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April 26, 1922. The opinion of the Court was delivered by
Action to have a deed declared to be a mortgage. Decree below from plaintiff, and defendant appeals.
The controversy arises out of the following facts:
On June 12, 1914, the plaintiff, Brockington, owed the defendant, Lynch, the sum of $14,196.32, evidenced by three notes secured by mortgages, then past due, executed at different times. Brockington was unable to pay, and Lynch was pressing for his money.
On the day mentioned above, Brockington and Lynch entered into what is termed "an escrow agreement." It provided that a fee-simple deed of the premises in question, from Brockington to Lynch, which Brockington had on that day executed, evidently as a part of the transaction then being consummated, should be deposited with the Lake City Bank; that the bank should hold it until January 1, 1915; that if by that date Brockington should deposit with the bank the sum of $3,000 to the credit of Lynch, to be applied to the said debt of $14,196.32, the bank should continue to hold the deed until January 1, 1916; that if by
that date Brockington, having paid the $3,000 by January 1, 1915, should not have paid the remainder of the debt, the deed should be delivered by the bank to Lynch; that if Brockington should fail to pay the $3,000 by January 1, 1915, the deed should at that time be delivered to Lynch as the act and deed of Brockington, and that thereupon Lynch should become the sole and unconditional owner of the premises and entitled to the immediate possession thereof; that during the continuance of the agreement Lynch should not attempt to collect said debt, and should not disturb the possession of Brockington; that if the $3,000 should not be paid by January 1, 1915, or if it should be, and the remainder of the debt should not be paid by January 1, 1916, Lynch would accept the deed in full settlement of the amount represented by the mortgages; that notwithstanding the failure of Brockington to pay the $3,000 by January 1, 1915, and the consequent delivery of the deed and possession of the premises to Lynch, Brockington should have the right to pay the amount of the debt by January 1, 1916, and secure a reconveyance of the premises by Lynch.
After the execution of the deed and escrow agreement, and the delivery of the deed to the Bank, Brockington continued in possession of the premises until January 1, 1915. He failed to make the $3,000.00 deposit by that time, as agreed upon, and shortly thereafter the Bank delivered the deed to Lynch, who, with the knowledge and acquiescence of Brockington, immediately went into possession of the premises, and has ever since treated them as his own property. Brockington rented the premises from Lynch during each of the years 1915, 1916, 1917, 1918, and 1919, paying him regularly the rent agreed upon. He made no claim to the land, or to any right or interest therein, until the fall of 1919, when this action was commenced for the purpose of having the deed declared to be a mortgage and for redemption.
The sole ground upon which the plaintiff's cause of action is based is the allegation that the deed was executed and delivered without any new or additional consideration, other than the mortgage debt.
The defendant in his answer denies that the deed was executed as a mortgage, and alleges, on the contrary, that it was executed and delivered under the terms of the escrow agreement, in full satisfaction of the mortgage indebtedness; he alleges, also, that the amount due upon the mortgages, at the time of the agreement, represented the full value of the premises.
The issues were referred to a Special Referee, who held, with the plaintiff, that the deed should be declared a mortgage. The Circuit Judge confirmed the Special Referee's report, and decreed: (1) That the defendant was entitled to $14,196.32 with interest from the date of the escrow agreement, June 12, 1914; (2) that the plaintiff was entitled to credit upon said mortgage debt for the rents paid by him to Lynch for the years he has been in possession under the rent agreement, that is for the years 1915, 1916, 1917, 1918 and 1919; (3) that the case be recommitted to the Special Referee to state the account between the parties upon the above basis.
From this decree the defendant has appealed upon various exceptions, which fairly raise the issues of law hereinafter discussed and determined.
It is worthy of note, at the threshold of this discussion, that the Circuit Judge recognized the well-established rule that, after a mortgage has become due, there is no legal objection to an agreement between the parties, upon sufficient consideration, which has the effect of changing their relation as mortgagor and mortgagee. He declares:
"I am not prepared to hold, and I do not think that our Courts have gone to that extent, that a mortgagor and a mortgagee, after a debt is due, cannot enter into a valid
agreement by which the mortgagee is to take the land covered by the mortgage in satisfaction of the debt, especially when the value of the land is approximately the same as the debt secured thereby."
He held, however, that this principle had no application to the case at bar, and adjudged the deed to be a mortgage, upon the grounds: (1) That Brockington had, under the escrow agreement, until January 1, 1916, within which to pay the mortgage debt, and the deed was delivered to Lynch on or about January 1, 1915, before the time limit expired; (2) that the agreement was unfair and inequitable, for the reason that if Brockington should have paid the $3,000.00 by January 1, 1916, and should have failed to pay the remainder of the debt by January 1, 1916, the deed would then have been delivered to Lynch, and Brockington would have lost his $3,000.00 and the land also.
