~ o 7. e Sym oe y Pann Reet yet Ty ace hat OO pa oe * ; aes bo Py Sao pee ee ey 4 ey ; 5 es Ps p rs * Rr vnc aN Se , ¥ Vice ~s C Pree eeree nee Ae eee i “ ey Oo * Re O° pas ef Law LIBRARY CORNELL LAW SCHOOL THE GIFT OF '‘& Ze AMAR Marty, Saad, cag Date Gitebe. 26 SE ases on the law of mortgages / Carnell Law Srhonl Library National Authorities THE LEGAL WORKS OF Judge Seymour D. Thompson Negligence, commentaries on the law of, 8 volumes Corporations, commentaries on the law of, second edi- tion, 8volumes . ... 2... 1 te ew ew ew Judah P. Benjamin Sales, eighth American ces in prepararion, 2 vol- umes . eae, ncaa ne? ces Se Judge Leonard A. Jones Mortgages, seventh edition, 3 volumes, in preparation . Liens, a treatise on the law of, third edition, 2 volumes Collateral Securities, ines piegaen third edition, 1 volume D aséye Sea Te. Ca Chattel Mortgages, fifth edition, 1 volume , Landlord and Tenant, 1 volume . Forms, general legal and business forms, 1 salume ‘ Judge Byron K. and William F. Elliott Advocate, the work of the, 1 volume, cloth . . Advocate, the work of the, 1 volume, flexible leather Roads and Streets, third edition, 2 volumes Railroads, second edition, 5 volumes 3 Evidence, a treatise on the law of, 4 volumes Contracts, a modern treatise, 7 volumes . THE BOBBS-MERRILL COMPANY Indianapolis, Indiana $48.00 48.00 19.50 15.00 6.50 7.50 6.00 6.00 4.00 5.00 13.00 27.00 24.00 45.00 THE STANDARD AMERICAN FORM BOOK JONES’ LEGAL FORMS By JUDGE LEONARD A. JONES Contains the Most Complete Collection of General Legal and Business Forms Ever Issued, Including ACKNOWLEDGMENTS The Forms for Acknowledgments for all the States and Territories. The Standard Forms proposed by_ the Commissioners on Uniform State Leg- islation. AGREEMENTS Forms of Commencements of Agree- ments. Forms of Testimonium Clauses. THIRTY-FIVE FORMS AND PREC- EDENTS, SUCH AS — Agreements for Service of Farm Laborer. 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DECLARATIONS OF TRUST DEEDS Of all the States and Territories, con- | forming to the latest statutory provi- | sions. . | EASEMENTS Including Grants of Right of Way. Grant to Erect Poles. Dedication of Highway, Etc., Etc. GIFTS GUARANTIES HUSBAND AND WIFE Ante-Nuptial Settlements and Agree- ments. Post-Nuptial Settlements. Separation Deeds. A Total of Fifty Forms. LEASES Land Leases, Building Leases, Farm Leases, Leases of Coal Mines, Reserva- | oe Clauses, Assignment of Leases, tc. MINING AND MINERAL CONTRACTS MORTGAGES The Standard Forms for Every State and Territory. Mortgage Notes and Bonds. NOTICES Between Landlord and Tenant, Mort- gagor and Mortgagee, Vendor and Pur- chaser, Partners, Etc., Etc. PARTNERSHIP A Complete List of Precedents and Clauses. PARTY WALL AGREEMENTS PATENTS PLEDGES AND COLLATERAL SE. CURITIES PROTESTS RELEASES SETTLEMENTS TRADE MARKS WILLS | General Clauses and Provisions. The | most complete collection of Precedents published. More than’ 300 different Forms. $6.00 Net. THE BOBBS-MERRILL COMPANY, Indianapolis, Indiana CASES ON THE LAW OF MORTGAGES SELECTED AND ANNOTATED By ole EDGAR N. DURFEE Professor of Law, University of Michigan INDIANAPOLIS THE BOBBS-MERRILL COMPANY PUBLISHERS OSFIISF CopyRicuT 1915 BY THE BOBBS-MERRILL COMPANY. PREFACE The prominence of secondary material in the following pages re- quires a word of explanation. “The law of mortgages embraces so many remotely related topics that it is impossible, in the time al- lotted to it in our schools, to cover the subject completely and thor- oughly by the ordinary “‘case method.” Of the several alternatives that this condition leaves us, the editor has chosen that of covering by cases, with a fair degree of thoroughness, certain selected topics. It is with a view to presenting to the student, in a suggestive way, some of the topics not covered by cases, that the editor has intro- duced into the book excerpts from text-books and from judicial opinions, and extensive editorial notes. This material is not designed to be made a part of the regular work of the course but to be a sup- plement to that work. It is designed to dispose of topics which, in the absence of any such material in the book, the editor, in using ‘the book, would have felt obliged to touch upon by lecture. It is the editor’s belief that this matter covers the ground in a way more satisfactory to the student than lectures, and to the obvious saving of class-room time for more profitable use. This material has been distributed through the book with a view to presenting, with the cases and the class-room discussion, a fairly systematic treatment of the subject, but the bulk of it will be found in the first hundred pages. In introducing into the book this secondary material, as in the framing of all notes, the editor has endeavored to avoid plac- ing before the student the answers to the problems presented by the cases, or those related problems which it seemed to him practicable to work out by class-room discussion. Another feature of this book deserving comment is the rele- gation, to a position of comparative obscurity, of the question as to whether a mortgage vests a legal title in the mortgagee, and those questions as to incidents of the mortgage relation which are dependent upon that theoretical question—problems which have occupied a more conspicuous place in the subject as it has commonly been taught. This has left an opportunity to give more attention to certain topics which touch the substance of the mortgage as a means of realizing the mortgage debt, but have usually been slighted in the teaching of the subject. This shifting of emphasis the editor believes justified from every (iii) iv PREFACE. point of view. With reference to the function of giving infor- mation, it brings forward those topics which are of the greater importance. With regard to the function of developing the “legal mind,” this course brings forward complex problems of a sort which are not as abundant in the curriculum as the more elementary sort which are thus slighted. Conceding that the elementary problem is the more troublesome, there is good use, especially in the third year, for more work of the complex sort. The editor is confident that these broad positions will meet gen- eral approval. He dares not hope, however, that any one will ap- prove in all particulars the manner in which they have been applied. The cases reported in this book have almost all been subjected to more or less editing. In order that a multiplication of foot-notes might be avoided, omissions and interpolations have been indicated in the text, the former by asterisks, the latter by square brackets. It should be observed, however, that omissions of the whole or part of the reporter’s statement of facts, and of the arguments of counsel have not been indicated. Obvious typographical errors have been corrected without comment, but in doubtful cases the original has been preserved. The editorial notes do not pretend to completeness. Only those cases have been cited which seemed of peculiar interest, except in a few instances where the unavailability of authorities elsewhere led the editor to cite all the cases with which he was acquainted. The editor desires to acknowledge his indebtedness to Tiffany’s Real Property, Pomeroy’s Equity Jurisprudence, and Jones’s Mort- gages, not only for the excerpts therefrom which appear in this book, but also for help received from them, first and last, in the study of mortgage law. Great help has also been derived from Kirchwey’s Cases on Mortgages and Wyman’s Cases on Mortgages. Other ob- ligations, too numerous to mention here, are evidenced upon the following pages. EDGAR N. DURFEE. Ann Arbor, Mich., January 4, 1915. TABLE OF CONTENTS CHAPTER I Page Theoretical Nature of the Mortgage--_----------------------------- 1 CHAPTER II Essential Elements of the Mortgage os 37 Section I—The Form__ = eet Seo oe hot eas 37 (Ca se Sal Orin eae ad ac 37 (b) Equitable Mortgages __----------------------------------- 41 Section II—The Subject-matter ---___------------------------------ 72 Section: TII—The .Débt .2.s-25-cee oss secn secon es ae Sooo eee sees 88 CHAPTER III Incidents of the Mortgage Relation-__-____--____---_-------_------- 133 Section I—Possession ~.--___-------------------------------------- 133 Section II—The Mortgagee’s Legal Remedies for Injury to the Mort- @yeed: eremises. sites cooee ss os ee a a 144 CHAPTER IV Discharge of Mortgages _____-__-------_---------------------------- 158 Section I—Payment and Tender____-------------------------------- 158 Section, 11—The “Merger. abn hoe oe te 194 CHAPTER V Assignment of Mortgages______------------------------------------ 214 CHAPTER VI Redemption scessess ee geese acess ee os ee ee eee a 258 HORECLOSILG: 2:2 ous eunle oo St Sees eo ee 286 Section I—Equitable Suit ~_--__--__--____---_--__----__-----_------ 286 Section II—Sale Under a Power______--__--__-_--_--__-_________--- 353 vi TABLE OF CONTENTS CHAPTER VIII Injunction and Account __-_-----_---------------------------------- 373 CHAPTER IX Extent of the Mortgage Lien____--_-__----------~----------------- 383 CHAPTER X Priority Between Mortgage Liens and Competing Claims to the Land_410 CHAPTER XI Conveyance of the Equity of Redemption____-__-__---_------------~_ 464 TABLE OF CASES Ackerman v. Hunsicker, 85 N. Y. 43 Ames v. Miller, 65 Nebr. 204 v. Richardson, 29 Minn. 330 Arnold v. Green, 116 N. Y. 566 Bacon v. Van Schoonhoven, 87 N. Y. 446 v. Van Schoonhoven, 19 Hun (N. Y.) 158 Bailey v. Smith, 14 Ohio St. 396 Batty v. Snook, 5 Mich. 231 Belknap v. Gleason, 11 Conn. 160 Bernhardt v. Lymburner, 85 N. Y. 172 Bolles v. Duff, 43 N. Y. 469 Brainard v. Cooper, 10 N. Y. 356 Bridgeport Ice Co. v. Meader, 72 Fed. 115 Brinkmeyer v. Browneller, 55 Ind. 487 Brown v. Cole, 14 Simons 427 Burr v. Beers, 24 N. Y. 178 Calvo v. Davies, 73 N. Y. 211 Campbell v. Carter, 14 Ill. 286 Carpenter v. Koons, 20 Pa. St. 222 v. Longan, 16 Wall. (U. S.) 271 Casserly v. Witherbee, 119 N. Y. 522 Christ Church v. Mack, 93 N. Y. 488 Clark v. Reyburn, 1 Kans. 281 Clay v. Banks, 71 Ga. 363 Clinton County v. Cox, 37 Iowa 570 Collins v. Riggs, 14 Wall. (U. S.) 491 Colonial Mortgage Co., The v. The Northwest Thresher Co., 14 N. Dak. 147 Cooper v. Bigly, 13 Mich. 473 Coyle v. Davis, 20 Wis. 564 Cullen v. Carey, 146 Mass. 50 Curtis v. Moore, 152 N. Y. 159 (vii) 112 448 406 177 437 461 228 262 329 516 284 295 127 162 472 484 194 496 .236 282 309 150 204 341 300 345 511 491 69 444 vill TABLE OF CASES Davis v. Winn, 2 Allen (Mass.) 111 Day v. Munson, 14 Ohio St. 488 Decker v. Boice, 83 N. Y. 215 Dickason v. Williams, 129 Mass. 182 Dusenbury v. Hulbert, 59 N. Y. 541 Ellison v. Daniels, 11 N. H. 274 Erie County Sav. Bank v. Schuster, 187 N. Y. 111 Evans v. Merriken, 8 Gill. & J. (Md.) 39 Evansville Gas Co. v. The State, 73 Ind. 219 Ewer v. Hobbs, 5 Metc. (Mass.) 1 Felino v. Newcomb Lumber Co., 64 Nebr. 335 Flagg v. Mann, 2 Sumn. (U. S.) 486 Fosdick v. Schall, 99 U. S. 235 Foster v. Carson, 159 Pa. St. 477 Gardner v. Heartt, 3 Denio (N. Y.) 232 Garnsey v. Rogers, 47 N. Y. 233 Gibson y. Crehore, 5 Pick. (Mass.) 146 Gilliam v. McCormack, 85 Tenn. 597 v. Moore, 4 Leigh (Va.) 30 Glass v. Freeburg, 50 Minn. 386 Goodbar & Co. v. Dunn, 61 Miss. 618 Gooding v. Shea, 103 Mass. 360 Goodman v. White, 26 Conn. 316 Goodyear v. Goodyear, 72 Iowa 329 Gotzian v. Shakman, 89 Wis. 52 Gray v. Loud & Sons Lumber Co., 128 Mich. 427 Griffin v. New Jersey Oil Co., 11 N. J. Eq. 49 Grover v. Flye, 5 Allen (Mass.) 543 Hall v. Bliss, 118 Mass. 554 Hare v. Murphy, 45 Nebr. 809 Hartshorne v. Hartshorne, 2 N. J. Ea. 349 Hazeltine v. Granger, 44 Mich. 503 Heisler v. Altman & Co., 56 Minn. 454 Henley v. Hotaling, 41 Cal. 22 Hiles v. Coult, 30 N. J. Eq. 40 Hoag v. Sayre, 33 N. J. Eq. 552 Hoffman v. Mackall, 5 Ohio St. 124 Honore v. Lamar Ins. Co., 51 Ill. 409 Hopkins v. Wolley, 81 N. Y. 77 Hubbell v. Moulson, 53 N. Y. 225 Hughes v. Johnson, 38 Ark. 285 Hyde v. Miller, 45 Hun (N. Y.) 396 375 462 453 210 428 221 410 15 312 20 142 94 402 240 31 478 279 519 424 412 462 144 17 182 530 504 109 158 367 476 205 140 174 90 510 427 88 378 511 34 374 483 TABLE OF CASES Iglehart v. Crane & Wesson, 42 III. 261 Johnson v. Bratton, 112 Mich. 319 v. Hart, 3 Johns. Cas. (N. Y.) 322 v. Johnson, 40 Md. 189 v. Johnson, 27 S. Car. 309 Keller v. Ashford, 133 U. S. 610 Kernohan v. Manss, 53 Ohio St. 118 Kortright v. Cady, 21 N. Y. 343 Ladue v. Detroit & Milwaukee R. Co., 13 Mich. 380 Lee v. Evans, 8 Cal. 424 v. Kellogg, 108 Mich. 535 Lightcap v. Bradley, 186 Ill. 510 Littlefield v. Nichols, 42 Cal. 372 Lord v. Morris, 18 Cal. 482 Love v. Sierra Nevada Mining Co., 32 Cal. 639 McFadden v. Allen, 134 N. Y. 489 Mallin v. Wenham, 209 Il. 252 Martin v. Alter, 42 Ohio St. 94 : Matthews v. Aikin, 1 Comst. (N. Y.) 595 v. Sheehan, 69 N. Y. 585 v. Wallyn, 4 Vesey. 118 Menzel v. Hinton, 132 N. Car. 660 Merritt v. Bartholick, 36 N. Y. 44 Milligan’s Appeal, 104 Pa. St. 503 Mooney v. Byrne, 163 N. Y. 86 Moriarty v. Ashworth, 43 Minn. 1 Moulton v. Cornish, 128 N. Y. 133 Murray v. Marshall, 94 N. Y. 611 Newton v. McKay, 30 Mich. 380 / New York Security &c. Co. v. Saratoga Gas &c. Co., 159 N. Y. 137 Norfolk State Bank vy. Murphy, 40 Nebr. 735 Norwood v. De Hart, 30 N. J. Eq. 413 Noyes v. Rich, 52 Maine 115 Odell v. Montross, 68 N. Y. 499 Ogle v. Koerner, 140 Ill. 170 Ozmun v. Reynolds, 11 Minn. 341 Partridge v. Hemenway, 89 Mich. 454 Peabody v. Roberts, 47 Barb. (N. Y.) 91 Pepper’s Appeal, 77 Pa. St. 373 Peters v. Dunnells, 5 Nebr. 460 Peugh v. Davis, 96 U. S. 332 26, 29, ix 498 390 217 49 353 464 255 167 118 62 253 21 307 334 44 383 327 20 173 98 227 368 225 514 272 373 286 488 138 397 416 474 396 263 316 332 386 303 246 344 258 x TABLE OF CASES Phyfe v. Riley, 15 Wend. (N. Y.) 248 Pierce v. Robinson, 13 Cal, 116 Porter v. Ourada, 51 Nebr. 510 Quackenbush v. O’Hare, 129 N. Y. 485 Reilly v. Phillips, 4 S. Dak. 604 Robinson v. Williams, 22 N. Y. 380 Rockwell v. Bradley, 2 Conn. 1 Runyan v. Mesereau, 11 Johns. (N. Y.) 534 Sanders v. Reed, 12 N. H. 558 San Francisco v. Lawton, 18 Cal. 465 Searle v. Sawyer, 127 Mass. 491 Seymour v. Canandiagua R. Co., The, 25 Barb. (N. Y.) 284 Shores v. Doherty, 65 Wis. 153 Silliman v. Gammage, 55 Tex. 365 Simpson v. Del Hoyo, 94 N. Y. 189 Smith v. Shay, 62 Iowa 119 Spencer v. Harford, 4 Wend. (N. Y.) 381 Stewart v. Crosby, 50 Maine 130 vs Smith, 36 Minn. 82 Stinchfield v. Milliken, 71 Maine 567 Syracuse Savings Bank v. Merrick, 182 N. Y. 387 Teal v. Walker, 111 U. S. 242 Teft v. Munson, 57 N. Y. 97 Tomlinson v. Thompson, 27 Kans. 70 Tryon v. Munson, 77 Pa. St. 250 Union Water Co. v. Murphy’s Flat Fluming Co., 22 Cal. 621 Vaniman v. Gardner, 99 Ill. App. 345 Van Pelt v. McGraw, 4 N. Y. 110 Varnum v. Meserve, 8 Allen (Mass.) 158 Verner v. Betz, 46 N. J. Eq. 256 Walters v. Chance, 73 Kans. 680 Washington Brewery Co. v. Carry (Md.), 24 Atl. 151 Watson v. Wyman, 161 Mass. 96 Welch v. Beers, 8 Allen (Mass.) 151 Welsh v. Phillips, 54 Ala. 309 West v. Reed, 55 Ill. 242 Wilkins v. Gibson, 113 Ga. 31 Williams v. Hilton, 35 Maine 547 v. Keyes, 90 Mich. 290 Willis v. Miller, 23 Ore. 352 Worth v. Hill, 14 Wis. 559 Young v. Miller, 6 Gray (Mass.) 152 Young Mechanic, The, Fed. Cas. 18180 134 65 441 528 360 133 d TABLE OF AUTHORITIES xi TABLE OF STATUTES Consolidated Laws of New York (1909), Chap. 52, Art. 9, §§ 290, 291 245, 315, 435 General Code of Ohio (1910), §§ 8542, 8543 436, 437 Revised Laws‘of Massachusetts (1902), Chap. 127, § 4 436 Revised Statutes of Illinois (1912, Hurd), Chap. 30, §§ 28, 30, 31 436 TABLE OF SECONDARY AUTHORITIES Encyclopedia of Law and Practice 937 245 Hargrave and Butler’s Notes to Coke Upon Littleton, 290b, note 1, xv 433 Holland, Jurisprudence (10th ed.) 222 7 Jones, Mortgages, 60 37 62 40 162 41 843, 844 243 844a 244 Langdell, Classification of Rights and Wrongs, 13 Hart L. Rev. 539 1 Littleton, Tenures, 332, 335 158 Maitland, Equity, 122 10 Pomeroy, Equity, 679 410 681 432 735 434 736 435 738 434 Salmond, Jurisprudence (3d ed.) 81 1 83 3 84 6 85, 91 9 Tiffany, Real Property, 475 433 509 72 510 37 511 39 513 41 558 326 CASES ON MORTGAGES CHAPTER I. THEORETICAL NATURE OF THE MORTGAGE. LANGDELL, CLASSIFICATION OF RIGHTS AND Wroncs, 13 Harv. L. Rev. 539-540. An obligation is either personal or real, according as the obligor is a person or thing. A real obligation is undoubtedly a legal fiction, but it is a very useful one. It was invented by the Romans, from whom it has been inherited by the nations of modern Europe. That it would ever have been invented by the latter is very unlikely, partly be- cause they have needed it less than did the ancients, and partly because they have not, like the ancients, the habit of personifying inanimate things. The invention was used by the Romans for the accomplishment of several important legal objects, some of which no longer exist, but others still remain in full force. It was by means of this that one person acquired rights in things belonging to others (jura in rebus alienis). Such rights were called servitudes (i. e., states of slavery) in respect to the thing upon which the obli- _ gation was imposed, and they included every right which one could have in a thing, short of owning it. These servitudes were divided into real and personal servitudes, being called real when the obligee as well as the obligor, i. e., the master (dominus) as well as the slave (servus), was a thing, and personal when the obligee was a person. The former, which may be termed servitudes