortgage; they also concede that respondent, through the foreclosure of the second mortgage, acquired the fee title to this land; but they insist that the Central Investment. Company has since acquired a superior title through adverse possession and payment of taxes under color of title, and further that, if it has not so acquired title, yet it has acquired title by virtue of the fact that it is a mortgagee in possession and respondent’s right to redeem from said mortgage and recover possession has become barred by one or the other of the statutes of limitation pleaded. Cox v. Tompkinson, 39 Wash. 70, 80 Pac. 1005; Nash v. Northwest Land Co., 15 N. D. 566, 108 N. W. 792; 27 Cyc. 1737.

That the Central Investment Company had been in possession of this land and had paid taxes for more than ten years is undisputed. Was this possession under color of title -made in good faith? It received the Bealz deed more than -ten years prior to the commencement of this action. Appellant contends that such deed was "color of title” while respondent insists that, inasmuch as such deed only purported to convey what title the grantor had and the records revealed no title in the grantor, such deed was not “color of title.” It is unnecessary for us to consider this point for the reason that it is perfectly clear, under the evidence received, that any claim of title, made under this deed is not made in good faith, the defendant, under the facts proven, being- chargeable with knowledge that Bealz had no title. 1

[4] As was said in Hardin v. Gouveneur, 69 Ill. 140; “A party receiving color of title, knowing it to be worthless, * * * although he holds the color and asserts the claim, cannot render it availing, because of the want of good faith.” No useful puipose would be subserved in reviewing the evidencp upon this poinr.

[5] Appellants contend that the sheriff’s certificate of sale was color of title. With this contention we cannot agree. A certificate of sale merely declares that a sale has been made, and that the property is subject to redemption within a year. Conceding all that the certificate states to be true, it fails to purport that title has been conveyed — the certificate itself, even if valid, conveys no title whatsoever.

[6] As 'was said by this court in Wood v. Conrad, 2 S. D. 334, 50 N. W. 95: “A deed, -to constitute color of title, must apparently tranfer title to the holder — not that the title should purport when traced back to its source, to be an apparently legal title, -but the instrument relied upon must profess to convey a title to the grantee.” Flanders v. Aumack, 32 Ore. 19, 51 Pac. 447, 67 Am. St. Rep. 504. In Lightcap v. Bradley, 186 Ill. 510, 58 N. E. 221, the court 'said: “Defendant took and held possession under her certificate of purchase, but the paper title relied upon under the statute of limitations must apparently transfer title -to the holder. Shackleford v. Bailey, 35 Ill. 387; Dickenson v. Breeden, 30 Ill. 279; Bride v. Watt, 23 Ill. 507; Rigor v. Frye, 62 Ill. 507. A certificate of purchase does not purport to convey title, but on its face shows the contrary, by stating the amount of the bid, and when the holder will be entitled to title if the premises are not redeemed. A purchaser is not entitled to possession by showing that he bid off the land at a sale. Johnson v. Baker, 38 Ill. 98. [87 Am. Dec. 293]. The purchaser of land under an -execution or the foreclosure of a mortgage has- no legal title, or right to- be invested with a legal title, until the time allowed for redemption has expired. Rockwell v. Servant, 63 Illl. 424. The certificate of purchase confers on the holder no title in the land. Huftalin v. Misner, 70 Ill. 55. In Hays v. Cassell, Id. 669, it was said (page 672): ‘The certificate of purchase conveyed no title to the purchaser, nor -did it disturb the possession o-f the defendant. That -still continued in him, and would so remain until fifteen months had elapsed, and his title transferred by the sheriff’s deed.’ A court has no power to award possession to a purchaser before the expiration of the period of redemption, and such purchaser is not entitled to possession before the execution of a master’s deed to him. The certificate of purchase only entitles him to receive the legal title at a future time, upon a certain -condition.” We are aware that there is authority supporting appellant’s contention (Goetter v. Moore, 53 Wash. 5, 101 Pac. 365), but -we believe the holding of the Washington count to -be unsound in principle. The true rule is stated in the notes found in 88 Am. S't. Rep. 691 where numerous authorities are cited in support thereof; it is there said: “Whenever an instrument by apt words of conveyance from grantor to grantee in form transfers what purports to be the title, ’ it gives color of title. Color of title may :be shown by any paper purporting to convey the land or the right to possession into the party asserting adverse possession, however and for whatever reasons it may be lacking in the essentials of a muniment of title. But the instrument must profess to pass title. It must purport on its face to convey the title to the grantee, and apparently do so.”