It will be observed that the only ground upon which the plaintiff sought to sustain his contention that the deed was a mortgage was that it was executed and delivered without any new or additional consideration other than the mortgage debt; and that neither of the grounds upon which the Circuit Judge based his decree is suggested in the complaint; the only ground taken by the plaintiff, as we have seen, having been repudiated by the Circuit Judge.
1. The parties to a mortgage have the same capacity to consummate by an executory agreement such a transfer of the property as they may have had the capacity to consummate by an immediate transfer.
In determining the validity of the escrow agreement, it is important to notice the situation of the parties and the object to be accomplished by it. Brockington owed Lynch a large sum of money upon three mortgages then past due; he could not pay them; Lynch was pressing for his money. If Lynch had declined to grant a further extension of credit, there would have been nothing that Brockington
could have done to avoid a foreclosure suit except by agreement with Lynch. This agreement might have taken any one of the following forms: (1) That Brockington should immediately convey the mortgaged premises to Lynch in satisfaction of the mortgages; (2) that Brockington should enter into an executory agreement that if the debt should not be paid by a certain date he would convey the premises in satisfaction of the mortgages; (3) That Brockington should enter into an agreement that a deed to the premises then executed should be placed in escrow to be delivered in satisfaction of the mortgages, in the event that the debt should not be paid by a certain date.
Whatever the parties could immediately consummate, they could contract to consummate in the future, upon such terms and conditions as they might agree upon. The subject matter of the contract is the principal matter to be considered; the means and time of carrying it into effect, whether by an immediate deed, an executory contract without an escrow, or an executory contract with an escrow are matters of subsidiary interest.
"An escrow is a written instrument, which, by its terms, imports a legal obligation, and which is deposited by the grantor, promisor, or obligor, or his agent with a stranger or third party, to be kept by the depositary until the performance of a condition or the happening of a certain event, and then to be delivered over to the grantee, promisee or obligor." 10 R.C.L., 621; 16 Cyc., 561.
"An escrow is a deed delivered to a third person upon a future condition to be performed by either party." 130 Am. St. Rep., 911, and monographic note.
Every element of a valid escrow appears here. There are sufficient parties, a proper subject matter, a consideration, and the parties have actually contracted. The grantor agreed to sell, and the grantee agreed to buy, the land under the conditions stated. Their
minds met; the terms were agreed upon, and the deed would have been delivered as a conveyance of the land, except for the agreement that it be delivered to the escrow to be kept until the conditions mentioned in the agreement were performed, and, if not performed, then to be delivered to the grantee by the escrow. 11 A. E. Enc. of Law (2nd. Ed.) 336; 10 R.C. L, 622; Davis v. Brigham, 56 Or., 41;107 Pac., 961, Ann. Cas., 1912B, 340, and note; Clark v.Campbell, 23 Utah, 569; 65 Pac., 496; 54 L.R.A., 508; 90 Am. St. Rep., 716, and note.
The authorities are uniform in holding that an escrow cannot be revoked, except upon compliance with the terms of the agreement creating the escrow "An escrow signed, sealed, and deposited upon a valuable consideration is not revocable by the depositor, except according to the terms of the agreement and deposit. The depositary, under such circumstances, is as much the agent of the grantee as of the grantor; and he is as much bound to deliver the deed, on performance of the condition, as he to withhold it until performance." 130 Am. St. Rep., 939, monographic note.
In this case appellant had in the land by way of past due mortgages its full value, and respondent could have entered into a valid agreement with appellant to convey him the land in satisfaction of the mortgage indebtedness, and, if respondent had conveyed him the land under these conditions, he could not afterwards successfully attack the transaction and have the deed declared to be a mortgage. If the respondent could do this, is there any reason why he could not enter into the same agreement with the provision that, instead of delivering the deed to appellant at that time, it should be placed in escrow, to be delivered at a later date, if respondent should not pay the amount mentioned in the agreement at the times stated? In both instances respondent's personal ability to pay the
mortgage indebtedness is extinguished, and the appellant's obligation to accept the deed in satisfaction of the mortgage indebtedness is complete. When respondent entered into this agreement and executed and delivered his deed in escrow under the terms mentioned therein, he could not afterwards recall the deed and have it returned to him without a compliance with the terms thereof.
2. An absolute conveyance, accepted in payment of an existing debt, and not merely as security for it, accompanied by an agreement to reconvey upon payment of a certain sum within a specified time, constitutes a conditional sale and not a mortgage; the grantee holds the premises subject only to the right of the grantor to demand a reconveyance according to the terms of the agreement.
