Klein v. McNamara

54 Miss. 90

• Court: Mississippi Supreme Court
• Decided: October 15, 1876
• Status: Published

Opinion

Simball, C. J.,

delivered the opinion of the court.

Error is predicated of the decree, on the ground, mainly, that the conveyance by McNamara and wife to Mrs. Bettie B. Willis, and from her to Klein, were sales with a privilege of repurchase, and not mortgages; and, secondly, that the deeds being absolute on their face, parol testimony is inadmissible to show that they were intended merely as securities for McNamara’s indebtedness.

There has been much discussion and no little refinement in the books in drawing the distinction between a conditional sale and a mortgage. Assuming, for the present, that extrinsic evidence maybe received for the purpose of disclosing whether the parties intended that the deed shall have effect as a security, it becomes necessary to ascertain what the authorities have settled on that point. If there was but a parol agreement to repurchase, under the Statute of Frauds and Perjuries it could not be enforced. It was said, in Hoopes v. Bailey, 28 Miss. 328, 339, that if the relation of debtor and creditor remains, and the debt still subsists, it is a mortgage; but that, “ if the debt be extinguished by the agreement of the parties, ... and the grantor has the privilege of refunding, . . . it is a conditional sale.” The circumstances and negotiations are important factors; whether the proposition was to borrow or loan money; or, if it had relation to a debt, whether it was continued as a subsisting obligation. The form of the contract is not controlling. In Edrington v. Harper, 3 J. J. Marsh. 358, 355, the court said, “ The fact that the real transaction was a borrowing and lending, will, whenever or however it shall appear, show that a deed, absolute on its face, was intended as a security for money ; ” and, when so ascertained, have that effect. The Supreme Court of the United States commits itself to the same doctrine in Russell v. Southard, 12 How. (U. S.) 139, 151.

The facts which have been indicated by the courts as of almost conclusive weight in determining that the conveyance was intended to be a mortgage and not a sale, are: First, Was the treaty in reference to a borrowing and lending of money, and was the obligation to repay incurred ? Second, Did the relation of creditor and debtor exist before the conveyance, and did that relation continue ? Third, Was there great disparity in the price of the property ? Russell v. Southard, ubi supra ; Eiland v. Radford, 7 Ala. 724; Robertson v. Campbell, 2 Call, 421; Freeman v. Wilson, 51 Miss. 329, 333, 334. The latter case refers to a negotiation for a loan and an actual borrowing, or the continuation of a subsisting debt, and great inadequacy of. price, as constraining a court of equity to regard the deed as a security rather than a sale.

In eases of doubt, the court leans in favor of a mortgage rather than a sale. Russell v. Southard, ubi supra ; Flagg v. Mann, 2 Sumner, 486, 533; Poindexter v. McCannon, 1 Dev. Eq. 373; Farmer v. Grose, 42 Cal. 169.

In order to give effect to the absolute deed as a mortgage, extrinsic evidence must be resorted to to show the real nature of the transaction and the intention of the parties. That has been allowed in this State, both before and since the revision of 1857. See Prewett v. Dobbs, 13 S. & M. 431, 440 ; Anding v. Davis, 38 Miss. 593 ; Vasser v. Vasser, 23 Miss. 378 ; Littlewort v. Davis, 50 Miss. 403 ; Freeman v. Wilson, 51 Miss. 333, 334.

Question is now made for the first time, that the introduction, in substance, of the seventh section of the English Statute of Frauds into the revision of 1857 has changed the law, and that parol evidence cannot now be received. The provision is the fifth article of the Code of 1857, p. 359, re-enacted in the Code of 1871, § 2896. The language is: “ Hereafter all declarations or creations of trust or confidence, of or in any land, shall be made and manifested by writing, signed bjr the party who declares or creates such trust, or by his last will.”

The conversion of the deed without defeasance, by resort to extrinsic evidence, encountered two obstacles. One was, the rule that parol testimony cannot contradict or vary the written contract; the other was the Statute of Frauds. Very early in the history of the Chancery Court both difficulties were surmounted by placing the right upon the ground of fraud, one of the primary sources of equity jurisdiction. As expressed in an early case, Cotterell v. Purchase, Cas. temp. Tal. 61, 63: “ They who take a conveyance of an estate as a mortgage, without any defeasance, are guilty of a fraud.” In Baker v. Wind, 1 Ves. Sen. 160, the Lord Chancellor denominates the failure to insert the defeasance in the deed an imposition; and adds, the mortgagor “ was in distress, and therefore turned it (the deed) into the shape of a purchase ; but he still meant it as a security.” In 1859, in Lincoln v. Wright, 4 De Gex & J. 16, 22, on appeal, speaking on the very point of the admissibility of parol evidence, the learned judge said: “ The principle of the court is, that the Statute of Frauds was not made to cover fraud. If the real agreement in this case was, that as between the .plaintiff and Wright the transaction should be a mortgage transaction, it is, in the eye of this court, a fraud to insist on the conveyance as being absolute; and parol evidence must be admissible to prove the fraud.” More than a century intervened between the decision of Cotterell v. Purchase and this case. They may, therefore, be accepted as stating the ground upon which the English chancellors placed the subject. They put the case outside of the Statute of Frauds, and relieve because of the fraud.