[7] Appellants further claim that, even though the foreclosure was invalid, the deed issued thereon was color of title and sufficient upon which to base claim of title through possession and payment of taxes — they contend that, though this deed did not issue until the year 1908, yet, when it did issue, in legal effect it related back to the date of the certificate, thus rendering the certificate color of title during all the time since its issuance. We think it needs no argument to show that the color of title, upon which a claim of title by possession and payment of taxes can be'based, must be a color.of title existing at the time of such possession and payment of taxes, and that, as was stated in Lightcap v. Bradley, supra: “His deed will relate back, it is true, to the beginning of his lien, in order to cut off intervening incumbrances; but it will not carry back the absolute divestiture of title.”

Is respondent entitled to redeem this land from the mortgage lien? It is.conceded by all parties that the Central Investment Company is, in equity, a mortgagee in possession, so that we have the successor in interest of the mortgagor seeking to redeem from one occupying the position of a mortgagee in possession.

[8] The sole remedy against a mortgagee, who is in possession of the mortgaged land under the express or implied consent of the mortgagor, is through redemption from the mortgage. Kelso v. Norton, 65 Kan. 778, 70 Pac. 896, 93 Am. St. Rep. 308; Boschker v. Van Beek, 19 N. D. 104, 122 N. W. 338; 27 Cyc. 1737. In Claflin Co. v. Middlesex Banking Co., (C. C.) 113 Fed. 958, it was contended that the original mortgagor was the only party who could bring an action to redeem under such circumstances. The court said: “The right to redeem in this action is not claimed under a statute, but is purely an equitable action to redeem from one who it is claimed is in possession as a mortgagee. Such a right to redeem may be exercised by assignees or grantees of the mortgagor, as fully as by the mortgagor, and upon the same terms and conditions, neither greater nor less. Moore v. Anders, 14 Ark. 635, 60 Am. Dec. 551; Jones v. Matkin, 118 Ala, 341, 24 South. 242; Nesbit v. Hanway, 87 Ind. 400; Moody v. Funk, 82 Iowa, 1, 47 N. W. 1008, 31 Am. St. Rep. 455; Brown v. Bank, 148 Mass. 300, 19 N. E. 382; Shoulder v. Bonander, 80 Mich. 531, 45 N. W. 487; Brewer v. Hyndman, 18 N. H. 9.”

Appellants contend that, though the Central Investment Company was a mortgagee in possession, its possession has, from its inception, been adverse; that, being adverse, it set running the statutes of limitation against respondent’s right of action to redeem; that such -possession having continued for more than 15 years, respondent’s right to redeem has been barred by either the xo or 15 year statute of limitation; and that, inasmuch as respondent has lost all rights in and to this land, the title thereto should ,, be quieted in the. Central Investment Company. Respondent contends that the possession of the' Central Investment Company was not, in its inception, adverse; -that, if it ever became adverse, it was not until the sheriff’s' -deed was taken and recorded, which was about three years prior to the commencement of this action; and that, even though appellants’ possession be considered adverse from its inception, yet respondent’s right of action to redeem would not be barred for the reason that the Central Investment Company is a foreign corporation and cannot plead the bar of any statute of limitation.

[9] It will thus be seen that there is no claim made that any possession, other than that which is adverse, will ever bar the right of the mortgagor — or of one succeeding to his rights — to redeem from the mortgage lien. That such is th-e law cannot be questioned. Stout v. Rigney, 107 Fed. 545, 46 C. C. A. 459; Nash v. Northwest Land Co., supra; Becker v. McCrea, 193 N. Y. 423, 86 N. E. 463, 23 L. R. A. (N. S.) 754; Backus v. Burke, 63 Minn. 272, 65 N. W. 459; Vol. 2, Jones on Mortgages, § 1152.