proper, have passed into our law under the names of easements and profits a prendre. The latter included the pignus and the hypotheca, i. e., the Roman mortgage, which was called pignus when the thing mort- ‘gaged was delivered to the creditor, and hypotheca when it was con- stituted by a mere agreement, the thing mortgaged remaining in the possession of its owner. SALMOND, JURISPRUDENCE (3d ed.), § 81. The distinction between real and personal rights is closely connected but not identical with 2 NATURE OF THE MORTGAGE. that between negative and positive rights. It is based on a Giles 9 ference in the incidence of the correlative duties. A real right corresponds to a duty imposed upon persons in general; a personal right corresponds to a duty imposed upon determinate individuals. A real right is available against the world at large; a personal right is available only against particular persons. The distinction is one of great prominence in the law, and we may take the fol- lowing as illustrations of it. My right to the peaceable occupation of my farm is a real right, for all the world is under a duty towards me not to interfere with it. But if I grant a lease of the farm to a tenant, my right to receive the rent from him is personal; for it avails exclusively against the tenant himself. For the same rea- son my right to the possession and use of the money in my purse is real; but my right to receive money from some one who owes it to me is personal. I have a real right against every one not to be deprived of my liberty or my reputation; I have a personal right to receive compensation from any individual person who has impris- oned or defamed me. I have a real right to the use and occupation of my own house; I have a personal right to receive accommoda- tion at an inn. A real right, then, is an interest protected against the world at large; a personal right is an interest protected solely against de- terminate individuals. The distinction is clearly one of importance. The law confers upon me a greater advantage in protecting my interests against all persons, than in protecting them only against one or two. The right of a patentee, who has a monopoly as against all the world, is much more valuable than the right of him who purchases the good-will of a business and is protected only against the competition of his vendor. If I buy a chattel, it is an important question, whether my interest in it is forthwith protected against every one, or only against him who sells it to me. The main pur- pose of mortgages and other forms of real security is to supple- ment the imperfections of a personal right by the superior advan- tages inherent in a right of the other class. The distinction between a real and a personal right is otherwise expressed by the terms right in rem (or in re) and right in per- sonam. These expressions are derived from the commentators on the civil and canon law. Literally interpreted, jus in rem means a right against or in respect of a thing, jus in personam a right against or in respect of a person. In truth, however, every right is at the same time one in respect of some thing, namely, its object, and against some person, namely, the person bound. In other words, every right involves not only a real, but also a personal relation. Yet although these two relations are necessarily co-ex- istent, their relative prominence and importance are not always NATURE OF THE MORTGAGE. 3 the same. In real rights it is the real relation that stands in the forefront of the juridical conception; such rights are emphatically and conspicuously iz rem. In personal rights, on the other hand, it is the personal relation that forms the predominant factor in the conception; such rights are before all things in personam. For this difference there is more than one reason. In the first place, the real right is a relation between the owner and a vague multi- tude of persons, no one of whom is distinguished from any other; while a personal right is a definite relation between determinate individuals, and the definiteness of this personal relation raises it into prominence. Secondly, the source or title of a real right is commonly to be found in the character of the real relation, while a personal right generally derives its origin from the personal rela- tion. In other words, if the law confers upon me a real right, it is commonly because I stand in some special relation to the thing which is the object of the right. If, on the contrary, it confers on me a personal right, it is commonly because I stand in some special relation to the person who is the subject of the correlative duty. If I have a real right in a material object, it is because I made it, or found it, or first acquired possession of it, or because by transfer or otherwise I have taken the place of some one who did originally stand in some such relation to it. But if I have a personal right to receive money from another, it is commonly be- cause J have made a contract with him, or have come in some other manner to stand in a special relation to him. Each of these reasons tends to advance the importance of the real relation in real rights, and that of the personal relation in personal rights. The former are primarily and pre-eminently in rem; the latter primarily and pe-eminently in personam. * * * * * * * Ib., § 83. Rights may be divided into two kinds, distinguished by the civilians as jura in re propria and jura in re aliena. The latter may also be conveniently termed encumbrances, if we use that term in its widest permissible sense. A right in re aliena or encumbrance is one which limits or derogates from some more general right belonging to some other person in respect of the same subject-matter. ‘All others are jura in re propria. It fre- quently happens that a right vested in one person becomes subject or subordinate to an adverse right vested in another. It no longer possesses its full scope or normal compass, part of it being cut off to make room for the limiting and superior right which thus derogates from it. Thus the right of a landowner may be subject to and limited by that of a tenant to the temporary use of the property ; or to the right of a mortgagee to sell or take possession ; or to the right of a neighboring landowner to the use of a way or other easement; or to the right of the vendor of land in respect of 4 NATURE OF THE MORTGAGE. restrictive covenants entered into by the purchaser as to the use of it; for example, a covenant not to build upon it. ; ; A right subject to an encumbrance may be conveniently desig- nated as servient, while the encumbrance which derogates from it may be contrasted as dominant. These expressions are derived from, and conform to, Roman usage in the matter of servitudes. The general and subordinate right was spoken of figuratively by the Roman lawyers as being in bondage to the special right which prevailed over and derogated from it. The term servitus, thus de- rived, came to denote the superior right itself rather than the relation between it and the other; just as obligatio came to denote the right of the creditor, rather than the bond of legal subjection under which the debtor lay. The terms jus in re propria and jus in re aliena were devised by the commentators on the civil law, and are not to be found in the original sources. Their significance is clear. The owner of a chattel has jus in re propria—a right over his own property; the pledgee or other encumbrancer of it has jus in re aliena—a right over the property of some one else. There is nothing to prevent one encumbrance from being itself subject to another. Thus a tenant may sublet; that is to say, he may grant a lease of his lease, and so confer upon the sub-lessee a jus in re aliena of which the immediate subject-matter is itself merely another right of the same quality. The right of the tenant in such a case is dominant with regard to that of the landowner, but servient with regard to that of the sub-lessee. So the mort- gagee of land may grant a mortgage of his mortgage; that is to say, he may create what is called a sub-mortgage. The mortgage will then be a dominant right in respect of the ownership of the land, but a servient right with respect to the sub-mortgage. So the easements appurtenant to land are leased or mortgaged along with it; and therefore, though themselves encumbrances, they are themselves encumbered. Such a series of rights, each limiting and derogating from the one before it, may in theory extend to any length. A right is not’ to be classed as encumbered or servient, merely on account of its natural limits and restrjctions. Otherwise all rights would fall within this category, since none of them are un- limited in their scope, all being restrained within definite bound- aries by the conflicting interests and rights of other persons. All ownership of material things, for example, is limited by the maxim, sic utere tuo ut alienum non laedas. Every man must so restrain himself in the use of his property, as not to infringe upon the property and rights of others. The law confers no property in stones, sufficiently absolute and unlimited to justify their owner in throwing them through his neighbors windows. No land-owner NATURE OF THE MORTGAGE. 5 may by reason of his ownership inflict a nuisance upon the public or upon adjoining proprietors. But in these and all similar cases we are dealing merely with the normal and natural boundaries of the right, not with those exceptional and artificial restrictions which are due to the existence of jura in re aliena vested in other persons. A servient right is not merely a limited right, for all are limited; it is a right so limited that its ordinary boundaries are infringed. It is a right which, owing to the influence of some other and su- perior right, is prevented from attaining its normal scope and dimensions. Until we have first settled the natural contents and limits of a right, there can be no talk of other rights which qualify and derogate from it. It is essential to an encumbrance that it should, in the technical language of our law, run with the right encumbered by it. In other words the dominant and the servient rights are necessarily concurrent. By this it is meant that an encumbrance must follow the encumbered right into the hands of new owners, so that a change of ownership will not free the right from the burden im- posed upon it. If this is not so—if the right is transferable free from the burden—there is no true encumbrance. For the burden is then merely personal to him who is subject to it, and does not in truth limit or derogate from the right itself. This right still exists in its full compass, since it can be transferred in its en- tirety to a new owner. For this reason an agreement’to sell land vests an encumbrance or jus in re aliena in the purchaser; but an ‘ agreement to sell a chattel does not. The former agreement runs with the property, while the latter is non-concurrent. So the fee simple of land may be encumbered by negative agreements, such as a covenant not to build; for speaking generally, such obligations will run with the land into the hands of successive owners. But positive covenants are merely personal to the covenantor, and dero- gate in no way from the fee simple vested in him, which he can convey to another free from any such burdens. Concurrence, however, may exist in different degrees; it may be more or less perfect or absolute. The encumbrance may run with the servient right into the hands of some of the successive owners and not into the hands of others. In particular, encumbrances may be concurrent either in law or merely in equity. In the latter case the concurrence is imperfect or partial, since it does not pre- vail against the kind of owner known in the language of the law as a purchaser for value without notice of the dominant right. Ex- amples of encumbrances running with their servient rights at law are easements, leases, and legal mortgages. On the other hand an agreement for a lease, an equitable mortgage, a restrictive cove- nant as to the use of land, and a trust will run with their re- spective servient rights in equity but not at law. 6 NATURE OF THE MORTGAGE. It must be carefully noted that the distinction between jura im re propria and jura in re aliena is not confined to the sphere of real rights or jura in rem. Personal, no less than real rights may be encumbrances of other rights. Personal, no less than real rights may be themselves encumbered. A debtor, for example, may grant a security over the book debts owing to him in his business or over his shares in a company, as well as over his stock in trade. A life tenancy of money in the public funds is just as possible as a life tenancy of land. There can be a lien over a man’s share in a trust fund, as well as over a chattel belonging to him. The true test of an encumbrance is not whether the encumbrancer has a jus in rem available against all the world, but whether he has a right which will avail against subsequent owners of the encum- bered property. The chief classes of encumbrances are four in number, namely, Leases, Servitudes, Securities, and Trusts. 1. A lease is the encumbrance of property vested in one man by a right to the possession and use of it vested in another. 2. A servitude is a right to. the limited use of a piece of land unaccompanied either by the ownership or by the possession of it; for example, a right of way or a right to the passage of light or water across adjoining land. 3. A security is an encumbrance vested in a creditor over the property of his debtor, for the purpose of securing the recovery of the debt; a right, for example, to retain possession of a chattel until the debt is paid. 4. A trust is an encumbrance in which the ownership of prop- erty is limited by an equitable obligation to deal with it for the benefit of some one else. The owner of the encumbered property is the trustee; the owner of the encumbrance is the beneficiary. Ib., § 84. The relation between principal and accessory rights is the reverse of that just considered as existing between servient and dominant rights. For every right is capable of being affected to any extent by the existence of other rights; and the influence thus exercised by one upon another is of two kinds, being either adverse or beneficial. It is adverse, when one right is limited or qualified by another vested in a different owner. This is the case already dealt with by us. It is beneficial, on the other hand, when one right has added to it a supplementary right vested in the same owner. In this case the right so augmented may be termed the principal, while the one so appurtenant to it is the accessory right. Thus a security is accessory to the right secured; a servitude is accessory to the ownership of the land for whose benefit it exists; the rent and covenants of a lease are accessory to the landlord’s ownership of the property; covenants for title in a conveyance NATURE OF THE MORTGAGE. 