"If an absolute conveyance be made and accepted in payment of an existing debt, and not merely as security for it, an agreement by the grantee to reconvey the land to the grantor upon receiving a certain sum within a specified time does not create a mortgage, but a conditional sale, and the grantee holds the premises, subject only to the right of the grantor to demand a reconveyance according to the terms of the agreement." 1 Jones, Mtg. (6th Ed.) § 265, citing cases from Alabama, Arkansas, Connecticut, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Missouri, Montana, New York, North Carolina, North Dakota, Texas, Virginia, West Virginia, and Wisconsin.
There can be no question but that when the mortgages became past due, it was a perfectly legitimate matter of convention between Brockington and Lynch that Lynch would take the premises for the debt, and that a deed executed by Brockington at that time, in pursuance of that agreement, would have carried a good title to Lynch, and have extinguished the mortgage debt. Section 3460, Vol. 1, Code of Laws A.D. 1912, while providing that the legal title shall remain in the mortgagor,
expressly recognizes the validity of a properly executed release of the equity of redemption. As is said in Simons v.Bryce, 10 S.C. 354:
"What is miscalled the equity of redemption is, in fact, the legal estate in the land, subject to the encumbrance created by the mortgage, and that the release of the equity of redemption must be regarded, as Judge Wardlaw says (inMitchell v. Hogan, 11 Rich., 704), as the conveyance of the land to him who holds the encumbrance."
If the mortgagor, the holder of the legal title, has not the right and power, under these circumstances, to convey the land in satisfaction of the mortgage, or any part of it, it must present the anomalous situation of a man owning land and unable to dispose of it, a restraint upon the power of alienation and inseparable incident of his title. This power is distinctly recognized in the case ofNavassa Guano Co. v. Richardson, 26 S.C. 401,2 S.E. 307, and in Tant v. Guess, 37 S.C. 489, 16 S.E. 472.
"But the maxim (once a mortgage, always a mortgage) was never intended, and has never been construed, to prevent a mortgagee, by a subsequent contract, from purchasing the equity of redemption, or of obtaining a release of it, for an adequate consideration. It must be for a consideration that would be deemed reasonable if the transaction were between other parties. The transaction must be fair, with no unconscientious advantage taken by the mortgagee." 1 Jones Mtg. (6th Ed.) § 340.
Would not Brockington have the right to convey the property to a third person, upon the consideration that such person would assume the payment of the mortgages, and thus, while not securing his release from them, interpose a guarantor between him and the mortgagee? If so, there can be no valid reason, assuming the absence of inequitable circumstances, why he should not be able to make a better trade with his mortgagee, securing his absolute release from the mortgages.
It seems to be assumed by jurists who are inclined to construe a deed as a mortgage that in every case that construction is to the advantage of the mortgagor. As a matter of fact, the advantage depends entirely upon the relativity of the mortgage debt to the value of the mortgage property. If the two are exactly equal, it is a matter of indifference to the mortgagor which construction may be adopted. If the debt is greater than the value of the property, it is, of course, to the advantage of the mortgagor that the deed be not construed as a mortgage, and vice versa. The mortgagor should, of course, not be allowed to claim that construction which subsequent events develop to be to his advantage.
The chancellor very properly scrutinizes transactions between a mortgagor and a mortgagee, even after the maturity of the debt, to be assured that the weaker party has been fairly dealt with; that neither his hopes nor his fears have been taken advantage of by the stronger. If the mortgagee has availed himself of his possession of the property, and of the embarrassed condition and physical debility of the mortgagor, to obtain a release of his equity of redemption, or obtain it by fraud or misrepresentation, or by threats, for a grossly inadequate consideration, a Court of Equity will restore the mortgagor's equity of redemption. But if it has been released in good faith, without undue influence of misrepresentation, for a new and adequate consideration, the release, which is perfectly legitimate, will be sustained. 2 Jones, Mort. (6th Ed.) § 1046.