[10] Upon the other hand, the law is as well settled, that where a mortgagee enters -into possession, claiming such possession adverse to the -mortgagor, and notice that -such possession is claim- . ed to be‘adverse is brought home to the mortgagor or -to the party, who has succeeded to the mortgagor’s interest, in fire land,, the statute of limitation against an action to .redeem- is set in- motion. Becker v. McCrea, supra; Claflin Co. v. Middlesex Banking Co., supra; Cox v. Tompkinson, supra; Stout v. Rigney, supra; Nash v. Northwest Land Co., supra; Mears v. Somers Land Co., 18 N. D. 384; 121 N. W. 916.

[11] This court has held that the 10 year statute of limitation (§66 C. C. P.) applies -to an action, -to redeem from a mortgage lien (Houts v. Hoyne, 14 S. D. 176, 84 N. W. 773), and our sister state has followed this 'court in so holding. Nash v. Northwest Land 'Co. supra.

It will thus be seen that the crucial question presented is, “When, if ever, did the possession of the Central Investment Company, as mortgagee in possession, become adverse?” It must be borne in -mind that the term “mortgagee in possession” came into use at' a time .when a mortgage was held to convey the legal title of the land to the mortgagee. Under the provisions of such a mortgage, possession might be taken by the mortgagee even before condition broken. The mortgagor’s sole remedy was through redemption before the time when the mortgagee’s title would become absolute under the provisions of the mortgage. While the mortgagee was thus in possession, and during the period when the mortgagor retained the right of redemption, the mortgagee was bound to account for the rents and profits of the premises and credit the value thereof on the mortgage debt whenever the mortgagor offered to redeem. Such was the “mortgagee in possession” as he was known to the common law.

[12] But, as was said in Kelso v. Norton, supra: “In this state, by force of statute, a mortgage retains but few, if any of its common-law attributes. It is a mere security contract, incident to the debt. The mortgagor, both before and after the default, is entitled to the possession of the premises. The only legal right of the mortgagee is to foreclose the equity of redemption, and obtain a decree of sale in satisfaction of 'his debt. While such are the legal rights of the mortgagor and mortgagee in this state, it does not follow that these legal rights may not be changed or waived by agreement, express or implied. If the • mortgagor consents to the mortgagee’s taking possession of the premises for the better security of his debt, and the mortgagee does take possession, it is clear that the possession thus taken will constitute 'a mortgagee in possession.’” In this state by statute (§ 2054 C. C.) the mortgagor may, by the terms of the mortgage itself or by agreement thereafter entered into, grant possession to the mortgagee.