7 are accessory to the estate conveyed; and a right of action is ac- cessory to the right for whose enforcement it is provided. A real right may be accessory to a personal; as in the case of a debt secured by a mortgage of land. A personal right may be accessory to a real; as in the case of the covenants of a lease. A real right may be accessory to a real; as in the case of servitudes appurtenant to land. And finally a personal right may be acces- sory to a personal; as in the case of a debt secured by a guarantee. HOLianp, JURISPRUDENCE (10th ed.), pp. 222-226. The iura in re aliena+ which have hitherto been considered [Servitudes] are given with a single purpose. Their object is to extend the advantages enjoyed by a person beyond the bounds of his own property. But there is also a right of the same class which is given, not with this object, but for the merely subsidiary purpose of enabling the person to whom it is granted to make sure of receiving a certain value to which he is entitled; if not otherwise, then at all events by means of the right in question. The other rights in re aliena enable the person entitled to them to enjoy the physical qualities of a thing. This right, which is known as Pledge, merely enables a person who is entitled to receive a definite value from another, in default of so receiving it, to realize it by eventual sale of the thing which is given to him in pledge. The right of sale is one of the component rights of ownership, and may be parted with separately in order thus to add security to a personal obligation. When so parted with, it is a right of pledge, which may be defined as “a right in rem, realizable by sale, given to a creditor by way of accessory security to a right in per- sonam,” The objects aimed at by a law of pledge are, on the one hand, to give the creditor a security on the value of which he can rely, which he can readily turn into money, and which he can follow even in the hands of third parties; on the other hand, to leave the enjoyment of the thing in the meantime to its owner, and to give him every facility for. disencumbering it when the debt for which it is security shall have been paid. The methods by which these objects can best be attained, and the degree in which they are attainable, must vary to some extent with the nature of the thing pledged. Probably the rudest method is that which involves an actual transfer of ownership in the thing from the debtor to the creditor, accompanied by a condition for its retransfer upon due payment of the debt. Such was the fiducia of the older Roman law, such is the Scotch wadset, and such is 1From the context it appears that Mr. Holland, unlike Mr, Salmond, confines the term “jus in re aliena” to a sub-classification of rights in rem. 8 NATURE OF THE MORTGAGE. the English mortgage, of lands or goods, at the present day, except in so far as its theory has been modified by the determination of the Court of Chancery and of the Legislature to continue, as long as possible, to regard the mortgagor as the owner of the property. Lord Mansfield was unsuccessful in attempting to induce the Courts of Common Law to take the same view. Another method, which must always have been practiced, is that in which the ownership of the object remains with the debtor, but its possession is transferred to the creditor. This was called by the Romans pignus. As a rule the creditor cannot make use of the thing which is thus in his custody. If he is to take its profits by way of interest, the arrangement is called antichresis. He had orig- inally no power of sale without express agreement, but this became customary, and was at least presumed. Yet another mode of creating a security is possible, by which not merely the ownership of the thing but its possession also re- mains with the debtor. This is called by the Roman lawyers and their modern followers hypotheca. Hypothecs may arise by the direct application of a rule of law, by judicial decision, or by agree- ment. Those implied by law, generally described as tacit hypothecs, are probably the earliest. They are first heard of in Roman law in connection with that right of a landlord over the goods of his tenant, which is still well known on the continent and in Scotland under its old name, but in England takes the form of a right of Distress. Similar rights were subsequently granted to wives, pu- pils, minors, and legatees, over the property of husbands, tutors, curators, and heirs respectively. The action by which the praetor Servius first enabled a land- lord to claim the goods of his defaulting tenant in order to realize his rent, even if they had passed into the hands of third parties, was soon extended so as to give similar rights to any creditor over property which its owner had agreed should be held liable for a debt. A real right was thus created by the mere consent of the parties, without any transfer of possession, which, although op- posed to the theory of Roman law, became firmly established as applicable both to immovable and movable property. Of the mod- ern states which have adopted the law of hypothec, Spain perhaps stands alone in adopting it to the fullest extent. The rest have, as a rule, recognized it only in relation to immovables. Thus the Dutch law holds to the maxim mobila non habent sequelam, and the French Code, following the coutumes of Paris and Normandy, lays down that les meubles wont pas de suite par hypotheque. But by the Code de Commerce, ships, though movables, are capable of hypothecation ; and in England what is called a mortgage, but is essentially a hypothec, of ships is recognized and regulated by the NATURE OF THE MORTGAGE. 9 “Merchant Shipping Acts,” under which the mortgage must be recorded by the registrar of the port at which the ship itself is reg- istered. So also in the old contract of “bottomry,” the ship is made security for money lent to enable it to proceed upon its voyage. SALMOND, JURISPRUDENCE, § 85. In a former chapter we con- sidered the distinction between common law and equity. We saw that these two systems of law, administered respectively in the courts of common law and the Court of Chancery, were to a con- siderable extent discordant. One of the results of this discordance was the establishment of a distinction between two classes of rights, distinguishable as legal and equitable. Legal rights are those which were recognized by the courts of common law. Equitable rights (otherwise called equities) are those which were recognized solely in the Court of Chancery. Notwithstanding the fusion of law and equity by the Judicature Act, 1873, this distinction still exists, and must be reckoned with as an inherent part of our legal system. That which would have been merely an equitable right before the Judicature Act is merely an equitable right still. Inasmuch as all rights, whether legal or equitable, now obtain legal recognition in all courts, it may be suggested that the dis- tinction is now of no importance. This is not so, however, for in two respects, at least, these two classes of rights differ in their practical effects. 1. The methods of their creation and disposition are different. A legal mortgage of land must be created by deed, but an equitable mortgage may be created by a written agreement or by a mere deposit of title-deeds. A similar distinction exists between a legal and an equitable lease, a legal and.an equitable servitude, a legal and an equitable charge on land, and so on. 2. Equitable rights have a more precarious existence than legal rights. Where there are two inconsistent legal rights claimed ad- versely by different persons over the same thing, the first in time prevails. Qui prior est tempore potior est jure. A similar rule applies to the competition of two inconsistent equitable rights. But when a legal and an equitable right conflict, the legal will prevail over and destroy the equitable, even though subsequent to it in origin, provided that the owner of the legal right acquired it for value and without notice of the prior equity. As between a prior equitable mortgage, for example, and a subsequent legal mortgage, preference will be given to the latter. The maxim is: Where there are equal equities, the law will prevail. This liability to destruc- tion by conflict with a subsequent legal right is an essential feature and a characteristic defect of all rights which are merely equitable. Ib., §91. Closely connected but not identical with the distinction between trust and beneficial ownership is that between legal and 10 NATURE OF THE MORTGAGE. equitable ownership. One person may be the legal and another the equitable owner of the same thing at the same time. Legal ownership is that which has its origin in the rules of the common law, while equitable ownership is that which proceeds from rules of equity divergent from the common law. The courts of common law refused to recognize equitable ownership, and denied that the equitable owner was an owner at all. The Court of Chancery adopted a very different attitude. Here the legal owner was rec- ognized no less than the equitable, but the former was treated as a trustee for the latter. Chancery vindicated the prior claims of equity, not by denying the existence of the legal owner, but by taking from him by means of a trust the beneficial enjoyment of his property. The fusion of law and equity effected by the Judica- ture Act, 1873, has not abolished the distinction; it has simply extended the doctrines of the Chancery to the courts of common law, and as equitable ownership did not extinguish or exclude legal ownership in Chancery, it does not do so now. MaitLanp, Eguity, p. 122. Equitable estates and interests are rights in personam but they have a misleading resemblance to rights in rem. This resemblance has been brought about in the following way. The trust will be enforced not only against the trustee who has accepted it and his representatives and volunteers claiming through or under him, but also against persons who acquire legal rights through or under him with knowledge of the trust—nor is that all, it will be enforced against persons who acquire legal rights or under him if they ought to have known of the trust. The Court of Chancery set up a standard of diligence for purchasers and a high one, one so high that it certainly is difficult for a purchaser to buy land without obtaining constructive notice of all trusts which concern that land. Still now and again the difficulty is surmounted, and then the true character of equitable. rights becomes apparent —a purchaser acquires a legal right bona fide, for value, and with- out notice either actual or constructive of the trust, and he holds the land successfully against cestuis que trust, and cestui que trust may then comfort himself with the reflection that the land never was his. Curtis, J.. in THe Younc Mrcuanic, Fed Cas. 18180 (U. S. C. C., 1855). Equitable liens * * * arise out of constructive trusts and are neither jus in re nor jus ad rem, but simply a duty, binding on. the conscience of the owner of the thing, and which a court of equity will compel him specifically to perfor. EprtoriAL Note: History or Encrisn Mortcace Law to THE Time or Lorp MansrieLp. The idea of a lien held by one person upon the property of another for the purpose of securing the per- formance of an obligation seems a simple one, but for various rea- NATURE OF THE MORTGAGE. 11 sons this simple concept has never found a simple expression in the laws of any people. Instead we have laws framed upon concepts which are wholly foreign to this simple lien idea and which required twisting and stretching to make them serve the end.2 This is con- spicuously true of our law of real property mortgages. The result is a body of law full of fictions, contradictions and technicalities which are intelligible only when approached historically. A history of mortgage law must begin in the middle ages, but we may pass by all medieval forms of gage, other than the con- ditional feoffment hereafter discussed, with the observation that they were numerous and of diverse origin and nature? Some of them more nearly approximated, in their operatién, the modern mortgage than did the conditional feoffment, but there is appar- ently no historical connection of any importance here. It is the con- ditional feoffment from which the modern mortgage developed, and we will proceed at once to its examination. Subject to great variation of detail, the groundwork of this form of security was a conveyance (which, in most cases, meant, of course, a feoffment) upon condition that, if a certain sum of money was paid by the feoffor to the feoffee at a certain time, the conveyance should be void.4 This form of transaction soon acquired the name “mortgage.” Although not unknown at an earlier period, it came into prom- inence between the age of Bracton and that of Littleton (in or about the fourteenth century) and steadily grew in favor until it 2 See The Pledge Idea, J. H. Wigmore, 10 Harv. L. Rev. 321, 11 Ib. 18. 3See The Gage of Land in Mediaeval England, H. D. Hazel- tine, 17 Harv. L. Rev. 549, 18 ib. 36. 4 The following is a translation of a charter of defeasance, accom- panying a conditional feoffment of the year 1341, taken from Madox, Formulare Anglicanum. / “This indenture witnesseth that as John Balet of Enebourne has given and granted to Thomas Monalf and to his heirs a farm called Crowes- croft and a meadow called Lawrencemede with their appurtenances in Enebourne as more fully appears by a charter of feoffment to said Thomas by him made: I, the aforesaid Thomas, will and grant for my- self and for my heirs and executors that if said John or his heirs pay or cause to be paid to me or to my heirs and my executors ten poundg in money at any time within the next ten years ensuing after this writing; in that case that the said charter of feoffment be annulled and held void for all time: And if the said John or his heirs do not pay or cause to be paid to the said Thomas or to his heirs or to his executors the aforesaid ten pounds at any time within the specified term of ten years next ensu- ing; that said charter stand in its force and nature to him the said Thomas and to his heirs forever without impeachment of said John or of his heirs forever. “In Witness Whereof, the aforesaid Thomas and John mutually have placed their seals on this indenture; ‘by these witnesses, Walter de Nor- tone, Curtle T. More. Given at Neuburiz the Saturday next following the’ feast of the Apostles Saint Philip and Saint Jacob, in the 14th year of the reign of King Edward III, after the Conquest.” 12 NATURE OF THE MORTGAGE. supplanted all other forms of gage of land, became the mortgage of the classical period of the common law, and, with the substi- tution of grant for feoffment, is substantially the mortgage of today. The reasons for the predominance of this form of security were, it is safe to say, the lender’s reasons—in other words, it rep- resents the demand of the lending class for satisfactory security. In considering the legal effect of this form of transaction—that is to say, its operation as enforced by the courts—we must examine separately the doctrines of law and equity. We will first consider the state of the law, using that word in the narrow sense. We must remember that throughout this period, as at the present day, there was a very definite and comparatively simple law of conditional estates, of which we may say that it succeeded quite well in giving effect to the express provisions of conditional conveyances. It is not surprising, then, that a conveyance condi- tioned to be void on the payment of a sum of money was treated by the courts of law like any other conveyance on condition subsequent, by making a quite literal application of its stipulations, The result, of course, was that, prior to the time fixed for payment, the feoffee had an estate in fee simple, defeasible on performance of the condition; that upon performance of the condition by payment of the sum named at the day named, a right of reentry arose in favor of the feoffor, upon the exercise of which the estate revested in him; while upon default, or non-performance of the condition, by fail- ure to pay the sum named on the day named, the estate of the feoffee became absolute. We can say, then, that, during this period the courts of law had no specialized rules for mortgages that could be called a “law of mortgages,” but that mortgages were governed by the law of conditional estates.® ’ We will next consider the status of the mortgage in equity dur- ing the same period. These years see the growth of Chancery from a semi-judicial office of doubtful authority to a fully devel- oped court, exercising a limited jurisdiction, but, within its limita- tions, enjoying practical supremacy over the courts of law. It is impossible to say when the Chancellors first interfered in the mort- gage relation, but they became active in this field in the seven- teenth century. : The position of the Chancellors was that the mortgage, while in form a conveyance on condition subsequent) was intended merely as a security for money; that the function of security was per- formed if the mortgagee got back his money, even after the day named in the mortgage; and that the operation of the rules of law 5 Littleton, for example, while he applies to this form of transaction, the term ‘mortgage,” treats of it under the head of Estates Upon Condi- tion, without showing any differentiation in the law applicable to it. Ten- ures, §§ 332-344, NATURE OF THE MORTGAGE. 13 upon default worked a hardship upon the mortgagor, against which equity should relieve. At the suit of the mortgagor they would compel the mortgagee to reconvey the estate, upon payment of the debt, even though it was long past the “law day” named for pay- ment, so that the mortgagee had acquired absolute ownership of the land at law. This relief was called “redemption.”? At first, we may assume, it was granted only in cases of unusual hardship, as where the land was worth many times the debt, but presently became a matter of course and of right in all cases. At this point the mortgagee found that his legal rights, which hitherto had been entirely adequate to his purposes, were so no longer. He had the legal title to the land, as before, but he was now liable at any time to be hailed into the Court of Chancery and compelled to relinquish his title, and this equitable liability would extend, of course, to any purchaser with notice. The result was that, until the mortgagor chose to redeem, the mortgagee was left without his money and without the power of disposing of the land to raise the money. For relief from this situation the mortgagee was, himself, forced to seek the Court of Chancery, and that court, perceiving that the right to redeem could not be indefinitely extended without impair- ing the usefulness of mortgages, granted a decree of “foreclosure,” cutting off or “foreclosing” the mortgagor’s equitable right to redeem and leaving the mortgagee’s legal title absolute. In redemption and foreclosure we have the ground work of the equitable doctrine of mortgages, but the elaboration of that doc- 6 The stock justification of the equitable doctrine of mortgages is that it gives effect to the real intention of the parties, regarding the substance rather than the form. So far as concerns the original interposition of equity, this is, of course, specious. While the purpose of the parties was to secure the payment of a sum of money, they manifestly intended, and so evidenced in the most conclusive way, to accomplish this purpose by means of a conditional conveyance. What equity really did, then, was not to give effect to the intention of the parties, but to defeat their intention, to limit their freedom of contract, and to impose upon them rules of law which they could not avoid by any form of agreement or by any expres- sion of intention. Under the guise of enforcing the intention of the par- ties, the court in reality enforced the intention which it conceived that they in good conscience ought to entertain. In this regard the doctrine of equity which declares the mortage a mere security is of one piece with that which declares that agreements, however explicit, which clog the equity of redemption, are void. Hazeltine v. Granger, post; Pierce v. Robinson, post. The true justification of the equitable doctrine of mortgages lies in the fact that lender and borrower are not usually on an equal footing and that the latter needs protection against the former, needs protection even against himself in his borrowing transactions. This is, of course, the same idea which lies behind the usury statutes, See Vernon v. Bethell, post, n. 1, Chap. VI. 7 The term “redemption” is also applied to voluntary payment and discharge of a mortgage, out of court. 