The same view has been adopted by the Supreme Court of the United States. Conway v. Alexander, 7 Cranch, 218, 238 ; Morris v. Nixon, 1 How. (U. S.) 118, 126. In Russell v. Southard, ubi supra, the admissibility of the evidence is placed distinctly on that ground. Curtis, J., said, that, both on principle and authority, it is clear that extrinsic evidence is admissible ; and that “ to insist on what was really a mortgage as a sale, is in equity a fraud.” An examination into the books of American Reports will show that the same doctrine has been generally, if not universally, received and applied, notwithstanding the Statute of Frauds. Such statutes exist in quite all tbe States. When the Court of Chancery announces that it will treat the transaction, intended as a mortgage but having the shape of an absolute conveyance, if insisted upon in the latter character, as a “ fraud,” then the door is at once opened to let in proof of its real character.

Whenever and wherever (so far as our research has extended) the statute has been interposed as a bar to the admission of extrinsic evidence, the answer has been that the statute does not apply. The reasoning of the courts has not always been harmonious, and in some instances not satisfactory. The doctrine is too firmly established and uniformly acquiesced in to be now overturned, however much individual judges and courts may regret that it had not ceased when these statutes were enacted. Indeed, this precise objection seems but seldom to have been made. It was, however, considered and overruled in Campbell v. Dearborn, 109 Mass. 130 ; Carr v. Carr, 52 N. Y. 251, 258 ; Horn v. Keteltas, 46 N. Y. 605, 610 ; Moore v. Wade, 8 Kansas, 380, 387 ; Sewell v. Price, 32 Ala. 97. In Sturtevant v. Sturtevant, 20 N. Y. 39, while vindicating the statute as to parol declarations of trust, the court says, that making an absolute conveyance into a mortgage by parol “affords no ground for saying that a parol trust can be upheld.”

The books abound in eases where the absolute conveyance has been shown by extrinsic evidence to be but a security for a debt. The question raised has only here and there been mooted, —in no instance that we have seen with success. Certainly it has been the professional opinion in this State that the subject is not affected by the Code of 1857. Nineteen years have elapsed since its enactment, and this is the first case in which the question has been raised. Perhaps that which would reconcile the relief which the court administers with the statute, and harmonize all the difficulties which have been suggested, would be to say, that the equity results to the creditor and grantee from the concurrence of circumstances, and that the court, looking through the entire transaction, deduces the equity from them, rather than the mere agreement, as such. We do not think that the objection is well taken.

Turning now to the evidence, we find that Mrs. McNamara, who was the owner of the house and lot, was willing to assist her husband (at the time sorely pressed with debt) in his mercantile business by allowing him to raise .money thereon. McNamara applied first to Moss for a loan of $4,000. Moss declined, but referred him to Butts, cashier of the Vicksburg Bank. After taking legal advice, Butts declined to take a mortgage as security, but agreed for Mrs. Willis to let McNamara have $7,500, to be paid to him as needed ; all, however, to be refunded in twelve months, with interest at one and a quarter or one and a half per cent per month. McNamara and wife made the deed to Mrs. Willis on the parol understanding that the reconveyance was to be made on repayment of the money. So great was McNamara’s strait, that $2,000 was paid to him the day before the deed was executed, under pledge, however, on the pain of forfeiting $500, to make the deed by ten o’clock the next morning. Mrs. Willis continued to advance the money, until the sum reached in full the limit, or nearly so. Mrs. McNamara alleges that Mrs. Willis was repaid all that she advanced her husband before the conveyance to Klein. As evidence of this, a check on the Vicksburg Bank was put in evidence, dated Feb. 1, 1872, for $1,002.50, which reads : “ Pay Bettie Willis balance on house, $1,002.50,” and is signed, “ B. McNamara, per Butts.” The check was paid. This is an admission by Butts that $1,002.50 Avas paid as balance on the house. Butts explains the matter by saying that McNamara had in the bank enough money to repurchase the house on that day; but, not having asked to do so, he obtained further credit, to the amount of $1,875, which was subsequently paid by Klein. At this juncture, some ill-feeling having sprung up between Butts and McNamara, Butts insisted that McNamara should find some person to take the property off his hands, or he would never let him have it back. McNamara explained the situation to Klein, who interposed for his relief, paid the $1,875 to the bank, and received a quitclaim deed from Mrs. Willis, which recited the price paid as $1,000. Klein admits that McNamara informed him of his dealings with Mrs. Willis through Butts, her agent, but says that McNamara told him that he owed a balance of about $2,000, and tbat be should waut other advances in his business.