[13] A mortgagee entering into possession, under a provision contained in the mortgage or under the express or implied permission of the mortgagor, becomes in the true sense a “mortgagee in possession.” Possession so taken cannot be an adverse possession, and can only be made adverse by some act of the mortgagee inconsistent with the rights of the mortgagor. This has sometimes led the courts to declare that the possession of “mortgagee in possession” could never be adverse, that whenever it became adverse it was not that of one holding as mortgagee. Thus we find the Supreme Court of Minnesota saying, in Rogers v. Benton, 39 Minn. 39, 38 N. W. 765, 12 Am. St. Rep. 613: “The. only logical rule is, that, to constitute ‘a mortgagee in possession,’ .the mortgagee must be in possession iby reason of the agreement or assent of the mortgagor, or his assigns, that he have the possession under, the mortgage and because of it. The right to take possession under his mortgage being taken away, nothing remains but to foreclose, or else make some arrangement for his better security with the owner of the fee. Having no right to take possession under his mortgage, the mortgagee can get none, except by the agreement or assent of the one who owns that right. This, of course, need not necessarily be express. It may be implied from circumstances. Where the mortgagor expressly abandons possession, his assent that the mortgagee might go into possession under his mortgage might well be implied, especially when he allows him to remain in possession for a considerable length of time without objection. But, after all, the assent, express or implied, of 'the mortgagor, -that the mortgagee may take possession under or because of his mortgage, is of the essence of ‘a mortgagee in possession.’ ” And we also find the court in Becker v. McCrea, supra, saying one cannot become a “mortgagee in possession” unless his entry is with the consent of the owner of the equity of redemption, express or implied. Nevertheless it is held that, whenever a purchaser at a void foreclosure sale enters into the possession of the property under the foreclosure proceedings, he becomes a “mortgagee in possession” though such possession be concededly one adverse 'to the holder of the equity of redemption. Boschker v. Van Beek, supra; Nash v. Northwest Land Co., supra; Kelso v. Norton, supra; Backus v. Burke, supra. In this last case the court repudiates what was said by it in Roger v. Benton, supra, and says of a purchaser at a void foreclosure sale: “But if such a purchaser at a foreclosure sale cannot be a mortgagee in possession unless he is in with the consent of the mortgagor, he will cease to be a mortgagee in possession, and becomes a mere trespasser, liable to an action of ejectment, as soon as he repudiates his license, and commences to hold adversely. We cannot hold that such is the law. Such a purchaser, entering under color of the foreclosure proceedings, enters adversely, not by the consent of the mortgagor, and continues to hold adversely from the time he enters.” It seems clear to us that the Minnesota court was correct in its first opinion; that, in order to be a “mortgagee in possession” in its true sense and entitled to be protected as, such, one must enter such possession and retain same with full recognition of the rights of the holder of the equity of redemption — in other words, that his possession cannot be adverse and can never start .running any. statute of limitation in his favor. We agree with the views of the court of our sister state as declared -in Brynjolfson v. Dagner, 15 N. D. 332, 109 N. W. 320, 125 Am. St. Rep. 595: “There is a wide distinction between an actual mortgagee in possession and one who in equity may be dealt with as such in order to afford equitable relief. The fiction by which an adverse claimant is deemed a mortg’agee in possession is resorted to and applied after the adverse claim is found to be invalid, but the defeated claimant is nevertheless entitled to equitable relief. In short, in order to place appellants . in the position of mortgagees in possession, we must first decide that their adverse claim is invalid.” Thus we see presented a condition of the law, which, at first blush, would seem to be anomalous — we see one, who, under a fiction resorted to by courts of equity for the purpose of insuring equity, is given the equitable protection due a “mortgagee in possession”, occupying a inore favorable position than one who in fact is a “mortgagee in possession,” in that, being in adverse possession, the statute of limitation runs in his favor against the right of the owner of redemption to redeem, thus giving to him all the rights flowing from continued adverse possession, none of which rights can be claimed by one who is in fact, and not in fiction, a mortgagee in possession. Until deed taken upon foreclosure, neither the mortgagee nor the purchaser at foreclosure sale is entitled to the possession of the property, except where the right of possession is given -in the mortgage itself or has been otherwise granted by the mortgagor or his successor in interest, and against a possession taken without such consent, express or implied, -ejectment will lie without payment of the mortgage debt or offer to pay same. One so entering and holding possession has not the rights of a “mortgagee in possession”, and is in no wise treated as one either at law or in equity. This is true where entry is made under a void foreclosure but before deed taken. The relation of mortgagor and mortgagee would still exist if the foreclosure had been valid, and certainly exists if the foreclosure is invalid; one can acquire no right of possession under an invalid foreclosure that he could not acquire under a valid one. It follows that one can never become a "mortgagee in possession,” possessed of the rights incident to that position, prior to the issuance of deed upon foreclosure, except with the consent, express or implied, of the owner of the equity of redemption; that, therefore, when the facts are such that one is a “mortgagee in possession” prior to issuance of foreclosure deed, he is not such through any fiction of law; he cannot claim his possession to be adverse; and therefore he cannot claim any rights that would flow from a statute of limitation- based upon adverse possession. Such was the position of the Central Investment Company, up to the time it took its sheriff’s deed; it was a “mortgagee in possession,” not by virtue of any fiction indulged in by courts of equity, but because it had taken possession of the mortgaged property with the consent of the owner of the equity of redemption, at a time when, whether the foreclosure proceedings were valid or void, the relation- of mortgagor and mortgagee still existed. That the possession of Central Investment Company was with the consent of West is fully established by the authorities. Becker v. McCrea, supra; Kelso v. Norton, supra; Rogers v. Benton, supra; Nash v. Northwest Land Co., supra.

