Marshall v. Williams

28 P. 137, 21 Or. 268, 1891 Ore. LEXIS 40

Opinions

BeaN, J.

This is a suit to declare a deed, absolute in form, to be a mortgage, and for leave to redeem. On January 11, 1884, plaintiff’s intestate, George Marshall, being indebted to his sister, the defendant, in the sum of $15,203.13, as evidenced by two promissory notes for $9,000 and $6,203.13, bearing interest at the rate of nine and ten per cent per annum, respectively, as security therefor, conveyed to her by absolute deed one hundred acres of land near St. Johns in Multnomah county, and two lots in Conch’s addition to the city of Portland. On June 17, 1887, no payments having been made on said indebtedness, and the principal and interest thereof amounting to over $21,000, the defendant came from her home in The Dalles to Portland to obtain further security for her money, or to settle and adjust the same before the death of her brother, who was then ill and not expected to survive but a short time. The property held by her as security was worth not to exceed $15,000 at that time, and was all the property owned by Marshall. A settlement was effected whereby it was agreed that defendant should take the land near St. Johns at $10,000, the two lots in Couch’s addition at $5,000, and Marshall and wife should give a new note for $5,000, due two years after date, bearing six per cent interest, secured by mortgage on property belonging to the wife, and defendant should cancel the remaining $1,100 of the debt. Pursuant to said agreement, Marshall and wife executed the new note and mortgage for $5,000, and defendant surrendered and delivered up the promissory notes she held against Marshall. It was proposed at the time by defendant that Marshall should execute a new deed for the St. Johns and Couch addition property, but after examining the deed then held by defendant, he said: “This deed is all right; it isn’t necessary to make out a new deed.” The defendant relied upon this statement, and did not insist, upon a new deed, and both parties considered the matter fully settled and adjusted. After said settlement and on the same day the defendant executed to Marshall a written power to sell said property as her agent, which was to continue for two years, but he died within a few days thereafter. Subsequent to the death of Marshall, the defendant went into possession of the property by her tenant, and has so continued in such possession, receiving the rents and profits, and paying the taxes thereon. The plaintiffs, who are the heirs of Marshall, and several of whom were present at the settlement, recognized defendant as the absolute owner of the property, and asserted no claim thereto until June, 1889, when, owing to the rapid advance in real estate, it had largely increased in value, and their attorney employed to attend to some matters connected with the estate discovered the defect in the title. This suit was instituted without first making any tender or offer to redeem.

It is admitted that although the conveyance from Marshall to defendant in 1884 was in form an absolute deed, it was in fact a mortgage, and the right of redemption could not be released or transferred by a mere parol understanding or agreement between the parties. An equity of redemption is inseparably connected with a mortgage; and so long as the instrument is one of security, whatever its form, the borrower has in a court of equity a right to redeem upon payment of the loan unless precluded by his own conduct, and this right cannot be waived or abandoned by any stipulation made at the time. The mortgagor may release the equity of redemption to the mortgagee, but being an interest in real estate, it can only be transferred or relinquished by a writing executed as required by the statute of frauds. This rule applies as well to a deed absolute in form intended as a mortgage as to an ordinary mortgage. (Peugh v. Davis, 96 U.S. 332; Odell v. Montross, 68 N.Y. 499; Shattuck v. Bascom, 105 N.Y. 39; Barry v. Hamburg Ins. Co. 110 N.Y. 1; Teal v. Walker, 111 U. S. 242; Besser v. Hawthorne, 3 Or. 129.)

While conceding the doctrine as above stated, defendant contends that in view of the facts in this case, as shown by the evidence, plaintiffs should not be permitted by a court of equity to redeem, and this is the only question for our consideration.

In case of an ordinary mortgage, the mortgagor is entitled as a matter of right to redeem the property pledged. In such case the right of redemption is given by positive agreement, and the fact that the transaction is a mortgage is recognized at law as well as in equity; but where a deed, absolute in form, is given as security for the payment of a debt, the mortgagor is compelled, under the system of jurisprudence in this state, to seek redress in a court of equity if his confidence is abused. It is the settled rule and practice of courts of equity to set aside a formal deed, and allow the grantor to redeem upon proof even by parol that the conveyance was not a sale but merely a security for a debt, and therefore a mortgage. But as to the grounds upon which this equitable power is exercised, there is much diversity of opinion. In the earlier cases both in England and America it was exercised solely upon the grounds of fraud, accident or mistake, which are ordinary grounds of equity jurisdiction. In several of the states these are still the only recognized grounds of equitable interference in such cases, while in others it is declared that it is a fraud on the part of the grantee to insist that the conveyance is absolute when in fact it was intended to secure the payment of a debt. All agree, however, that fraud or quasi fraud, whether in the original transaction, the subsequent conduct of the grantee in attempting to retain the property or inherent in the transaction itself, is the ground for relief in equity.