The case of Hamilton v. Hamer, 99 S.C. 31,82 S.E. 997, is a very peculiar one; the conclusion of this Court, announced in an opinion prepared by Mr. Justice Watts, being consistent with the contention of neither party to the action. In that case Hamilton owned a 20-acre tract of land upon which there was a mortgage, and desired to
purchase a tract of 67 acres adjoining; his mortgage creditor was in extremis financially, was being pressed by his creditors, and was pressing Hamilton; Hamer agreed to take up the mortgage for Hamilton and to advance the money for the purchase of the 67 acres, upon the execution by Hamilton of a deed conveying both tracts to him and the delivery by Hamer to Hamilton of a covenant stipulating that he would reconvey to Hamilton if he paid the amount advanced at any time within five years, in the meantime Hamilton to pay rent for the two tracts; the deed was dated in 1894, and the 5-year limitation expired in 1899, which appears to have been extended another 5 years expiring in 1904; in 1905, Hamilton tendered to Hamer the amount advanced and demanded a deed; Hamer refused, and the suit followed. The peculiar feature of the decision is that the plaintiff contended that the transaction was a mortgage and was upheld by the Master; the Circuit Judge held that it was not a mortgage but a contract for a conditional sale, and that, not having complied with the conditions, the plaintiff was not entitled to a reconveyance; this Court concurred with the Circuit Judge in holding that the transaction was not a mortgage, that it was a contract for a conditional sale, and, totally ignoring the time limitation of the contract, reversed the circuit decree and remanded the case with directions that Hamer reconvey to Hamilton upon his repayment of the sum agreed upon — a conclusion, as suggested above, inconsistent with the contention of both the plaintiff and the defendant. In the opinion of the writer, the exceedingly able, clear and convincing decree of the Circuit Judge should have been affirmed.
But be that as it may, the decision is conclusive upon the case at bar that the transaction between Brockington and Lynch was not a mortgage, but a contract for a conditional sale; and that upon two grounds the plaintiff
cannot be entitled to recover in this action: (1) Because his contention is that it was a mortgage and not a conditional sale; (2) if a conditional sale, the limitation of compliance has long since expired.
In McHall v. Hall, 41 S.C. 169, 19 S.E. 307, it is held that, where it is shown that a mortgage intelligently and voluntarily conveyed to the mortgagor the mortgaged premises on the consideration of the mortgage debt and other indebtedness, the deed will be sustained.
3. The extension of time and the satisfaction of the mortgages were a sufficient consideration for the escrow agreement.
That the parties considered the value of the premises to have been less than the debt is shown by the stated consideration in the agreement:
"To save the grantee (Lynch, not Brockington) the costs and expenses of foreclosure of said mortgages in default or breach of the terms thereof."
It is fair to assume that the parties realized that, in the event of foreclosure, the premises would not bring enough to pay the debt, and that Lynch would be obliged to pay the costs and expenses of sale, and that a judgment for the deficiency would be entered up against Brockington.
Where the debt is practically equal to the value of the land, the satisfaction of the debt, the relief from a possible and probable deficiency judgment, is an adequate consideration. The Court will not permit the mortgagor, after receiving a substantial benefit, as at that time viewed by the parties, to take advantage of a subsequent rise in the value of the property; to hold to his contract, if the value declines, and to repudiate it if it rises.
As Mr. Jones declares (Section 256):
"The grantor is not allowed to speculate upon the chances attending the transaction, and upon finding that
the property is worth the amount of the debt to call a mortgage a conditional sale; or on the other hand, when he finds that the property has increased in value, and that there would be an advantage in redeeming, to call what was actually a conditional sale a mortgage. The character of the transaction is fixed at its inception."
The escrow agreement provided for a plan by which several desired results would be accomplished: Brockington would remain in possession of the premises; he would be allowed 6 months in which to pay $3,000, and 18 months in which to pay the remainder of the debt; a foreclosure would be avoided; Lynch would save the costs and expenses of that foreclosure and sale; Brockington would be saved a deficiency judgment; upon breach of the conditions of the extension of credit, Lynch would take the premises and Brockington would be free of the mortgage.
There is not the slightest suggestion in the pleadings or evidence that Brockington was induced by fraud, misrepresentation, or imposition, in any form, to enter into the agreement, or to execute the deed and leave it with the bank.
The agreement possesses every characteristic of a legal contract: It is made by competent parties, upon a valuable consideration, touching a legal subject-matter; and was fully performed, so far as creating an escrow and concerned by the deposit of the deed with the bank; the matter of its delivery being controlled by the provisions of the agreement.
Upon the contention of the plaintiff that the deed and agreement constituted a mortgage, for the reason (the only one urged by the plaintiff) that no new or additional consideration, other than the original mortgage debt, appeared, the case of Brown v. Bank,55 S.C. 51, 32 S.E. 816, is absolutely conclusive. There the Court said:
"In subdivision `a' of exception 1, the point is made that the answers having admitted the allegation in the complaint that the relation of mortgagor and mortgagee originally existed between the parties, and alleged no new consideration for the deed of 26th March, 1895, they thereby admitted that said deed was a mortgage. If that deed had been an agreement that the original mortgages should be converted into absolute conveyances, we can well understand how a new consideration would be necessary to the validity of such agreement. But where, as in this case, a creditor holding mortgages on several parcels of real estate to secure the payment of a debt, purchases the mortgaged premises, or rather a part thereof, at a price less than the amount of his debt and takes from his debtor an absolute conveyance, we are not prepared to admit that any new consideration is necessary to the validity of such conveyance; for it is well settled that where the mortgagee purchases the mortgaged premises, at a sale other than for foreclosure of the mortgage, the mortgage debt is thereby extinguished. Devereaux v. Taft, 20 S.C. 555, and the cases therein cited; and the same principle applies protanto where only a portion of the mortgaged premises are purchased. Trimmier v. Vise, 17 S.C. 499. If, therefore, any new consideration, as it is called, be necessary, it would be found in the extinguishment of the mortgage debt, either in whole or in part, according to the fact, whether the purchase was in whole or only in part of the mortgaged premises."