14 NATURE OF THE MORTGAGE. trine should be traced in its main features. The right of the mort- gagee to redeem the land in equity constituted, of course, an “equitable estate’ in the land, which was called the “equity of redemption.”8 Under the rule that equity follows the law, this equitable estate, like all others, possessed many of the characteris- tics of legal estates, viz., it descended to the heir, could be con- veyed or devised, and could be cut up into lesser estates, and in general, could be dealt with in the same manner as a legal estate, always subject, of course, to the outstanding rights of the mort- gagee. In short, the mortgagor was treated in equity as the real owner of the land, though at law he was held to have parted with his title. Consistently with this position, the interest of the mort- gagee in the land, though held at law to be ownership, was regarded in equity as a security only. From this it followed that the debt was regarded as the principal right and the interest in the land as a mere incident or accessory of the debt. Therefore this interest in the land automatically followed the debt when the latter was transferred by assignment and no conveyance of the land was nec- essary. Likewise this interest passed with the debt to executors or administrators and not to heirs. Thus the interest of the mortgagee in the land came to be, in equity, a personal or chattel interest. This is substantially the equitable doctrine of mortgagee as it stood at the middle of the eighteenth century. Up to this point the rules of law remained in the form outlined above, but, by reason of the practical supremacy of equity within the field of its activity, the equitable doctrines had come to be the real, substantial “law of mortgages,’ so recognized everywhere except in courts of law. In 1756 Lord Mansfield came to the Court of Kings Bench. Learned in the civil law, he never sympathized with the separation of law and equity and as a result was constantly making equitable innovations upon the common law. In 1760, in the case of Martin v. Mowlin,® con- struing a will, he said: “A mortgage is a charge upon the land; and whatever would give the money would carry the estate in the land along with it. The estate in the land is the same thing as the money due upon it. It will be liable to debts; it will go to executors ; it will pass by a will not made with the solemnities re- quired by the statute of frauds. The assignment of the debt, or forgiving it, will draw the land after it, as a consequence; nay, it would do it, though the debt were forgiven only by parol; for the right to the land would follow, notwithstanding the statute 8 By a natural process this term comes to be loosely used to denote the mortgagor’s interest in the land from the time the mortgage is executed until the mortgage relation is terminated, entirely regardless of whether such interest is legal or equitable, or whether it amounts to a mere right to redeem or to general ownership. 92 Burr. 969. NATURE OF THE MORTGAGE. 15 of frauds.” After decisions of similar import in Ren v. Bulkeley,!® in 1779, and Eaton v. Jacques,1! in 1780, we come, in 1781, to the much cited case of King v. St. Michaels.12 This was a case of pauper settlement. In the course of his opinion Lord Mansfield said: “If the estate on which a pauper resides is substantially his property, that is sufficient, whatever forms of conveyance there may be; and therefore a mortgagor in possession gains a settle- ment, because the mortgagee, notwithstanding the form, has but a chattel, and the mortgage is only a security. It is an affront to common sense to say the mortgagor is not the real owner.” STEPHEN, J., in Evans v. Merriken, 8 Gill. & J. 39 (Md. 1836). By the deed of mortgage, the legal estate becomes vested in the mortgagee, defeasible at law upon the performance of the condi- tion and payment of the money at the time stipulated; but upon default of the mortgagor in the non-payment of the money at that time, it becomes indefeasible at law, and defeasible only in equity, where the mortgage is considered only as a security for the debt, and the mortgagor, notwithstanding his default, will be permitted to redeem. It is true in 2 Burr. 978, Lord Mansfield, in deliv- ering the opinion of the court, says, “a mortgage is a charge upon the land, and whatever would give the money, will carry the estate in the land along with it, to every purpose. The estate in the land is the same thing as the money due upon it. It will be liable to debts ; it will go to executors; it will pass by a will, not made and executed with the solemnities required by the statute of frauds. The assignment of the debt, or forgiving it, will draw the land after it as a consequence; nay it would do it, though the debt were forgiven only by parol; for the right of the land would fol- low, notwithstanding the statute of frauds.” But in Doug. Rep. 22, his lordship at a later period of his judicial life, in deciding that a mortgagee might recover in eject- ment (without giving notice to quit) against a tenant claiming under a lease from the mortgagor, granted after the mortgage with- out the privity of the mortgagee, held the following language, “when the mortgagor is left in possession, the true inference to be drawn is an agreement that he shall possess the premises at will in the strictest sense, and therefore, no notice is ever given him to quit, 10,Doug. 292. 11 Doug. 455. 12 Doug. 630. 13 These views of Lord Mansfield were not accepted by the English courts, and by the law of England today the mortgagee has, after default, the absolute legal title, and the mortgagor but an equitable interest. See Maitland, Equity, 281. And see Lord Redesdale’s strictures on Lord Mansfield in Shannon v. Bradstreet, 1 Sch. & Lef. 52, 65. Other decisions of Lord Mansfield himself greatly qualified these declarations. See Keech v. Hall, 1 Doug. 21; Moss v. Gallimore, 1 Doug. 279. 16 NATURE OF THE MORTGAGE. and he is not even entitled to reap the crop, as other tenants at will are, because all is liable to the debt, on payment of which the mortgagee’s title ceases. The mortgagor has no power, express or implied, to let leases not subject to every circumstance of the mortgage.” And the Supreme Court of the United States, in speak- ing upon the subject of the title passed by the deed of mortgage, and the interest acquired by the mortgagee, in the thing mortgaged, express themselves in the following terms, “it is true that in dis- cussions in courts of equity, a mortgage is sometimes called a lien for a debt; and so it certainly is, and something more. It is a transfer of the property itself, as security for the debt. This must be admitted to be true at law, and it is equally true in equity, for in this respect equity follows the law. “Tt does not consider the estate of the mortgagee as defeated and reduced to a mere lien, but it treats it as a trust estate, and according to the intention of the parties as a qualified estate and security. When the debt is discharged there is a resulting trust for the mortgagor. It is therefore only in a loose and general sense that it is sometimes called a lien, and then only by way of contrast to an estate absolute and indefeasible.”14 From these decisions, it results that the mortgagee must be considered as hav- ing an estate or interest in the subject matter of the mortgage, not absolute it is true, because such an estate is not imported by the terms of the mortgage deed, but an interest commensurate with the object contemplated to be attained by it, as a security for the payment of the debt due from the mortgagor to the mortgagee. From these general views and considerations, relative to the re- spective rights of the parties to the instrument of mortgage, we are led to the consideration of the question arising in this case, and involved in the decision of this controversy. And that ques- tion is, whether the issue of a female slave, herself, the subject of the mortgage, born after the title of the mortgagee has become absolute at law, and during the possession of the mortgagor, is liable for the payment of the mortgage debt. For it must be borne in mind that the question is not whether the mortgagee is entitled to hold the issue as his own property in absolute right, but as se- curity for the payment of his debt only. Upon the fullest consid- eration we have been able to bestow upon the subject, aided by all the lights and information with which we have been furnished, by an examination of the decisions of the courts of our sister states upon similar subjects, we have come to the conclusion that right and justice require that the issue so born should be liable, and that neither the principles of law nor equity forbid it. In the language of Lord Mansfield, before adverted to, when speak- ea from Conard v. Atlantic Ins. Co. 1 Peters (U. S.) NATURE OF THE MORTGAGE. 17 ing of the growing crop, when possession is taken by the mort- gagee, we think, ‘‘all is liable to the debt, on payment of which the mortgagee’s title ceases,”’15 AGNEW, J., in Tryon v. Munson, 77 Pa. St. 250 (1874). The mortgage passes to the mortgagee the title and right of possession to hold till payment shall be made. He may, therefore, enter at pleasure, and take actual possession—use the land and reap its profits. Now this title or lawful right to possess, and actual pedis possessio, are not ideal or contemplative merely, but are real and tangible. True, the right is conditional, and will cease on payment of the debt; but until the condition is performed, the title and pos- session are as substantial and real as though they were absolute. The evidence of this is that the mortgagee may dispossess and hold out the mortgagor until he performs the condition, or until the perception of the profits reaches the same result. Thus we per- ceive an interest or estate in the land itself, capable of enjoyment, and enabling the mortgagor to grasp and hold it actually, and not a mere lien or potentiality, to follow it by legal process and con- demn it for payment. The land passes to the mortgagee by the act of the party himself, and needs no legal remedy to enforce the right. But a lien vests no estate, and is a mere incident of the debt, to be enforced by a remedy at law, which may be limited. Storrs, J., in GoopMAN v. WHITE, 26 Conn. 316 (1857). After the delivery of the first mortgage deed the legal title to the land conveyed was in the first mortgagee. An equitable right, an equity of redemption, was all that remained in the former owner, and all that he could mortgage to a third person. It is true that a second mortgage purports to be a conveyance of the land itself, and as between the parties to the instrument it is such; and whenever the estate of the first mortgagee is divested the second mortgage will operate fully as a conveyance of the land. But so long as the first mortgage is outstanding, the second mortgagee receives only a transfer or assignment of the mortgagor’s equity or equita- ble right.16 SANDERS v. REED. SUPREME Court oF NEw HAmpsuire, 1842. 12 N. H. 558. Trespass, for breaking the plaintiff’s close, and cutting certain pine trees; submitted upon a statement of facts. On the 16th day of September, 1839, Norris Colburn, being in 15 Compare Duval v. Becker, 81 Md. 537. 16 Compare Chamberlain v. Thompson, 10 Conn. 243; Bates v. Coe, 10 Conn. 280; Clinton v. Westbrook, 38 Conn. 9. 2 18 NATURE OF THE MORTGAGE. possession of the premises, conveyed the same to Stephen G. Tyler, and on the same day took a mortgage back from Tyler, which mortgage, on the 21st day of November, 1839, was duly assigned to the plaintiffs. Tyler remained in the actual possession of the premises, from the date of his mortgage deed until the 3d day of March, 1841, when the plaintiffs took possession. The trees were cut by the defendant, under a license from Tyler, between the first day of January, 1841, and the first day of March, of the same year. On the 17th day of May, 1837, Colburn, being the owner of this land, mortgaged it, with other real estate, to Susan Robeson, to secure the payment of certain notes signed by him and Milton Chaplin. On the 16th day of April, 1841, Chaplin paid the notes to Mrs. Robeson, and they were delivered to him, but the mort- gage deed still remains in her hands, undischarged. The notes were joint and several, but as between Colburn and Chaplin they were the proper debts of Colburn. The payments were made by Chaplin, with the avails of the sale of that portion of the lands mortgaged to Mrs. Robeson not included in the mortgage to the plaintiffs, excepting about two hundred dollars, paid from his own money. This last sum is secured by an attachment of the real estate of Colburn. Colburn occupied the land until the date of his deed to Tyler, and Tyler occupied until the 3d day of March, 1841, when the plaintiffs took possession. Colburn and Tyler, during the time of their occupancy, dealt with the premises as their own, by cutting timber, manufacturing the same, and selling, without let, hindrance, or molestation, either from the mortgagee or the assignees. Mrs. Robeson lived thirty miles from the premises, and the plain- tiffs live fifteen miles from the same, and no evidence exists that either of them had any knowledge of the manner the mortgagors were dealing with the premises, nor does it appear that they at- tempted to ascertain. Parker, C. J. There is a principle in equity, that a surety is entitled to the benefit of any security which the creditor may have taken from the principal. Whether Chaplin could have availed himself of this principle, and have held under the mortgage to Mrs. Robeson, is a ques- tion which it does not seem necessary to settle in this case. He paid the notes and discharged the debt, without obtaining the mortgage, and without making any claim to the benefit of it, so far as appears from this case. For the balance which he paid, he has made an attachment, and is secured. There is no reason for thrusting an interest upon him which he has never claimed. In fact, it may admit of doubt whether he would be entitled to NATURE OF THE MORTGAGE. 