Ordinarily a court of equity will set aside an absolute deed, and allow the grantor to redeem as a matter of course upon proof of the fact that it was intended as a security for the payment of money, but it will refuse to interfere actively in his behalf when the evidence discloses that instead of preventing a fraud as against the grantor it would operate as a fraud and injustice upon the grantee. Being compelled to ask the interposition of a court of equity in his behalf, he must first have the standard of equity applied to his own conduct. If that condemn him he must go out of court. “ He who comes into a court of equity must come with clean hands,” is a maxim rigidly enforced and sternly applied to the conduct of any person who seeks the aid of a court of conscience. “One who comes for relief into a court whose proceedings are intended to reach the conscience of the parties,” says Mr. Justice Welles, in Hassam v. Barrett, 115 Mass. 259, “must first have that standard applied to his own conduct in the transaction out of which his grievance arises. If that con demn bimself lie cannot" insist upon applying it to the other party.” This rule is as applicable to a plaintiff in a suit to declare an absolute deed a mortgage and to be allowed to redeem, as in any other case, and he is under the same obligation to do equity as any other person who seeks redress in a court of equity. In Booth v. Hoskins, 75 Cal. 271, the court applied the maxim that “he who seeks equity must do equity,” and held that the plaintiff was not entitled to a decree quieting his title against the claim asserted by the grantee under a deed intended as a mortgage until he had paid the debt and interest to defendant although it was barred by the statute of limitations. The grounds upon which courts of equity will declare that a deed, absolute in form, is in fact a mortgage, being purely equitable, it may and should be refused if the equitable considerations are wanting. The court will look into the facts of each case, and if from them it appear that plaintiff’s conduct or representations subsequent to the execution of the deed have been such as to make it inequitable or unconscionable for him to be allowed to redeem, it will refuse to interfere, but leave the parties in the situation in which it found them. The conveyance being in form a deed, purports to convey an absolute estate to the grantee, and it must be taken as the exponent of the rights of the parties unless some equity is shown which makes it unconscionable to so consider it. It is ordinarily sufficient to show that such a deed was intended as a security for a loan of money, but the grantor’s subsequent conduct may have been such as to shut him out from offering evidence, or asserting in a court of equity that the instrument is not what it purports on its face to be.

Turning now to the facts, are plaintiffs in a position to ask the aid of a court of equity in their behalf? They stand in no better position than Marshall did, and unless he could if living maintain this suit they cannot. We think it is a fair deduction from the testimony that the settlement between Marshall and his sister was fair and just and made in entire good faith. Nothing was desired by either party but an honest and complete settlement of their affairs. This they both supposed had been accomplished. Marshall was desirous of conveying the property in controversy to defendant, and supposed that the deed of January 11,1884, being absolute in terms, was sufficient for that purpose, and so informed her when she asked for another deed. He was a dealer in real estate and presumedly conversant with the forms and legal effect of conveyances, and she, relying upon his word and supposed knowledge, accepted the deed as sufficient to convey to her the legal title. The matter was considered fully adjusted and settled by both parties, and in all probability no question would have ever arisen had not the prosperity of the city of Portland caused an unexpected advance in real-estate values, and Marshall’s heirs conceived the idea of taking advantage of some technical defect in order to secure the advantage of such increase. Will a court of equity permit him or his heirs to say that the representation made to his sister is not true? Because she confided in his word that a second deed was not necessary to convey to her the legal title, and was lulled into security, does it follow that although he was mistaken he can now in this suit assert the contrary? To permit such a thing would certainly be the rankest injustice. What could be more unjust or unconscionable than for him, after having induced the defendant to remit from the amount of money she had loaned him more than eleven hundred dollars, to postpone the payment of five thousand dollars of the remainder for two years at a materially reduced rate of interest, and to surrender up and cancel her notes on the assurance of Marshall that the property was hers, and that the deed she held was sufficient to convey the title, and then after she had taken possession of the property with the full assent of all parties, managed it for two years, contracted with Marshall and other parties regarding its use and disposition, had her money, which perhaps otherwise could have been profitably invested, tied up in the transaction all the time,,to now, since the property has largely increased in value, come into a court of equity and in violation of his solemn assurances assert that the representations made by him were false. He by his heirs is in effect saying to a court of equity: 'It is true I made the settlement with my sister in good faith, and as between us the function of the deed as a mortgage ceased, but I supposed it being absolute in form was sufficient to convey the legal title, and so told her when she requested another deed. I was receiving from her all the property was worth, and she, confiding in my word and supposed knowledge, was satisfied and surrendered to me for cancellation the notes she held against me. By my permission and knowledge she went into possession of the property, managed and controlled it as owner, and I did not suppose or claim that I owned any interest therein, but contracted with her as owner for the agency for the sale of the property. But now the property having largely increased in value, I ask a court of equity to aid me in avoiding my solemn agreement and representation, because I have since learned that my agreement was void because not in writing, and my representation was false.’

No argument is required to show that under such a state of facts, to grant the relief sought in this case would be inequitable, unjust, and unconscionable. These facts strongly bear the impress of an equitable estoppel, and present such a case on the part of plaintiffs as will cause a court of equity to refuse to interfere actively in their behalf. They are seeking redress in a court of conscience, and must have the standard of equity applied to the conduct of their intestate and of themselves. Marshall induced his sister to believe the deed she had was sufficient to convey the legal title, and she having been misled thereby to her injury, he or his heirs will not be heard to say in this suit that such representation is not true. As between them, so far as this case is concerned, it is the truth.

We recognize to its fullest extent the principle, “that once a mortgage always a mortgage,” and that Marshall’s representation or statement did not or could not change the legal effect of the deed to his sister; but having deliberately made the representation that the deed was sufficient to convey the legal title, and she having relied upon its truth, he or his heirs will now be precluded from giving evidence to the contrary. In view of the conclusion we have reached on the merits, it is unnecessary to consider the objection to the complaint urged by defendant, but it would seem that a bill to redeem must allege a tender of the amount the plaintiff concedes to be due on the mortgage debt, or must offer to pay whatever may be found to be due, and the omission is ground for demurrer. (2 Jones on Mort. § 1095.)

Nor do we think there was reversable error in allowing the amended answer to be filed. The clause was still pending before the referee, and in the absence of a contrary showing, we must presume that plaintiffs had an opportunity to contest the allegation of the amended answer if they were so advised, and besides, the facts upon which our decision is based are substantially stated in the original answer. The granting or refusing amendments rests in the discretion of the trial court and can only be reviewed here for an abuse of such discretion.

Decree of court below reversed and complaint dismissed.