This appeal was heard while the late Justice Hydrick was a member of this Court. Upon the brief, in his handwriting, is the following significant memorandum:
"The giving of time was a sufficient consideration. If B. had acquired a large estate and the value of land had gone down, could L. have repudiated the transaction after
he took the deed and have demanded payment of the mortgage debt, interest, and costs?"
The familiar maxim, "Once a mortgage, always a mortgage," is too universal in its terms to be strictly accurate. As long as the original relation of debtor and creditor continues unimpaired, the expression is entirely accurate; it must be understood, however, as applicable alone to that limited condition. That which is originally a security for a debt cannot be converted by a contemporaneous agreement into an absolute conveyance; nor can it, so long as the original status continues, be converted into such by a subsequent agreement except upon a new and valuable consideration. It is apparent, however, that the universality of the maxim fails, when the purpose of a subsequent agreement is to terminate the relation of debtor and creditor; when, by such subsequent agreement, the creditor surrenders his rights as a creditor, and the mortgagor his rights as the holder of the legal title, the engagement of one forming the consideration for the engagement of the other. To still insist upon the application of the maxim would be to deny to the parties the right of freedom of contract and to the mortgagor the right to dispose of his property as his interest or pleasure might dictate.
4. The continuance of the relation of debtor and creditor, after the execution of the contract, was an essential element in establishing the relation of mortgagor and mortgagee by the contract and deed.
It is exceedingly important to emphasize the fact that the mortgages were then past due, and that any arrangement between the parties looked, not to the creation of the relation of creditor, but to the creation of a new status, presumably for the mutual advantage of the parties, or for the advantage of either with detriment or risk of it to the other.
"There is a test generally accepted as decisive, and this is the mutuality and reciprocity of the remedies of the parties; that is to say, if the grantee enjoys a right, reciprocal to that of the grantor to demand reconveyance, personally to compel the latter to pay the consideration named in the stipulation for reconveyance, the transaction is a mortgage; while, if he has no such right to compel payment, the transaction is a conditional sale." 19 R.C.L. 266.
An exceedingly clear statement of the rule in such cases is found in Adams v. Pilcher, 92 Ala. 474; 8 So. 757, as follows:
"If the parties intended a sale, whether in payment of an antecedent debt or a present consideration paid, with the right to repurchase within a specified time, and for an agreed price, the purchaser becomes the owner of the property, and the vendor of the right to repurchase, if he sees proper to do so. No obligations rest upon the grantor to do so. It is optional whether he will or not. If he declines to do so, the vendee has no cause of action against him, either by reason of money paid, or for the debt satisfied by the conveyance. If there remain in the vendee a cause of action for the money paid, or, in the other case, for the antecedent debt, this will determine the transaction to have been intended as a mortgage, not an absolute conveyance. It is not left optional with the grantor to determine whether he owes a debt to the grantee or not, and, by his election to owe a debt to the grantee, convert a sale with the right of repurchase into a mortgage. His power to elect to repurchase or redeem exists only where there is a sale with the right to repurchase. If a mortgage was intended by the parties, the debt exists, whether he consents or not, and the mortgagee has the same legal authority to enforce the instrument as a mortgage as the grantor to have the instrument declared a mortgage."
The Circuit Judge holds in substance that the debt was still in existence, by reason of the agreement that, although Brockington may have failed to make the $3,000.00 payment by January 1, 1915, he had the right to pay the amount due upon the mortgage by January 1, 1916, and demand a return and redelivery of the deed, which may have been delivered to Lynch on January 1, 1915.
This is a non sequitur, unless it appeared that, notwithstanding the agreement on the part of Lynch to take the land for the debt, and his acceptance of the deed under the agreement, he still could have sued Brockington upon the mortgage.