19 the benefit of such a principle against Tyler, a bona fide purchaser, or against the plaintiffs, as assignees of Tyler’s mortgage, unless they can be made chargeable with notice that Chaplin was a surety, and therefore took subject to his rights as such. The defendant is in no way connected with Chaplin, nor have any rights of the latter been urged in the argument as sustaining the defense. It is settled that a mortgagee may maintain trespass against a mortgagor for cutting timber upon the land, unless his assent is shown, or is fairly to be deduced from the circumstances of the case. Smith v. Moore (11 N. H. Rep. 551); 5 N. H. Rep. 54, Pettengill v. Evans. There is no evidence of assent in this case, and the plaintiffs’ right of action would be clear, had they held the first mortgage. upon the land at the time. But it is contended that the mortgage to Mrs. Robeson was in force, as a valid title to the land, at the time when the timber was cut; and that if there was any right of action for the cutting, it was in her, and not in the plaintiffs; or, at least, that by reason of that mortgage, and the actual possession of the defendant, the plaintiffs, who were second mortgagees, had neither the actual nor constructive possession, and cannot therefore maintain this action. We are of opinion that this objection cannot avail. A mortgage (as was stated in the case Smith v. Moore) is re- garded as a mere security for the debt, or as passing the legal es- tate, whichever may be necessary for the preservation of the rights of the mortgagee. The mortgagee has the legal estate for the purpose of all lawful protection of his interests. Tested by this rule, Mrs. Robeson is not in this case to be regarded as having the legal estate, at the time when this timber was cut, notwithstanding her mortgage was then in existence, be- . cause that is not necessary, in order to the protection of her inter- ests. Her mortgage has been satisfied; and, so far as appears, she made no claim on account of this act, as injurious to her. She has no interest to be protected, and no reason to make any objec- tion, nor can she now maintain any action. There is no fair pur- pose to be answered by considering the legal estate in her, as the result would only be to defeat a right of action which would other- wise lawfully exist iu tne plaintiffs, and this without any benefit to her. Tyler, who made the second mortgage, had no more right to do acts of waste against the second mortgagee, or his assignee, than he had as against the first. Each mortgagee, for the purpose of protecting his rights, is to be regarded, as against the mortgagor, as holding the legal estate. Any act of waste, without the assent of either, may be regarded as injurious to both. The paramount right of action in such case may -be regarded as in the first mort- gagee, so long as the first mortgage exists; and it may be supposed 20 NATURE OF THE MORTGAGE. to be a good defense to an action by the second mortgagee, that the first mortgage still existed, unless it could be shown that the first mortgagee assented, and therefore had no right of action. But it appearing that the first mortgage is extinguished, and that no paramount right exists, and the defendant therefore not being answerable to any one else, there seems to be no good reason why he who was a wrongdoer, as to both, should not answer to the second mortgagee, who, after the extinguishment of the first mortgage, may well be regarded as having been the owner of the legal estate, so far as that is necessary to the preservation of his rights under the mortgage. The first mortgage, under such circumstances, is to be regarded as having been a mere security. This view of the matter does not prejudice any right of the defendant. He stands confessedly in the place of the mortgagor, and had no right, as against either mortgagee, to do any act of waste. As against either mortgage, standing alone, an act of waste, without assent, would be a wrong, for which trespass might be maintained. The first mortgage having been removed without any entry by the mortgagee, the defendant is relieved from any danger of a claim upon that mortgage, and the case therefore now stands as if that mortgage had never existed. To interpose that mortgage, as a con- veyance of the legal estate, would be to interpose a technical objec- tion for the purpose of working injustice, and would enable a mort- gagor to impair the security of the second mortgagee with impunity unless he were restrained by injunction. Judgment for the plaintiffs. Jounson, C. J., in Martin v. ALTER, 42 Ohio St. 94 (1884). In the case of a mortgage in the usual form, the legal estate remains in the mortgagor in possession, even after condition broken as to all the, world, except the mortgagee. The legal title remaining in the mortgagor is liable to levy and sale on execution. It descends to his heirs, subject to the condi- tional estate to the mortgagee. The latter may maintain ejectment or take other legal steps to obtain possession after condition broken, but until he does so, the mortgagor is at law owner of the fee. The mortgage is a condi- tional conveyance which becomes void upon payment of the debt, without a formal reconveyance. SHaAw, C. J., in Ewer v. Hoszs, 5 Metc. 1 (Mass. 1842). The first great object of a mortgage is, in the form of a conveyance in fee, to give to the mortgagee an effectual security, by the pledge or hypothecation of real estate, for the payment of a debt, or the performance of some other obligation. The next is, to leave to the mortgagor, and to purchasers, creditors, and all others claim- NATURE OF THE MORTGAGE. 21 ing derivatively through him, the full and entire control, dispo- sition and ownership of the estate, subject only to the first purpose, that of securing the mortgagee. Hence it is that, as between mortgagor and mortgagee, the mortgage is to be regarded as a conveyance in fee; because that construction best secures him in his remedy and his ultimate right to the estate, and to its inci- dents, the rents and profits. But in all other respects, until fore- closure, when the mortgagee becomes the absolute owner, the mort- gage is deemed to be a lien or charge, subject to which the estate may be conveyed, attached, and in other respects dealt with, as the estate of the mortgagor. And all the statutes upon the sub- ject are to be so construed; and all rules of law, whether admin- istered in law or in equity, are to be so applied as to carry these objects into effect. In an early case in Massachusetts, it was held by Chief Justice Parsons, that where a mortgage was made to partners, in such form as would ordinarily create a tenancy in common in other grantees—inasmuch as it was designed to secure a joint debt, which, in case of the decease of one partner, would vest in the survivor for the purpose of collection, and subject to the partnership debts—the estate should be held to be a joint tenancy, in order that by the principle of survivorship, applicable to that tenure, the real security might accompany the debt. Appleton v. Boyd, 7 Mass. 131. This doctrine was earnestly opposed by Mr. Justice Story in the case of Randall v. Phillips, 3 Mason 378, who insisted that such mortgage, so far as it operated as a transfer of the legal estate, was to be construed as a tenancy in common, and not a joint tenancy. But at the same time he maintained that on the death of one partner, the heirs of the deceased would take a moiety, charged with an implied trust to hold for the survivor, as security for the debt.17 CarTwRicHT, J., in Ligutcap v. Braptey, 186 Ill. 510 (1900). Leaving out of consideration the effect of a mortgage in the statu- tory form, it is true that a mortgage or trust deed like the one in question here, which purports to convey title, does, as between the mortgagor and mortgagee, convey such title; but it is only a qualified conveyance of the land, and the mortgagor parts with the title only as security to his creditor and during the existence of his debt or obligation. In the development of the law of real estate mortgages in England the mortgage was at first a pledge of 17 “Although, as between mortgagor and mortgagee, it is a transmis- sion of the fee, which gives the mortgagee a remedy in the form of a real action, and constitutes a legal seizin; yet to most other purposes, a mort- gage before the entry of the mortgagee is but a pledge and real lien, leaving the mortgagor to most purposes the owner.” Shaw, C. J., in Howard v. Robinson, 5 Cush. (Mass.) 119. Compare Gooding v. Shea, post. 22 NATURE OF THE MORTGAGE. land, usually requiring a judgment to complete the transfer of title and to vest it in the mortgagee. Afterward, a form of mortgage came into use which vested title of itself, and the pledge changed into an estate in fee without judicial foreclosure upon the mort- gagor’s default. This mortgage vested absolute title in the mort- gagee upon condition broken. Courts of equity, however, recog- nizing the purpose of the mortgage as merely a pledge to secure a debt, established a right of the mortgagor to redeem. They created a new estate in the form of the equity of redemption and a remedy for the creditor to cut off this estate. A proceeding was devised to extinguish the mortgagor’s right to redeem and to vest title in the mortgagee, and this was the proceeding now known as strict fore- closure. (9 Ency. of Pl. & Pr. 118.) Equity assumed jurisdiction to relieve the mortgagor against a forfeiture upon default, and he was relieved from it on payment of the debt. (1 Jones on Mort- gages, §8.) Courts of law, following the lead of courts of equity, have adopted many equitable principles as to the titles of the re- spective parties, and at law the title of the mortgagee can be used only for the purpose of securing his equitable rights under it. “As to all persons except the mortgagee and those claiming under him, it is everywhere the established modern doctrine that a mortgagor in possession is at law, both before and after breach of the condi- tion, the legal owner.” (1 Jones on Mortgages, §11.) In many of the states a mortgage confers no title or estate upon the mort- gagee, and it is nothing but a mere security for a debt or obligation. This state has adhered to the rule that at law a title vests in the mortgagee, but only for the protection of his interests. For the purpose of protecting and enforcing his security the mortgagee may enter and hold possession by virtue of his title and take the rents and profits in payment of his mortgage debt. He may main- tain the possessory action of ejectment on the strength of such title, but the purpose and effect of the action are not to establish or confirm title in him, but, on the contrary, to give him the rents and profits which undermine and destroy his title. (United States Mortgage Co. v. Gross, 93 Ill. 483.) When the rents and profits have paid the mortgage debt, both the title and right of possession of the mortgagee are at an end. The mortgagor’s interest in the land may be sold upon execution; his widow is entitled to dower in it; it passes as real estate by devise; it descends to his heirs, by his death, as real estate; he is a freeholder by virtue of it; he may maintain an action for the land against a stranger and the mortgage cannot be set up as a defense. The mortgagee has no such estate as can be sold on execution; his widow has no right to dower in it; upon his death the mortgage passes to his personal representatives as personal estate, and it passes by his will as per- sonal property. (1 Jones on Mortgages, §15.) The title of the NATURE OF THE MORTGAGE. 23 mortgagee, even after condition broken, is not an outstanding title of which a stranger can take advantage, but it is available only to the mortgagee or one claiming under him. (Hall v. Lance, 25 Ill. 277.) The mortgagor may sell and convey his title or mort- gage it to successive mortgagees, and his grantee or mortgagee will succeed to his estate and occupy his position subject to the encumbrance. Fitch vy. Pinckard, 4 Scam. 69, was an action of ejectment, and there was a question whether an equity of redemption was liable to execution and would pass to the purchaser at an execution sale. The court, holding that it would pass, said that the earliest doc- trine in England settled that the whole legal estate was in the mortgagee, but that the strictness of the law has yielded to the prin- ciple of justice and equity, and the doctrine held in the United States in regard to the estate of the mortgagor is, that he is to be treated as the real owner of the estate for all beneficial purposes, subject only to the rights and encumbrance of the mortgagee. Cottingham -v. Springer, 88 Ill. 90, was also an action of eject- ment, where the same question arose. The court cited Fitch v. Pinckard, supra, and reiterated what was there said. After refer- ring to the common-law rule that the mortgagee held the legal title in fee and that the mere equitable right of the mortgagor could not be sold on execution, the court said (p. 93): “But many of the states—and ours of the number—have, by enactment, made great modifications of the rule. Our legislature at an early day provided that when the mortgagor paid and satisfied the debt and the mortgage had been recorded, he might compel the mortgagee to enter a satisfaction of the mortgage on the margin of the rec- ord, which should operate as a discharge and release of the same and forever bar all actions that might be brought thereon. This provision is found in the act establishing the recorder’s office (Pub. Laws of 1819, p. 19, §5) and has been continued in force ever since. This was a most material modification of the common-law rule, as it reinvested the mortgagor with the title simply by the mortgagee stating, over his signature, on the margin of the record, that he had received satisfaction of the debt, and dispensing with a release or reconveyance for the purpose.” The court also said that the provision for a foreclosure at law by a scire facias and a sale of the property under an execution at law recognized the equity of redemption as an interest or title that might be sold on execution, subject to the same incidents that other sales of real estate are under when sold under ordinary executions at law. In Barrett v. Hinckley, 124 Ill. 32, which was an action of eject- ment by Hinckley against Barrett and others, the court held that the title of a mortgagee exists only for the benefit of the holder of the mortgage indebtedness, and can only be asserted by an ac- 24 NATURE OF THE MORTGAGE. tion in furtherance of his interest as a means of coercing the pay- ment of the debt; that if a mortgagee conveys the mortgaged prem- ises without assigning the debt, the grantee will hold the legal title in trust.for the holder of the debt, and that the mortgage interest, as distinct from the debt, has no determinate value and is no fit subject for assignment. The court also said (p. 46): “It must not be concluded from what we have said that the dual system respecting mortgages, as above explained, exists in this state pre- cisely as it did in England prior to its adoption in this country, for such is not the case. It is a conceded fact that the equitable theory of a mortgage has, in process of time, made in this state, as in others, material encroachments upon the legal theory which is now fully recognized in courts of law. Thus, it is now the settled law that the mortgagor or his assignee is the legal owner of the mortgaged estate, as against all persons except the mort- gagee or his assigns. (Hall v. Lance,, 25 Ill. 250; Emory v. Keighan, 88 id. 482.) As a result of this doctrine, it follows that in ejectment by the mortgagor against a third party the defendant cannot defeat the action by showing an outstanding title in the mortgagee. (Hall v. Lance, supra.) So, too, courts of law now regard the title of a mortgagee in fee in the nature of a base or determinable fee. The term of its existence is measured by that of the mortgage debt. When the latter is paid off, or becomes barred by the Statute of Limitations, the mortgagee’s title is ex- tinguished by operation of law. (Pollock v. Maison, 41 Ill. 516; Harris v. Mills, 28 id. 44; Gibson v. Rees, 50 id. 383.) Hence the rule is as well established at law as it is in equity, that the debt is the principal thing and the mortgage an incident.” The mortgagee is the legal owner for only one purpose, while, at the same time, the mortgagor is the owner for every other pur- pose and against every other person. The title of the mortgagee is anomalous, and exists only between him and the mortgagor and for a limited purpose. Delano v. Bennett, 90 Ill. 533, was an action of ejectment. E. T. Warren, the owner of two-fifths of the land in controversy, mortgaged the same to the Kennebeck Bank of Maine. The bank conveyed said two-fifths to Benjamin Wales and others, and Delano claimed the same through mesne conveyances from the grantees of the bank. It was held that the deed from the bank purporting to convey this two-fifths interest did not convey anything, and the court said (p. 536): “The mortgage is deemed a mere incident to the mortgage debt, and the conveyance of the interest of the mortgagee in the land without an assignment of the debt is considered in law as a nullity.’ The title is never out of the mortgagor, except as between him and the mortgagee and as an incident of the mortgage debt, for the purpose of obtaining satisfaction. When the debt is barred by the Statute of Limita- NATURE OF THE MORTGAGE. 25 tions the title of the mortgagee or trustee ceases at law as well as in equity. When the debt, the principal thing, is gone, the inci- dent, the mortgage, is also gone. (Pollock v. Maison, 41 Ill. 516.) The mortgagor’s title is then freed from the title of the mortgagee, and he is the owner of the premises, not by any new title, but by the title which he always had. Statutes of limitation do not trans- fer title from one to another, and a Statute of Limitations which would have the effect of transferring the legal title back from the mortgagee to the mortgagor would be unconstitutional. (New- land v. Marsh, 19 Ill. 376.) The title of the mortgagor becomes perfect because the title of the mortgagee is measured by the ex- istence of the mortgage debt or obligation and terminates with it. (Barrett v. Hinckley, supra.) 18 RUNYAN v. MERSEREAU. SUPREME Court or NEw York, 1814. 11 Johns. (N. Y.) 534. Per Curiam. This was an action of trespass, quare clausum fregit. The plaintiff proved himself in possession of the Jocus in quo, and showed a title derived under a judgment against one James Leonard, who, it appeared, had mortgaged the land to Joshua Mersereau. By the pleadings, the question presented to the court is, whether the freehold was in the plaintiff, who had purchased the equity of redemption, under the judgment against the mortgagor, or in Joshua Mersereau, the mortgagee. Courts of law, both here and in England, have gone very far towards, if not the full length of, considering mortgages, at law, as in equity, mere securities for money; and the mortgagee as having only a chattel interest. Lord Mansfield (Doug. 610) says: A mortgagee, notwithstanding the form, has but a chattel, and the mortgage is only a security; that it is an affront to common sense to say the mortgagor is not the real owner. Mortgages are not considered as conveyances of land within the statute of frauds, and the forgiving of the debt, with the delivery of the security, is holden to be an extinguishment of the mortgage. Mortgages will pass by a will not made with the solemnities of the statute of frauds. The assignment of the debt, or forgiving it, even by parol, draws the land after it as a consequence. The debt is considered the principal, and the land as an incident only. The interest of the mortgagee cannot be sold under execution. It is unnecessary to go into an examination of the cases on this subject; they have been repeatedly reviewed by this court. (3 18 Compare Woodside v. Adams, 40 N. J. L. 417. For an interesting analogy, see Williston, Sales, § 330. 