It can hardly be doubted that Klein took the conveyance from Mrs. Willis as a security for the money he had advanced.. It may be also true that Klein made other loans on the faith of the title to the property. Mrs. McNamara’s consent that the title might be made to Klein, as security for the balance, which her husband owed and which Klein paid, would bind her. But when that sum was repaid, which actually occurred shortly afterwards, the property was no further and no longer a security for other loans.

There is another aspect in which these dealings and conveyances may be viewed, arising on the proviso to § 1778 of the Code, a literal re-enactment of the same proviso to art. 23, Code 1857, p. 336: “ No conveyance or incumbrance for the separate debts of the husband shall be binding on the wife, beyond the amount of her income.” In the construction of statutes, meaning must be given to each word, so as fully to compass the legislative will. The object of the proviso was to restrict the effect of the general language of the clause immediately preceding. The context is, the separate property of the wife “shall not be sold, conveyed, mortgaged, transferred or in any manner incumbered by the husband, unless the wife shall join in the conveyance.” Paraphrasing the sentence into the affirmative form of expression, it would read : “ The wife’s separate property may be sold, conveyed, mortgaged, &c., by the joint deed of the husband and wife.” The proviso restricts this general power of disposition by denying, to a “ conveyance ” or “incumbrance ” of the wife’s property for the husband’s debt, any other or greater effect than to bind the income.

The plain policy of the statute is that she may sell her property, and convey, transfer or mortgage it. But if she pledges it as a security for the separate debt of her husband, whether that pledge is by a conveyance absolute, by mortgage or by deed of trust, it shall only have a limited effect. The legislative intention is that she shall not, beyond the income, make her property a security for her husband’s debt, either by “ conveyance or incumbrance; ” that is, by any form of instrument by which, under the law, a lien or hypothecation can be created. It will be observed that the word “ conveyance ” is separated by the disjunction “ or ” from “ incumbrance.” These words are not used to convey tile same idea. Conveyance, being a general word, comprehends the several modes of passing title to real estate. It is defined to be “ the transfer of the title of land from one person, or class of persons, to another.” 1 Bouv. Law Die. (12th ed.) 361. Strictly speaking, as we consider mortgages and deeds of trust, they would be included. Pickett v. Buckner, 45 Miss. 226, 245. But it comprehends, also, the ordinary deed of bargain and sale. We think that it is used in this statute in its general sense. The proviso, then, means that neither by an absolute deed, nor by mortgage or deed of trust, nor in any other mode recognized by law, shall the wife make her separate property security for the husband’s debt, except to the extent of the income. As we have seen, an absolute deed may have effect only as a mortgage, and though there be no written defea-sance, extrinsic evidence may be let in to prove the purpose. The proviso recognizes that truth, and confines such a conveyance'to a disposition of the income. When the statute declares that a “ conveyance ” of the wife for the husband’s debt shall only operate as a “ security,” it would be impossible to give effect to its meaning and policy, unless evidence ali-unde was received to show- that the particular instrument, though without defeasance, was intended by the parties as a mortgage.

In Erwin v. Bill, 47 Miss. 675, this court, in vindication of the policy of the statute, went further than is necessary to go in this case. There the wife conveyed her separate real estate in payment of the husband’s debt, and the proviso was construed as denying her power to apply her property any further in aid of her husband than to incumber the income ; and the deed Avas declared to have effect only as a mortgage of. the income. Manifestly, if it does not appear on the face of the deed, parol evidence may be received to disclose what the real transaction was. The court distinctly announced, in the case cited, that the Avife could not convey the corpus of her estate in payment of her husband’s debts.

However the truth may be disguised, and in whatsoever form the papers are written, if the real transaction be that the wife meant to place her property as security for her husband, a court of equity will receive whatever aid pertinent testimony can afford to expose the device and to uphold the prohibition and policy of the statute. Decree affirmed.