In order to keep the mortgages alive, "to continue the debt in existence," it was essential that notwithstanding the agreement Brockington was still liable to pay the mortgages, a condition that could not possibly obtain in view of the express agreement on Lynch's part that he would accept the deed "in full settlement of any and all sums due to him by said grantor, by reason of said mortgages as principal, interest or otherwise." The reference to the payment by Brockington "of the amount due him by reason of said mortgages," was a convenient method of fixing the amount which Brockington might pay to secure a redelivery of the deed, and in no sense represented an obligation on his part to pay.
That Brockington after the delivery of the deed by the bank to Lynch, was under no obligation to pay the mortgages, is shown by his unquestionable right to demand a cancellation and satisfaction of the mortgages as soon as Lynch accepted the deed from the bank, under the terms of the agreement.
The fact that Brockington's only claim is that there was no new consideration for the deed is an admission that no new debt was intended to be created at the time the agreement
was entered into, or that a new mortgage, which he claims the deed to have been, was contemplated.
In the case of Francis v. Francis, 78 S.C. 178;58 S.E., 804, it appears that, at the initiation of the transaction between Francis and Loyns, Francis borrowed a sum of money from Loyns and executed a deed of the premises to him, taking back a contract to reconvey if the debt was paid by a certain time. The Court held that this constituted a mortgage. The distinction between that case and the case at bar is that there the papers were executed at the time the debt was contracted, while here the debt was past due.
In Brown v. Bank, 55 S.C. 51; 32 S.E., 816, the Court says:
"But in addition to this, when the pleadings show * * * that the bank already held mortgages not only upon all the property covered by the deed, but also upon an additional piece of property, * * * it seems impossible to conceive that the bank would take another mortgage upon only a portion of the property already covered by mortgages in favor of the bank; and yet the contention of plaintiffs rests upon that theory."
In Hodge v. Weeks, 31 S.C. 276; 9 S.E., 953, Hodge owed Weeks a past-due debt; he made him a deed to the premises under a verbal agreement to reconvey upon payment of the debt with interest and taxes; in a few weeks thereafter, Weeks put the agreement in writing; Weeks went into possession and held it for ten years and until his death. The heirs of Hodge then brought suit to declare the deed and agreement a mortgage. The Court held that as the conveyance had cancelled the debt there could be no mortgage and dismissed the complaint, quoting from Pomeroy as follows:
"The practical test is, whether there is a liability, independent of the conveyance and contract of conveyance, which the grantee can enforce against the grantor. * * *
But if this antecedent debt is wholly satisfied and extinguished by the conveyance, so that no liability remains under any circumstances against the grantor, then there is no mortgage, since there is no debt to be secured thereby."
The case of Creswell v. Smith, 61 S.C. 575;39 S.E., 757, is practically "on all fours" with the case at bar. Creswell owned the land and owed Dendy a past-due mortgage debt. Creswell could not pay and Dendy was pressing. At the same time and as a part of the same transaction, Creswell made Dendy a deed to the premises, and Dendy gave Creswell a covenant allowing him to remain on the land as a tenant and stipulating that, if Creswell should within five years pay to Dendy the amount of what was termed "the purchase money of the land," but which was actually the debt then past due, Dendy would reconvey. The contention was that the transaction amounted to a mortgage by Creswell to Dendy, but this Court held otherwise:
"It is clear that the parties intended an absolute conveyance, with an agreement to lease and reconvey upon the payment of a specified sum. The consideration of the deed was the cancellation of the then existing mortgage debt. In the absence of positive evidence, it is unreasonable to suppose that the parties having already a mortgage should merely intend to substitute another for the same amount. It is shown in Hodges v. Weeks, 31 S.C. 281, which quotes with approval from 3 Pomeroy, Eq. Jur., 1195, that the fundamental characteristic of a mortgage is that it is a security for a debt, that a debt is essential to a mortgage. In this case the mortgage debt was extinguished by the conveyance, and no liability remained on said debt which Robinson and Dendy could enforce. The Creswells did not agree to pay anything absolutely except the stipulated rent, which is wholly inconsistent with the view that they retained titles to the premises."
In the case of Brown v. Bank, 55 S.C. 51; 32 S.E., 816, Brown was indebted by mortgages to the bank; he conveyed to the bank several parcels of real estate; the bank gave him a covenant to reconvey upon payment of certain money. Brown contended that the transaction was a mortgage and brought suit to redeem. Upon several considerations this Court held that the deed was an absolute one upon its face with a covenant to reconvey and not a mortgage; relying upon the general rule of presumption which had not been overcome by proof of a contrary intention; that all the circumstances connected with the situation of the parties and their stipulations pointed to such a deed. A circumstance strongly relied upon by the Court was the existence of past-due mortgages and the improbability of the bank's intention to take a new mortgage when it already possessed such security — a circumstance which has a parallel in the case at bar.