26 NATURE OF THE MORTGAGE. Johns. Cases 329, 1 Johns. Rep. 590, 4 Johns. Rep. 42.) The light in which mortgages have been considered, in order to be consistent, necessarily leads to the conclusion that the freehold must be con- sidered in the plaintiff, and he, of course, is entitled to judg- ment.1® Comstock, C. J., in Kortricut v. Capy, 21 N. Y. 343, 362 (1860). In the early history of mortgage law, the courts of equity, depart- ing from the letter of the contract, but adhering to the intention of the parties, adopted the just and liberal doctrine that a mortgage was but a pledge or security, always redeemable until foreclosure. The courts of law followed in the same direction. As Lord Redes- dale observed (Mitf. 428): “The distinction between law and equity is never in any country a permanent distinction. Law and equity are in continual progression, and the former is constantly gaining upon the latter. A great part of what is now strict law was formerly considered as equity, and the equitable decisions of this age will unavoidably be ranked iinder the strict law of the next.” Such, preeminently, has been the course of jurisprudence on this subject. The doctrines originating in the courts of equity, respecting the rights of mortgagor and mortgagee, have been in- corporated into the code of the common law, so that there is now no difference between the two systems. This has been true in substance for nearly a century past. In Martin v. Mowlin (2 Burr. 978), decided by the English King’s Bench in 1760, it was held that whatever words in a will would carry the money due upon a mortgage would carry the interest in the land. Lord Mans- field said: “A mortgage is a charge upon the land, and whatever would give the money would carry the estate in the land along with it. The estate in the land is the same thing as the money due upon it. It will be liable to debts; it will go to the executor; it will pass by a will not made and executed with the solemnities required by the statute of frauds. The assignment of the debt, or forgiving it, will draw the land after it as a consequence; nay, it would do it though the debt were forgiven only by parol.” So, in The King v. St. Michaels (Doug. 632), it was said by the same judge, that “a mortgagor in possession gains a settlement, because the mortgagee, notwithstanding the form, has but a chattel, and the mortgage is only a security.” To the same effect is The King v. Edington (1 East. 288), and such is the uniform tenor of the English authorities. (See 6 Conn. 159.) In this state, the rules of law and equity in regard to mortgages have never differed in any degree; it being the doctrine of both systems that a mortgage is but a personal interest merely. This 19 For earlier cases in New York, see Johnson v. Hart, 3 Johns. Cas. (N. Y¥.) 322; Jackson v. Willard, 4 Johns. (N. Y.) 41. agement NATURE OF THE MORTGAGE. 27 proposition, in its full length and breadth, was determined in Run- yan v. Mersereau (11 Johns. 534), where the question arose in the most direct manner whether the freehold was in the mortgagor or mortgagee. The plaintiff, deriving title under the mortgagor, sues in trespass for cutting timber; the defendant justifying under a license from the mortgagee. It was held that the action was main- tainable ; the decision being explicitly on the ground that the former was the real owner of the land, while the latter had a chattel interest only. So it has been held in repeated decisions that the mortgagee cannot, in any way, convey, devise, mortgage or in- cumber the land, while the mortgagor can do all these things; that judgments against a mortgagee, which are a lien on all legal estates, do not affect his interest in the lands mortgaged; that such an interest does not descend to heirs, but goes to the personal repre- sentative as a chose in action; that it is not subject to dower or curtesy ; that it passes by a parol transfer, and by any transfer of the debt; and, finally, that it is extinguished by payment, or by whatever extinguishes the debt. (3 Johns. Cas. 329, 1 J. R. 590, 4 id. 42, 7 id. 278, 15 id. 319, 6 id. 290, 2 Paige 68, 586, 5 Wend. 603, 2 Barb. Ch. 119.) But it has been said that the mortgagee could maintain ejectment against the mortgagor, until our Revised Statutes abolished that remedy in such a case, and that even since those statutes, the mortgagee, being in possession, may retain it until the debt is paid. All this is true; but it presents no anomaly or inconsistency in the law. The mortgagee’s right to bring ejectment or, being in pos- session, to defend himself-against an ejectment by the mortgagor, is but a right to recover or to retain the possession of the pledge for the purpose of paying the debt. (6 Conn. 163.) Such a right is but the incident of the debt, and has no relation to a title or estate in the lands. Any contract for the possession of lands, however transient or limited, will carry the right to recover that possession ; and such was deemed to be the nature and construction of a mort- gage, it being considered that the parties intended the possession of the thing hypothecated should go with the contract. Ejectment was not, in fact, a real action at the common law. That remedy, in its origin, was only to recover possession according to some temporary right; and it was only by the use of fictions that the title was at length allowed to be brought into controversy. (3 Bl. 199, 200.) When the legislature, by express enactment, denied this remedy to mortgagees, they undoubtedly supposed they had swept away the only remaining vestige of the ancient rule of the common law which regarded a mortgage as a conveyance of the freehold; yet I see nothing inconsistent or anomalous in allowing the possession, once acquired for the purpose of satisfying the mortgage debt, to be retained until that purpose is accomplished. 28 NATURE OF THE MORTGAGE. When that purpose is attained, the possessory right instantly ceases, and the title is, as before, in the mortgagor, without a reconvey- ance. The notion that a mortgagee’s possession, whether before or after default, enlarges his estate, or in any respect changes the simple relation of debtor and creditor between him and his mort- gagee, rests upon no foundation.. We may call it a just and law- ful possession, like the possession of any other pledge; but when its object is accomplished, it is neither just nor lawful for an in- stant longer. There are terms of the ancient law which have come down to us, having long survived the principles of which they were the appropriate expression. Thus the words “law day” once, and very expressively, marked the time when all legal rights were lost and gone, by the mortgagor’s default. There is now no such time until foreclosure by a judicial sentence or sale under a power. But the term is still in use, serving no other purpose than to engender con- fusion and uncertainty in minds which derive their conceptions from words rather than things. So we have the terms, “redemp- tion” and “equity of redemption,’ which belonged to a system of law that gave the legal estate, defeasibly before default and abso- lutely afterwards, to the mortgagee, and which, while that system prevailed, were descriptive of the mortgagor’s right to go into equity, on the condition of paying his debt, to redeem a forfeited estate and demand a reconveyance. These descriptive words yet survive, and are in use, although the ideas they once représented have long since become obsolete. Even the word “forfeiture,” still so often used, is no longer, in reference to this subject, the ex- pression of any principle, as it once was. There is now no for- feiture of a mortgaged estate. The mortgagor’s rights may be foreclosed by a sentence in the courts, or by a sale had in the man- ner prescribed by the statute law, if he has himself, in the contract, given authority thus to sell; but, until foreclosure, his estate, the day after a default, is exactly what it was the day before. Contro- versies like the present would cease to arise, if the mere terms of the law were no longer confounded with its principles. The proposition, that a tender of the money due on a mort- gage, made at any time before a foreclosure, discharges the lien, is the logical result of premises which are admitted to be true. These are, that the mortgagor has the same right after as before a default to pay his debt, and so clear his estate from the incum- brance; and that payment being actually made, the lien thereby becomes extinct. We have, then, only to apply an admitted prin- ciple in the law of tender, which is, that tender is equivalent to pay- ment as to all things which are incidental and accessorial to the debt. The creditor, by refusing to accept, does not forfeit his right to the very thing tendered, but he does lose all collateral benefits or NATURE OF THE MORTGAGE. 29 securities. (3 Johns. Cas. 243, 12 J. R. 274, 6 Wend. 22, 6 Cow. 728; Coggs v. Bernard, 2 Lord Ray. R. 916.) Thus, after the tender of a money debt, followed by payment into court, interest and costs cannot be recovered. The instantaneous effect is to dis- charge any collateral lien, as a pledge of goods or the right of dis- tress. It is not denied that the same principle applies to a mort- gage, if the tender be made at the very time when the money is due. If the creditor refuses, he justly loses his security. It is im- possible to hold otherwise although the tender be made after- wards, unless we also say that the mortgage, which was before a mere security, becomes a freehold estate by reason of the default. That this is not true has been sufficiently shown. CHRISTIANCY, J., in LADUE v. DEtTRoir & MILWAUKEE RAILROAD Co., 13 Mich. 380, 394 (1865). That a mortgage in this state, both at law and in equity, even when given to secure a debt actually sub- sisting at its date, conveys no title to the land to the mortgagee (especially since the statute of 1843, taking away ejectment by the mortgagee); that the title remains in the mortgagor until fore- closure and sale, and that the mortgage is but a security, in the nature of a specific lien, for the debt has been already settled by the decisions of this court: Dougherty v. Randall, 3 Mich. 581; Caruthers v. Humphrey, 12 Mich. 270; and Crippen v. Morrison, to be reported in 13 Mich. This‘is in accordance with the well settled law of the state of New York, from which our system of law in regard to mortgages has been, in a great measure, derived: Jackson v. Willard et al., 4 Johns. 41; Collins v. Torrey, 7 Johns. 278; Runyan v. Mersereau, 11 Johns. 534; Gardner v. Heart, 3 Denio 232; Edwards v. Ins. Co., 21 Wend. 467; Waring v. Smyth, 2 Barb. Ch. 119; Bryan v. Butts, 27 Barb. 504; The Syracuse City Bank v. Tallman, 31 Barb. 201; Cortwright v. Cady, 21 N. Y. 343. This view of a mortgage is also sustained by several of the Eng- lish decisions, and substantially this is the more generally received American doctrine, as will sufficiently appear by reference to the decisions, most of which have been carefully collected in the elab- orate brief of the defendant’s counsel, but which are too numerous to be cited here. There are exceptions and peculiarities in partic- ular states, in some of which, as in some of the New England states and Kentucky, the old idea of an estate upon a condition continues to rankle in the law of mortgages, like a foreign sub- stance in the living organism, but is rapidly being eliminated and thrown off by the healthy action of the courts under a more vig- orous application of plain common sense. But few of the incidents of this antiquated doctrine are now recognized in most of the states of this Union, the title, for nearly all practical purposes, being now recognized, both at law and in equity, as continuing in 30 NATURE OF THE MORTGAGE. the mortgagor, and the mortgage as a mere lien for the security of the debt. But wherever any vestige of this now nearly exploded idea continues to prevail in connection with the more liberal doc- trines of modern times which the courts have been compelled, from time to time, to adopt, it serves only to confuse and deform the law of mortgages by various anomalies and inconsistencies, making it a chaos of arbitrary and discordant rules resting upon no broad or just principle; while, by recognizing the mortgage as a mere lien for the security of the debt, at law as well as in equity, and thus giving it effect according to the real understanding and in- tention of the parties, the law of mortgages becomes at once a system of homogeneous principles, easily understood and applied, and just in their operation. A mortgage, then, being a mere security for the debt or liability secured by it, it necessarily results, lst, That the debt or liability secured is the principal, and the mortgage but an incident or ac- cessory. See cases above cited; also, Richards v. Synes, Bar- nadiston’s Ch. R. 90; Roath v. Smith, 5 Conn. 133; Lucas v. Harris, 20 Ill. 165; Vansant v. Allmon, 23 Ill. 30; Ord v. McKee, 5 Cal. 515; Ellison v. Daniels, 11 N. H. 274; Hughes v. Edwards, 9 Wheat 489; Green v. Hart, 1 Johns. 580; McGan yv. Marshall, 7 Humph. 121; 4 Kent’s Com. 193; McMillan v. Richards, 9 Cal. 365. 2d. That anything which transfers the debt (though by parol or mere delivery), transfers the mortgage with it, see cases above cited, especially Vansant v. Allmon, 23 Ill. 30; Ord v McKee, 5 Cal. 515; Ellison v. Daniels, 11 N. H. 274. See also, Martin v. Mowlin, 2 Burr. 987; Clark v. Beach, 6 Conn. 164; Southern v. Mendurn, 5 N. H. 420; Wilson v. Kimball, 27 id. 300, 36 N. H. 39; Crowl v. Vance, 4 Iowa 434, I Blackf. 137, 5 Cow. 202, 9 Wend. 410, 1 Johns. 580. 3d. That an assignment of the mortgage without the debt is a mere nullity: Ellison v. Daniels, 11 N. H. 274; Jackson v. Bron- son, 19 Johns. 325; Wilson v. Throop, 2 Cow. 195; Weeks v. Eaton, 15 N. H. 145; Peters v. Jamestown Bridge Co., 5 Cal. 334; Webb v. Flanders, 32 Me. 175, 4 Kent’s Com., ubi supra; Thayer et al. v. Campbell et al., 9 Mo. 277. , 4th. That payment, release, or anything which extinguishes the debt, ipso facto extinguishes the mortgage: Lane vy. Shears, 1 Wend. 433; Sherman v. Sherman, 3 Ind. 337; Ryan v. Dunlap, 17 Ill. 40; Armitage v. Wickliffe, 12 B. Monroe 496; Paxon v. Paul, 3 Harris & McH. 399; Perkins v. Dibble, 10 Ohio 434; Breck- enridge v. Ormsby, 1 J. J. Marsh 257; Cameron v. Irwin, 5 Hill 272. (It will be seen from these authorities that some, if not all, of these incidents or characteristics of a mortgage are recognized by some of the courts which still hold the mortgage to be a con- veyance of the estate—an idea, however, with which they are ut- NATURE OF THE MORTGAGE. 31 terly inconsistent, as such incidents can only logically flow from the doctrine that the estate still remains in the mortgagor, and that the mortgage is but a lien for security of a debt.) BEARDSLEY, J., in GARDNER v. Heartt, 3 Denio 232 (N. Y. S. Ct. 1846). A mortgage creates a specific lien on the land mort- gaged, as a judgment duly docketed does a general one on the land of the judgment debtor. But the mortgagee, as such, has no title to the land mortgaged: he has neither jus in re nor ad rem, but a mere security for his debt; title to the land, notwithstanding the mortgage, remaining in the mortgagor.2° SIMPSON v. DEL HOYO. Court oF APPEALS OF NEw York, 1883. 94 N. Y. 189. Ear, J. In October, 1877, Mrs. Del Hoyo, being the owner of certain real estate in the city of New York, was induced, by false pretenses and fraudulent representations of Henry M. Lowenstein, to convey such real estate to his daughter, Rosa H. Lowenstein. Thereafter she, upon some alleged consideration passing to her from her father, executed to him a mortgage upon the same real estate to secure the payment of $1,000, which was collateral security for the payment of her bond for the same amount. Subsequently he assigned the bond and mortgage to this plaintiff who, as we must assume upon this appeal, paid value for the same, acting in good faith, with no knowledge whatever of the fraud committed upon Mrs. Del Hoyo, or of her equities. Subsequently to the exe- cution and assignment of the mortgage, Miss Lowenstein recon- veyed the land to Mrs. Del Hoyo. This action was to foreclose the mortgage; and Mrs. Del Hoyo in her answer alleged the fraud perpetrated upon her by Lowenstein as a defense to the action. It must be conceded that if Lowenstein himself had continued to hold the mortgage, and were plaintiff in this action attempting to foreclose the same, Mrs. Del Hoyo would have a good defense; and her defense has thus far been sustained upon the ground that the plaintiff as assignee could have no better right or position as against her than Lowenstein, the assignor, could have had. The courts below applied to this case the familiar rule that the pur- chaser of a non-negotiable chose in action takes it subject to all the equities existing between the original parties thereto, not only, but to all the latent equities of third persons. The general rule of law, as thus stated, has been many times announced in the de- 20 Compare Verner v. Betz, 46 N. J. Eq. 256. 