[14] The Central Investment Company never did anything inconsistent with the position of a -true “mortgagee in possession,” until fit took out -deed. Payment of taxes and cultivation of the land were not only its right bu-t duty.

[15] Equity indulges in the fiction whereby it gives one, no-t otherwise entitled thereto, the protection given a “mortgagee in possession,” either (i) when a party, relying upon an apparent color of title based upon a mortgage foreclosure, has entered upon the property, either with or without the consent of the owner of the equity of redemption, and it afterwards turns out that such apparent color of title is invalid, or (2), when a party, having already entered upon -the premises without any apparent color of title, has acquired a color of title based upon an invalid foreclosure of a mortgage, and continues such possession relying upon such color of title. As those who seek equity must come in “with clean hands,” the possession under the color of title must be in good faith believing the title to be good in order to render such possession such as will start in motion a statute of limitations. Corby v. Moran, 58 Kan. 278, 49 Pac. 82.

fi61 It follows that, where the original entrv was not adverse, so that the entryman was in fact a “mortgagee in possession,” and has continued as such until the acquiring of an apparent “color of title” based upon foreclosure of his mortgage, such possession does not become “adverse” to the owner of the equity of redemption and thus start in motion any statute of limitation by the mere acquisition of such “color of title,” but notice of the acquisition of such “color of title” or some other notice that the party is then claiming to hold adversely must be given before such party can claim any of the benefits flowing from adverse possession under such color of title. Of course such notice is unnecessary where the possession was from its inception “adverse,” adverse either because made -without color of foreclosure title and in denial of the mortgagor’s rights, or because originally made under color of foreclosure title. In Stout v. Rigney, supra, it was said: “Nor do we believe it to have been essential to render their possession adverse that they should have notified the complainant that they were holding the land adversely, and would dispute her right to redeem, inasmuch as the entry was made under a deed which purported to convey an absolute title, and which also professed to foreclose her right to redeem.” In Nash v. Northwest Rand Co., supra, the court said: “Of course, where the mortgagee is permitted to take possession under an agreement on his part to hold in subjection to the -mortgagor’s rights, such possession is not deemed adverse so as to set the statute of limitations in motion against the mortgagor until the mortgagee distinctly disavows his obligations as such, and notice thereof is brought home to the mortgagor. * * * Where, however, the mortgagee’s possession is adverse from the beginning and he has never acknowledged any obligation to the mortgagor, there is no ground for the presumption above mentioned and the act of taking possession not only gives rise to a cause of action in favor of the mortgagor, but also starts the statute of limitations running against such cause of action.”