In the case of Bryan v. Boyd, 100 S.C. 397;84 S.E., 992, it was held that the foreclosure of the mortgage extinguished the debt (pro tanto), and, if the relation of debtor and creditor existed after the sale, it must have been created by some other agreement, as to which there was no evidence, nor any to show that the mortgagor thereafter acknowledged the existence of any debt to the mortgage; there was no debt and hence nothing to secure." There can be no difference between a foreclosure sale and a conveyance directly by the mortgagor so far as this question is concerned.
In Shiver v. Arthur, 54 S.C. 184; 32 S.E., 310, it is held:
"The fact that Arthur had a mortgage on the land when the deed was executed tends to show that it was not his intention to take another mortgage."
5. The delivery of the deed in pursuance of the escrow agreement, the surrender of possession by Brockington to Lynch, and the contract of lease
and payment of rent are conclusive upon the question of a contract for a conditional sale when the deed was delivered by the bank to Lynch, with the knowledge and consent of Brockington, and Brockington entered as tenant of Lynch and paid rent for five succeeding years, he abandoned all claim to redemption, even if the original transaction had created the relation of mortgagor and mortgagee. In Lewis v. Cooley, 81 S.C. 461; 62 S.E., 868, it is held:
"On the contrary, the delivering up on the bond for title and the giving of the rent notes, which defendant testified he understood to be rent notes, afford evidence of insistence on the part of the plaintiff and recognition on the part of the defendant that the relation was that of landlord and tenant. A written contract of sale may be rescinded and a rent contract substituted even by parol."
In Shiver v. Arthur, 54 S.C. 184; 32 S.E., 310, it is said:
"If the deed were intended simply as a mortgage, the plaintiff was entitled to the possession of the land and the rents and profits thereof. Her conduct was wholly inconsistent with that of a mortgagor. She does not allege that the land was put in the possession of the grantee in order that the rents and profits might extinguish her indebtedness."
6. The plaintiff had no right to recover upon a theory not supported by allegations in his complaint. There were only two material issues made by the pleadings, one of law and one of fact. Paragraph 9 of the complaint alleges that at the time of the acceptance of the deed from the bank, and at sundry times afterwards appellant promised to let respondent redeem the land, etc. This was denied in the answer and this made the issue of fact. This issue was decided against respondent by both the Referee and the Circuit Judge. The issue of law was made by the allegations of Paragraphs 8 and 12 of the
complaint and the denial of the same by the appellant. These allegations are to the effect that the deed was a mortgage because there was no other consideration for it than the mortgage indebtedness, which necessarily means that the deed was executed in satisfaction of the mortgage indebtedness. The Referee decided this issue in favor of respondent, holding that an additional consideration was necessary. The Circuit Judge held with appellant on the issue of law. In the Court below appellant, therefore, won on both issues raised by the pleadings.
A judgment must accord with and be warranted by the pleadings of the party in whose favor it is rendered. If it is not supported by the pleadings, it is fatally defective. 23 Cyc., 816.
"A judgment upon a subject within the jurisdiction of a Court, but which is not brought before it by any statement or claim of the parties, and is foreign to the issue submitted, is void." 23 Cyc., 820.
"The determination as to whether a finding is within or without the issues is to be made by an examination of the pleadings. A finding for plaintiff must be responsive to the theory of the complaint, as shown by the allegations contained therein." 38 Cyc., 1970.
Here, respondent alleged that the deed was executed in satisfaction of the mortgage debt, and claimed that it was a mortgage only because there was no other consideration for it. The respondent and the Court are bound by the allegations and theory of the complaint. Notwithstanding the allegations of the complaint, the Circuit Judge held that, when appellant received the deed from the bank on January 1, 1915, he received it with the understanding that the debt was outstanding and could be paid at any time within the year 1915. In making this holding, the Circuit Judge gave the pleadings and the agreement a different construction and theory from that claimed
by respondent. Respondent challenged the transaction upon one legal ground only, as pointed out above, and the Court was bound by the issue tendered. This should be true because respondent's complaint, as shown, involves an admission contrary to the holding of the Circuit Judge; and certainly admissions in the pleadings cannot be contradicted. Lupo v. True, 16 S.C. 579.
Again, the Circuit Judge held that the contract could not be enforced in equity because it provided that, if respondent paid $3,000.00 on January 1, 1915, but did not pay the remainder of the amount on January 1, 1916, it was the duty of the escrow to deliver the deed to the grantee, in which case appellant would have the $3,000.00 and the land also. This issue was not raised by the pleadings. Respondent based his cause of action upon the single, certain, and definite point that the deed was a mortgage because there was no other consideration for it than the mortgage indebtedness. That was the only legal issue submitted to the Court. It was not asked to decree the contract void as being inequitable, and this formed no part of respondent's cause of action.