32 NATURE OF THE MORTGAGE. cisions of this court and cannot be disputed. But it has its excep- tions, and we do not think it is applicable to this case. ; Mrs. Del Hoyo conveyed the real estate to Miss Lowenstein by an absolute deed with full covenants, thus conferring upon her the apparent title and ownership of the property, and under that con- veyance she took possession of the property, and was in the pos- session thereof at the time of the execution of the mortgage, and of its assignment to the plaintiff. Mrs. Del Hoyo thus clothed her grantee with the apparent right to deal with the property as owner. She could have conveyed the property to a bona fide purchaser, and he would have taken a title, good as against her and against her grantor, Mrs. Del Hoyo. When real or personal property is obtained from one by fraud upon the purchase thereof, and the vendor thus intentionally parts with the title, the vendee can always, by. a sale to a bona fide pur- chaser for value, give a title good as against the vendor. If Miss Lowenstein could give a conveyance, good as against her grantor, she could execute a mortgage to one parting with value, and taking it in good faith, which would be equally effectual, as she could have done if the property had been personal instead of real. So if this mortgage to her father had been taken by him for value, and in good faith, he could have enforced the same against the land. The assignee of the mortgage holds under Miss Lowenstein. He took it on the faith that she, as the apparent owner of the real estate, had the right to execute it. When he took it he could inquire of her whether it was valid and effectual, she at the time having the legal title to the land; and when his inquiries had extended thus far he was bound to go no further. It would lead to great inconvenience and great insecurity if per- sons taking or purchasing mortgages were obliged to go back of the mortgagor who owned the land and had the record title thereto, and at their peril ascertain whether any fraud had been perpe- trated upon some prior owner of the land. This mortgage was not purchased on the faith or credit of the assignor. He did not even guarantee the payment of the same, but it was bought on the faith and credit of the mortgagor’s title. In such a case, as against the plaintiff, an innocent bona fide pur- chaser of the mortgage, Mrs. Del Hoyo is estopped from denying the title of her grantee, and her right to deal with the property as owner. For this conclusion the cases of McNeil y. Tenth Na- tional Bank (46 N. Y. 335, 7 Am. Rep. 341), Moore v. Metropol- itan National Bank (55 N. Y. 41, 14 Am. Rep. 173), and Greene v. Warnick, (64 N. Y. 220) furnish ample authority. _But without invoking the rule of law announced in the cases cited, there is another ground upon which our decision may rest. NATURE OF THE MORTGAGE. 33 It is a familiar rule of law that a fraudulent purchaser of real or personal property obtains the legal title to the property purchased, and that he may convey a good title to any bona fide purchaser from him for value. He may not only convey the property, but he may deal with it as owner, and may mortgage it; and whoever purchases the property or takes a mortgage thereon from him or under him, in good faith, for value, or deals with him in good faith in reference thereto will be protected against the claims of the defrauded vendor. The real estate may be conveyed, or a mortgage thereon may be assigned to several successive partici- pants in the fraud, or several successive mala fide purchasers. But the moment the real estate or the mortgage reaches the hands of a bona fide purchaser for value, the rights and equities of the de- frauded owner are cut off. (Bumpus v. Platner, 1 Johns. Ch. 213; Demarest v. Wynkoop, 3 id. 129; Griffith v. Griffith, 9 Paige 315; Smart v. Bement, 4 Abb. Ct. App. Dec. 253; Paddon v. Taylor, 44 N. Y. 371.) The trial judge held that it was immaterial to determine whether or not the plaintiff was an innocent purchaser of the mortgage for value. In this, as we have seen, he erred. Upon the new trial, the fraud being established, it will be incumbent upon the plaintiff to show satisfactorily how he came by the mortgage, and that he took the same for value; and, in order to give him the protection of the principles of law we lay down, the court must find, not only that he purchased the mortgage for value, but that he purchased it innocently and in good faith. Mrs. Del Hoyo claims a right to be subrogated to an interest in a mortgage for $10,000, which was a lien upon the real estate at the time of the conveyance by her and until after the reconveyance to her, for the amounts paid by her upon that mortgage in igno- rance of plaintiff's mortgage. This claim is, upon the facts found by the court, well founded, and may be allowed and adjusted upon the new trial, in case she fails entirely to defeat plaintiff’s mort- gage. (Barnes v. Mott, 64 N. Y. 397, 21 Am. Rep. 625; Green v. Milbank, 3 Abb. N. C. 138; Snelling v. McIntyre, 6 id. 469.) Mrs. Del Hoyo seems to have been greatly wronged, and should have all the relief any rule of law can give her without violating the rights of any other person equally innocent with her. The judgment should be reversed and new trial granted, costs to abide event. All concur. Judgment reversed.?+ 21 See also Parker v. Barnsville Savings Bank, 107 Ga. 650; Ely v. Sco- field, 35 Barb. (N. Y.) 330; Fallas v. Pierce, 30 Wis. 443, 454. See 10 Mich. L. Rev. 587; 11 Mich. L. Rev. 495. Compare Wood v. Holly Co., 100 Ala. 326, 351. 3 34 NATURE OF THE MORTGAGE. HUBBELL v. MOULSON. Court oF APPEALS OF NEw York, 1873. 53 N. Y. 225. Awnprews, J. The plaintiffs claim title under Alfred Hubbell, the mortgagor, to the undivided half of premises mortgaged by him to Hiram Sibley, December 1, 1846, to secure the payment of $7,000. The action is ejectment, and it was necessary for the plain- tiffs, in order to recover under their complaint, to show that they were entitled, as against the defendants, to the possession of the premises at the time of the commencement of this action. The defendants are the grantees of Sibly, the mortgagee, under a deed dated June 7, 1849, and are in possession, claiming under that deed. They stand, by reason of that conveyance, in privity with the mort- gagee, and their right to the possession is the right of the mort- gagee, and the right of the plaintiffs depends upon the same prin- ciples as if Sibley was in possession and the action had been brought against him. (Jackson v. Mueller, 10 J. R. 479; Jackson v. Bowen, 7 Cow. 13; Robinson v. Ryan, 25 N. Y. 320.) The plaintiffs on the trial offered to prove that the mortgage debt had been paid by the receipt by Sibley, before the commencement of the action, of rents and profits from the land sufficient to satisfy it. The evidence was excluded. If the mortgage was in law subsisting and unsatisfied when this action was commenced, then it cannot be maintained, as the authorities are decisive that ejectment will not lie by a mort- gagor against a mortgagee in possession. (VanDuyne v. Thayre, 14 Wend. 233; Phuyfe v. Riley, 15 Wend: 248; Pell v. Ulmar, 18 N. Y. 139). Leaving out of view the alleged title under the statute foreclosure, the question arises whether the receipt by a mortgagee in possession of rents and profits sufficient to satisfy the mortgage debt, does ipso facto extinguish it and discharge the lien of the mortgage. If it does not, then the evidence was properly excluded. If admitted, it would not have shown a right in the plaintiffs to the possession of the premises when the action was brought. It is the settled doctrine in this state that a mortgagee has by virtue of his mortgage a lien only, and not an estate in the land mortgaged. (Runyan v. Mersereau, 11 J. R. 537; Jackson v. Craft, 18 id. 110; Jackson v. Bronson, 19 id. 325; Kortright v. Cady, 21 N. Y. 243; Stoddard v. Hart, 23 id. 560.) In harmony with this view it was held in Kortright v. Cady that a tender of the mort- gage debt after it became due discharged the lien of the mortgage and prevented a subsequent foreclosure. And it was held in Ed- wards v. The Firemen’s Fire Ins. and Loan Co. (21 Wend. 467, 26 id. 541) that upon a tender after default by a mortgagor of the NATURE OF THE MORTGAGE. 35 mortgage debt, ejectment would lie in his favor upon the refusal of the mortgagee to surrender the possession. But while no title in a strict sense vests in the mortgagee of land until foreclosure, yet his interest is in some cases treated and regarded as a title, for the purpose of protecting and enforcing the equities between par- ties. An instance of this is found in Mickles v. Townsend (18 N. Y. 575), where it was so held for the purpose of applying the doc- trine of estoppel by deed against a person claiming as assignee of a mortgage, which existed at the time of his prior conveyance of the mortgaged premises with warranty but which was assigned to him afterward. And in Van Duyne v. Thayre (19 Wend. 162) the release of the equity of redemption by the mortgagor to the mort- gagee was held to inure as an enlargement of the estate of the mort- gagee so as to prevent the plaintiff’s recovering dower at law, in disregard of the equity of the defendant to have the mortgage first satisfied out of the land. (Cowen, J., 21 Wend. 485.) It is easy to see that where the English doctrine prevails, that the mortgage conveys a legal title to the mortgaged premises, the right of the mortgagor to an account of the rents and profits of the land received by the mortgagee is purely and exclusively of equita- ble cognizance. At law, the mortgagee is the owner of the estate, and takes the rents and profits in that character. In equity, the mortgagor is regarded as the owner until foreclosure, and his right to an account is incident to his right of redemption. (2 Wash. on Real Property, 161, 205; Seaver v. Durant, 39 Vt. 103; Parson vy. Welles, 17 Mass. 419.) But the necessity to resort to an ac- counting in equity, in order to have the rents and profits applied to the satisfaction of the mortgage, is not obviated by the fact that here the mortgagor retains the legal title. The mortgagee in possession takes the rents and profits in the quasi character of trus- tee or bailiff of the mortgagor. (2 Pow. on Mort. 946, a; 2 Wash. 205.) They are applied in equity as an equitable set-off to the amount due on the mortgage debt. (Ruckman v. Astor, 9 Paige 517.) The law does not apply them as received to the payment of the mortgage. It depends upon the result of an accounting upon equitable principles, whether any part of the rents and profits re- ceived shall be so applied. The mortgagee is entitled to have them applied, in the first instance, to reimburse him for taxes and neces- sary repairs made upon the premises; for sums paid by him upon prior incumbrances upon the estate, in order to protect the title, and for costs in defending it; and if he has made permanent im- provements upon the land, in the belief that he was the absolute owner, the increased value by reason thereof may be allowed him. So he may be charged with rents and profits he might have re- ceived, if his failure to recover them is attributable to his fraud or willful default. (2 Powell on Mort. 957, note; 4 Kent 185, 36 NATURE OF THE MORTGAGE. 2 Wash. 218; Cameron v. Irwin, 5 Hill 272; Mickles v. Dillaye, 17 N. Y. 80.) In many cases complicated equities must be deter- mined and adjusted before it can be ascertained what part, if any, of the rents and profits received is to be applied upon the mortgage debt. In the absence of an agreement between the parties there is no legal satisfaction of the mortgage by the receipt of rents and profits by a mortgagee in possession to an amount sufficient to sat- isfy it, and his character as mortgagee in possession is not divested until they are applied by the judgment of the court in satisfaction of the mortgage. These considerations lead to an affirmance of the judgment without considering the question of the validity of the statute foreclosure. The plaintiff's claim to recover upon the allegation of'a right to the possession of the premises when the action was commenced. The defendants were in possession, claiming under the mortgagee, whose mortgage was outstanding and unsatisfied. The action is not for a redemption or for an accounting, and the plaintiffs are not in the attitude of resisting an attempt by the mortgagee to enforce the mortgage. The judgment should be affirmed, with costs. All concur. Judgment affirmed. CHAPTER II. ESSENTIAL ELEMENTS OF THE MORTGAGE. SecTION 1.—THE Form. (a) Lecat Mortcaces. Jones, Mortcaces, § 60. The term “mortgage” has a technical signification at law, and is descriptive of an instrument having all the requisites necessary to establish it in a court of law, as dis- tinguished from that which may be so regarded in a court of equity. A mortgage which only a court of equity will recognize is prop- erly designated an “equitable mortgage.”! TirFany, REAL Property, § 510. A mortgage, being a convey- ance of, or a contract concerning, an interest in land, must, under the Statute of Frauds, be in writing.2 Though, as before shown, the view that a mortgage is a lien merely has for most purposes displaced the view that it is an estate on condition, the old form of conveyance on condition is usually retained. In states where 1 While it is certain that there are some requisites of form for a legal mortgage, it is very difficult to say just what they are. There have not been many cases testing this question, a circumstance which may be ex- plained by the following considerations (1) in the vast majority of cases, mortgages are drawn by lawyers upon carefully perpared legal blanks and a superabundance of form is used; (2) in the small number of cases in which the standard forms are departed from, litigation arising thereon is, in the vast majority of cases, by equitable suit, in which the distinc- tion between legal and equitable mortgages is usually immaterial. Of course the same considerations which make authorities on this question scarce, make the question relatively unimportant. 2 Difficult questions under the Statute of Frauds arise in cases where parties have attempted by parol to revive a mortgage which has been paid (see Jones, §§ 362, 943-948), or to extend the security of a mortgage to a debt other than that described in the mortgage (see Jones, §§ 357, 947). See also, application of the Statute to informal equitable mortgages, post. 3 The following typical form is taken from Jones, Legal Forms, 503, where it is presented as a standard form in Colorado, a lien state. “This indenture, made this day of eoees 19 , between ies of the first part, and of the second part, witnesseth, that the said party of the first part, for and in consideration of the sum of 38 ELEMENTS OF THE MORTGAGE. the legal theory still obtains, conformity with the essentials of a conveyance is essential in order that the instrument may be suff- cient to vest the legal title in the mortgagee, and the omission of the words of inheritance necessary in a conveyance in fee simple will have the effect of reducing the estate of the mortgagee to one for life only. In states where the equitable theory of a mort- gage prevails, there is no necessity that the instrument have the essentials of a conveyance, it being sufficient that the instrument show an intention to mortgage, and that it be executed as required by the statute. The statute quite frequently authorizes a simple and concise form, stating the bare essentials of a mortgage, and it is, of course, sufficient if this be followed. The mortgaged land must always be described in the mortgage Bogs ee dollars to-------------------_----.