We have discussed thus fully what seems to us to be the underlying principles the recognition of which have given rise to the fictional “mortgagee in possession,” because we have found no authority wherein this matter has been full)'' analyzed, and the reasons clearly pointed out as to why one, who has not acquired “color of title” based upon foreclosure of his mortgage, cannot be recognized as a fictional “mortgagee in possession.” While the reasons for the distinction are not pointed out in the authorities, yet an examination of them will reveal the fact that wherever a purchaser at a void foreclosure has been held “a mortgagee in possession”, he has in- every case, so far as we can find, held his possession under a deed upon foreclosure or some other color of title based on a foreclosure of his mortgage. This fact is noted in the notes to Becker v. McCrea, supra, found in 23 L. R. A. (N. S.) at page 757. In Becker v. McCrea, the party, a Mrs. Eddy, entered under a decree of foreclosure and remained in possession for twenty-five years. There had been no sale and hence no deed. The court said: “That the possession of Mrs. Eddy was not adverse in the ordinary sense of the term is quite apparent, for she entered with the consent of the owner of the equity, and, as found, became a mortgagee in possession of the premises.” In the notes to this case as found in L. R. A., the author, after reviewing numerous cases holding parties in possession to be “mortgagees in possession” holding adversely, says, on p. 757, of 23 R. R. A. (N. S.) :“It is to be noted that ini all of the foregoing cases the mortgagee, or the purchaser at the foreclosure sale, entered into possession under a paper title, based upon a decree cr deed purporting to convey the mortgaged premises. In this respect they are distinguishable from Becker v. McCrea, wherein the foreclosure proceeding was not prosecuted to a sale of the mortgaged premises, and the mortgagee thereafter entered into possession with the consent of the mortgagor, and became a mortgagee in possession. He therefore was within the doctrine already stated, that, to render his 'possession adverse, so as to start the operation of the limitation statute in his favor, he must, by some act, clearly disavow and repudiate the relation of mortgagor and mortgagee, and claim to hold as owner in fee. This distinction is also made in Lightcap v. Bradley, 186 Ill. 510, 58 N. E. 221, wherein it was held a purchaser at a foreclosure of a trust deed, who took possession under a certificate of purchase, without, however, having issued to him a court deed of the premises, to which he was entitled upon surrender of the certificate, did not hold adversely to the mortgagor, so as to set in operation the limitation statute based' on adverse possession. The court said, in order to obtain the benefit of the statute, it was essential that the purchaser prove a paper title which, on its face, purported to convey title.” It follows that the possession taken by Central Investment Company, not being taken under a sheriff’s deed and being taken with the consent of West, did not purport to be adverse and could not become adverse until by taking out the sheriff’s deed, or by some other act, notice was given to the respondent that the possessor claimed its possession adverse to her, and therefore, under the facts herein, no statute of limitations against respondent’s right to redeem' was ever put into motion, at least prior to the taking out of such sheriff’s deed. The sheriff’s deed veas not taken out until about three years before this action was brought. The taking- of the deed from Bealz, even if notice of .the taking of same had been brought home to respondent, would not have rendered the later possession adverse, because, even if, under the facts of this case, such deed would constitute color of title, yet, as stated in the note to Power v. Kitching, 88 Am. St. Rep. 716: “If a person takes color of title from one whom he knows has no right to make it, he cannot use it as a basis for adverse possession: Lajoye v. Primm, 3 Mo. 529. See, too, Saunders v. Silvey, 55 Tex. 46.” The taking of the deed from Bealz, even if it were “color of title” sufficient upon which to predicate adverse possession, could not render the Central Investment Company a fictional “mortgagee in possession”, because the possession necessary for the basis of such fiction is a possession based upon a “color of title” resting upon a foreclosure of the mortgage. The only possible effect of such a deed would be to transfer to the Central Investment Company any interest in the sheriff’s certificate not previously transferred to it by Bealz— it could not constitute notice of any interest adverse to the mortgagor or his successor in interest.

[17] Appellant contends that respondent should be adjudged estopped from making any claims to the property owing to her laches. For all the reasons hereinbefore stated, the respondent could not be charged with laches prior to the taking out of the sheriff’s deed — the Central Investment Company was the sole party guilty of laches until then. Since the talking out of such deed and knowledge of her rights, respondent has clearly been free from laches.

In view of the above holdings, it becomes unnecessary to- consider other questions discussed in the very able briefs of counsel.

The decree of the trial court grants possession to respondent without requiring, as a condition precedent, that she' satisfy the money judgment rendered in favor of appellant, Central Investment Company. This should be changed so that the respondent be given a certain time within which to pay such judgment; that possession be given her upon satisfaction of such judgment; and that, in case of failure to satisfy the judgment within the time prescribed, title be quieted in the Central Investment Company With the decree so modified, it and the order denying a new trial are affirmed with costs to respondent.

Case Details

Case Name: West v. Middlesex Banking Co.

Court Name: South Dakota Supreme Court

Date Published: Apr 6, 1914

Citation: 146 N.W. 598

Court Abbreviation: S.D.