As we understand the rule, there can be no recovery upon a cause of action that is in substance variant from that which is pleaded by the plaintiff. LumberCo. v. Geiger, Ann. Cas., 1918A, 981.
In Fanning v. Stroman, 113 S.C. 495; 101 S.E., 861, this Court held that the Circuit Judge erred in submitting to the jury an issue that was not made by the pleadings.
The rule in equity is the same as the rule at law. A party cannot state one case or defense in his pleadings and make a different one by his proofs. 16 Cyc., 403.
A bill cannot be framed on one theory and a recovery had on another theory. 16 Cyc., 404, and note.
Respondent did not allege that the contract was unfair and inequitable, and did not ask the Court to declare it void or refuse to enforce it on that ground.
However this may be, the question as to whether the contract in this case was equitable or inequitable cannot arise at this time, for the reason that respondent never offered to comply with it within the time limited by it. In other words, he did not pay the $3,000.00 on or before January 1, 1915. If he had paid this amount, and had then been unable to pay the balance by January 1, 1916, and appellant had declared or attempted to declare a forfeiture of his rights because of such failure, then this question could have been presented to the Court for its determination; but, since he did not do so, the question is now purely speculative. In other words, it is an abstract or hypothetical question, which the Court should not have passed upon, and which, as above stated, was not before it. 2 Cyc., 533.
Briefly stated, our conclusions, based upon the foregoing authorities, are:
1. That, while a mortgagor may not at the time he secures a loan on his land cut off his right to redeem by any instrument executed at that time, still he may by a subsequent agreement release his equity of redemption, or convey the mortgaged premises to the mortgagee in satisfaction of the mortgage indebtedness, and this does not violate the rule, "Once a mortgage, always a mortgage."
(2) That a mortgagor may, by a deed delivered in escrow after maturity of the debt, convey the mortgaged premises to the mortgagee in satisfaction of the mortgage debt, and, upon his failure to comply therewith and delivery of the deed by the escrow, the title vests in the grantee.
(3) That respondent having delivered the deed in escrow after maturity of the debt, under an agreement fairly and honestly made, and having failed to comply with the agreement, and the deed having been delivered, appellant
is the owner of the land, and should be so declared by this Court.
(4) That the deed under consideration cannot be declared to be a mortgage for the reason that it was executed in satisfaction of the past-due mortgage indebtedness, and there was no debt to be secured by a mortgage.
(5) That the effect of the delivery of the deed on January 1, 1915, under the escrow agreement, was to convey the land to appellant in satisfaction of the indebtedness, with the right to respondent to repurchase for the amount of the indebtedness by January 1, 1916, which did not constitute a mortgage, but a sale.
(6) That the deed cannot be declared to be a mortgage upon an issue or issues not made by the pleadings.
Let the agreement, report of Referee, decree of Circuit Judge, and exceptions be reported.
The judgment of this Court is that the judgment appealed from be reversed.
MR. CHIEF JUSTICE GARY dissents.
MR. JUSTICES WATTS and FRASER concur in the result.
MR. JUSTICE FRASER: I concur with Mr. Justice Cothran in result only.
It is well known law that a contract, whatever may be its form, if intended as a security for a debt, is in law a mortgage. It is equally true that the nature of a contract is fixed at the time of its execution. When the escrow was placed in the hands of the bank, its nature was fixed. When the escrow was delivered to the bank, it was to be held to await the payment or nonpayment of the debt. The transaction, as a whole, was intended to secure the debt. The fate of the deed depended upon the payment of the debt. To my mind, it is clear that the deed was security for the debt, and therefore a mortgage. The freedom to contract is not limitless. Men are free to contract only within the limits set by the law. It has been
truly said that the State is a party to all contracts and those contracts are void to which the State does not consent. The State, through its laws, declares that a deed, however absolute its terms may be, is to be taken only as a mortgage, if intended as security for a debt.
There is another principle of law that I think controls this case. The law recognizes the fact that, although a right may exist in favor of certain parties, yet there are cases in which it would be inequitable and unjust to allow it to control. That gives rise to what is known as the law of estoppel. The law of estoppel forbids the tenant to dispute the title of his landlord. In the case at bar, the plaintiff had acknowledged for years that the relation of landlord and tenant existed between him and the defendant. I think it would be inequitable and unjust to allow him now, after these repeated acknowledgments, to repudiate that relation. I think the Court of equity should refuse its aid in working what would now be a great injustice. I think the plaintiff is now stopped from setting up his title.
For these reasons, I concur in result with MR. JUSTICE COTHRAN.
MR. JUSTICE WATTS concurs.