--__in hand paid by the said party of the second part, the receipt whereof is hereby con- fessed and acknowledged, hath granted, bargained, sold and conveyed, and by these presents doth grant, bargain, sell, convey and confirm, unto the said party of the second part, his heirs and assigns, forever, all the right, title, interest, claim and demand which the said party of the first part has in and to the following described lot or parcel of land, namely: “To have and to hold the same, together with all and singular the ap- purtenances and privileges thereunto belonging or in anywise thereunto appertaining; and all the estate, right, title, interest, and claim whatsoever, of the said party of the first part, either in law or equity, to the proper use, benefit and behoof of the said party of the second part, his heirs and assigns forever. And the said party of the first part, the aforesaid tract or parcel of land and premises unto the said party of the second part, his heirs and assigns, against the claim or claims of all and every person whomsoever, does and will warrant and forever defend by these presents. “Provided always, that these presents are upon this express condition, that if the said party of the first part, his heirs, executors or administra- tors, shall well and truly pay, or cause to be paid, to the said party of the second part, his heirs, executors, administrators, or assigns, the sum of pe eee ee dollars in manner particularly specified in a certain promissory note bearing even date herewith, executed by the said party of the first part to the said party of the second part, then and thenceforth these presents, and everything herein contained, shall cease and be void, everything herein contained to the contrary notwithstanding. “Tn witness,” etc. There is, of course, much variation upon the basic theme of convey- ance and condition, which, apart from the matter of mere style, consists in the addition of clauses and stipulations which do not change the funda- mental nature of the mortgage but merely superadd special conditions or covenants. Some of the more usual stipulations of this sort will be noted hereinafter. In England, perhaps the commonest form of mortgage is the mort- gage for years, which differs from our typical mortgage, in the substitu- tion, for the grant in fee, of a lease for years, usually a very long term. The condition is the same as in a mortgage in fee. This form of mort- gage, while not unknown with us (e. g. Nugent v. Riley, 1 Metc. (Mass.) 117), is exceedingly rare. THE FORM. 39 with sufficient particularity to enable it to be identified, as in the case of any other conveyance, but a reference to another instru- ment, in which the property is described, is sufficient for this purpose. The requisites as to execution are ordinarily expressly named in the statute. An acknowledgment is usually requisite, as in the case of absolute transfers of land, only as a preliminary to the record of the conveyance. A mortgage must be delivered as if an absolute conveyance, and there are a number of decisions to the effect that the mort- gage must be accepted by the mortgagee, and that, until such ac- ceptance, other persons may acquire rights in the premises, as by judgment or attachment liens, which will take precedence of the unaccepted mortgage. cs aK 3K * ok 2 * § 511. Though the condition or proviso that the conveyance shall be void in case of compliance by the mortgagor with his contract, termed the “defeasance,” is usually inserted in the con- veyance to the mortgagee, this is not, in most jurisdictions, neces- sary, and it may be contained in a separate instrument. This practice has, however, been criticised, as liable to be productive of injury to the mortgagor. In order that a mortgage with a separate defeasance be effective as such at law, it is necessary that the two instruments be deliv- ered at approximately the same time, or at least that they be parts of the same transaction. Likewise, in order to create a mortgage valid at law as well as in equity, the defeasance must be of as high a nature as the conveyance itself,—that is, if the latter is under seal, the defeasance must likewise be under seal, so that it may be regarded as a part of the same instrument, and it must be executed with the other formalities required in the case of a conveyance of land.® 4 The same thing is true of attestation by witnesses. Mortgages are subject to the same requirements as deeds as to execu- tion by a wife to relinquish dower or homestead. 5 The doctrine stated in the text represents one extreme, the other be- ing that a deed absolute which is shown by parol evidence to have been intended as a security is a legal mortgage, and therefore does not pass the title but merely creates a lien. Taylor v. McLain, 64 Cal. 514 (over- ruling Hughes v. Davis, 40 Cal. 117, which had overruled Jackson v. Lodge, 36 Cal. 28—there are over a dozen decisions from the Supreme Court of California dealing with this question); Odell v. Montross, 68 N. Y. 499; Adair v. Adair, 22 Ore. 115; Howe v. Carpenter, 49 Wis. 697; (semble). This sort of transaction has almost universally been accepted without question as falling short of the requirements for legal mortgages and, 40 ELEMENTS OF THE MORTGAGE. The defeasance should be recorded with the absolute convey- ance. In some states it is provided that, if the defeasance be not recorded, the grantee shall take nothing under the conveyance, or shall derive no benefit from the record of the conveyance, while in others it is provided that, in such case, the conveyance shall pass an absolute title, except as against the maker of the instrument, his heirs and devisees, and, usually, persons having actual notice of the instrument of defeasance, which is the rule in the absence of any statute on the subject. In the first class of states, therefore, it is to the advantage of the mortgagee to see that the defeasance is recorded, while in the latter class, the mort- gagor or those claiming under him can alone suffer from the ab- sence of the defeasance from the record. Jones, Mortcaces, § 62. A deed of trust to secure a debt is in legal effect a mortgage. It is a conveyance made to a person other than the creditor, conditioned to be void if the debt be paid at a certain time, but if not paid that the grantee may sell the land and apply the proceeds to the extinguishment of the debt, paying over the surplus to the grantor. The addition of the power of sale does not change the character of the instrument any more than it does when contained in a mortgage. Such a deed has all the essential elements of a mortgage; it is a conveyance of land as security for a debt. It passes the legal title just as a mortgage does, except in those states where the natural effect of a conveyance is controlled by statute; and in states where a mortgage is con- sidered merely as a security, and not a conveyance, a trust deed is apt to be regarded in this respect just like a mortgage.6 Both instruments convey a defeasible title only; the mortgagee’s or trus- tee’s title in fee being in the nature of a base or determinable fee; and the right to redeem is the same in one case as it is in the other. The only important difference between them is, that in therefore, as passing the complete title at law, whether or not it was in equity a mortgage. Even where it is held that parol evidence is admissible at law to show that an absolute deed is a mortgage, this does not necessarily make it a legal mortgage or prevent the title from passing. German Ins. Co. v. Gibe, 162 Ill, 251; McAnnulty v. Seick, 59 Iowa 586; Haggerty v. Brower, 105 Iowa 395. 6 The minority view that a trust mortgage passes the legal title, al- though an ordinary mortgage does not, is maintained in Sacramento Bank v. Alcorn, 121 Cal. 379 (compare the California doctrine presented in the previous note); Stephens v. Clay, 17 Colo. 489; Soutter v. Miller, 15 Fla. 625. The trust mortgage is almost universally used when it is de- sired to secure a series of notes or bonds payable to, or designed to be transferred to different persons, as in the case of the common corporate bond issue. THE FORM. 41 the one case the conveyance is directly to the creditor, while in the other it is to a third person for his benefit. TIFFANY, REAL Property, § 513. A mortgage is usually given to secure the payment of a sum of money, and the debt is usually evidenced by a note, bond, or other instrument, separate from the mortgage, though this is not necessary. * * * * * * * A mortgage given to secure a debt existent at the making of the mortgage, or contemporaneous therewith, is valid, even as against subsequent purchasers and creditors, although it does not explicitly state the amount of such debt or liability, provided there are means of ascertaining such amount.?’ And extrinsic evidence is admissible for the purpose of showing the debt which the mort- gage was intended to secure. The statement in the mortgage as to the sum secured is not conclusive in that regard, and it may be shown by the mortgagor that the lien was for a less sum, or even that the mortgage was not a lien for the payment of money, as stated therein, but was given for a different purpose. A mortgage which is in terms security for a certain amount cannot, as against third persons, be extended by agreement be- tween the mortgagor and mortgagee so as to cover sums subse- quently advanced by the latter to the former. But, as between the parties to the mortgage, a written agreement, made after its execution, that it shall be security for a debt other than that which it was first intended to secure, is effective, this ,constituting in effect an equitable lien on the land for such additional sum. (b) EguitasLe Mortcaces. Jones, Mortcaces, § 162. It has been noticed that a conveyance, accompanied by a condition contained either in the deed itself or ina separate instrument executed at the same time, constitutes a legal mortgage, or a mortgage at common law. In addition to these formal instruments which are properly entitled to the designation of mortgages, deeds and contracts which are wanting in one or both of these characteristics of a common-law mortgage are often used by parties for the purpose of pledging real property, or some 7 There is some conflict of authority as to the extent to which a mort- gage, securing an existent and ascertained debt, must disclose its amount— See cases cited in Jones, §344. As to the description of the debt in a mortgage to secure future ad- vances, see post, Chap. II, Sec. 3. 42 ELEMENTS OF THE MORTGAGE. interest in it, as security for a debt or obligation, and with the intention that they shall have effect as mortgages. Equity comes to the aid of the parties in such cases, and gives effect to their intentions. Mortgages of this kind are therefore called equitable mortgages. BRIDGEPORT ICE CO. v. MEADER. Unitep States Circuit Court oF APPEALS, 1895, 72 Fed. 115. [Suit in equity to foreclose an equitable mortgage. One Soulard was the promoter of the defendant, the Bridgeport Ice Co. On May 7, 1891, he contracted with plaintiff for the purchase of a machine for the manufacture of ice. It was stipulated in writing that the Ice Company should pay plaintiff the sum of $23,000, as follows: $5,750 on delivery, $5,750 when it had withstood fifteen days’ test, the balance in negotiable notes, of certain terms, which, it was stipulated, should be secured by a mortgage of the machine, and of the buildings and real estate on which it was to be erected, or by personal endorsements satisfactory to plaintiff. The machine was delivered in May, 1891, and was accepted by defendant in April, 1892. In September, 1891, the defendant corporation was organized and, in October, its directors ratified the contract made by Soulard with plaintiff and issued promissory notes to plaintiff for the amount remaining unpaid thereon, but the mortgage stipu- lated for was never executed, nor was personal security satisfac- tory to plaintiff given. The defendant is insolvent.] Spegr, J. * * * * * * * * On the hearing, the circuit court of the Northern District of Ala- bama (the Honorable Alex. Boarman, judge presiding), decreed that the plaintiff was entitled to a lien for the balance due him; that the lien should relate back to and commence from the date of the original contract, to wit, May 17, 1891; that the amount due of the purchase-price on the ice machine was $11,385.87, with in- terest from the 26th day of April, 1893. And upon the failure of the defendant to pay this debt, with interest and costs, within thirty days from the enrollment of the decree, it was ordered that a special master, appointed in the decree, should sell the property on which the lien was established at public outcry, for cash, and for the satisfac- tion of the debt. From this decree the appeal is taken. It is well settled that an agreement to give a mortgage, for a THE FORM. 43 valuable consideration, upon property which is sufficiently speci- fied, is in a court of equity regarded as the creation of the mort- gage itself. This is held, for the reason that equity will treat that as done which ought to be done. 1 Jones, Mortg., § 163; Ketchum v. St. Louis, 101 U. S. 306; Gest v. Packwood, 39 Fed. 525; Will. Eq. Jur. pp 48, 298; O’Neil v. Seixas, 85 Ala. 80, 4 So. 745; 2 Story, Eq. Jur., § 1231. It is insisted, however, that the contract of the parties in this case was in the alternative—that the pur- chaser had the right either to execute the mortgage in pursuance of the terms of the original contract of May 17, or that he might secure the debt by personal indorsement satisfactory to the vendor. It seems a sufficient reply to this to point out the fact that the de- fendant company made no offer of personal indorsement, satisfac- tory to the plaintiff, or otherwise, and the plaintiff was therefore remitted to such remedy for the total noncompliance with the con- tract as the doctrine above stated will afford him. With this view, he brings his bill, not, strictly to enforce the specific performance of the contract, but, rather, to have the court declare its legal effect, considered in connection with the further fact that the plain- tiff has performed all that he agreed to do, and defendant, while receiving and accepting the ice machine, has not only not paid the debt, but even refused to give the evidence of the debt which it had promised. Nor is it a sufficient reply to this proceeding to say that, by suing at law, complainant waived his right to fore- close the equitable mortgage which the conduct of the parties had created. The owner of a note and a mortgage to secure the same can sue on the note, and thereafter foreclose the mortgage. The remedies of law and equity are concurrent for the enforcement of the demand. Nor did the plaintiff, after seeking this jurisdiction, while retaining his bill here, forfeit any of his powers by attempt- ing, in the state courts of Alabama, to secure payment of the judg- ment which the circuit court of the United States at law had granted. It is true that he went through the forms of a purchase of the property in question by permission of the state court, but since the Supreme Court of Alabama afterward annulled and va- cated this sale, it is now as if there had been no sale. Nor does it matter that the contract of the promoter of this corporation with the ice company preceded the creation of the company itself. After the ice company was organized, it was fully informed as to the terms of the contract. It received, tested, and accepted the machine, and paid a portion of the purchase money. It must, therefore, be held to have ratified the agreement of its promoter. “Tt is well settled that a party may, by express agreement, create a charge or claim in the nature of a lien on real as well as on personal property of which he is the owner or in possession, and that equity will establish and enforce such charge or claim, not 44 ELEMENTS OF THE MORTGAGE. only against the party who stipulated to give it, but also against third persons, who are either volunteers, or who take the estate on which the lien is agreed to be given with notice of the stipula- tion. Such agreement raises a trust which binds the estate to which it relates, and all who take title thereto with notice of such trust can be compelled in equity to fulfill it.” Pinch v. Anthony, 8 Allen 536. * Affirmed.’ LOVE v. SIERRA NEVADA MINING CO. SUPREME CouRT OF CALIFORNIA, 1867. 32 Cal. 639. SuArter, J.: In the opinion delivered in this case on the former hearing, we considered “that it was unnecessary to determine whether the entire transaction was sufficient to constitute an equita- ble mortgage, for if such should be found to be the case it could not be enforced in the present state of the pleadings, because the decree must be based upon the allegations of the complaint; and it is alleged that the mortgage was executed by the corporation— that is to say, that it is a legal mortgage.” ‘Though there is an averment in the complaint that the mortgage, the foreclosure of which is sought in this action, was executed by the company, still the document is set forth in haec verba, and if it is not the mort- gage of the defendant by legal as distinguished from equitable conclusion, the averment may be rejected as surplusage. We held in Stoddard v. Treadwell, 26 Cal. 303, that a contract may be declared on according to its legal effect or in haec verba. If the former mode should be adopted, then the defendant may, by the rule of the common law, in a proper case, crave oyer of the instru- ment; and if it appear that its provisions have been misstated, he may set out the contract in haec verba and demur on the ground of variance. But where a plaintiff himself sets forth the contract in the terms in which it is written, and then proceeds to put a false construction upon its terms, the allegation, as repugnant to the terms, should be regarded as surplusage, to be struck out on motion. Utile per inutile non vitiatur. From this it follows that if the complaint in this case discloses all the facts essential to an equitable mortgage binding upon the defendant, then, if the aver- ments are true in fact, the plaintiff is entitled to the benefit of them. 8 Accord: In re Howe, 1 Paige (N. Y.) 125; Carter v. Holman, 60 Mo. 498; Remington v. Higgins, 54 Cal. 620. THE FORM. 45 And further, by the one hundred and forty-seventh séction of the Practice Act, the court “may grant him any relief consistent with the case made by the complaint and embraced within the issue.’ We have re-examined the complaint in the light thrown upon it by the re-argument, and are satisfied that it contains all the facts essential to an equitable mortgage. As the facts averred are iden- tical with the facts found or admitted, it is unnecessary to state the form in detail; for, in passing upon the legal effect of the finding, we must necessarily consider and pass upon the legal effect of the averments. As the statement on motion for new trial does not specify the particulars in which the evidence is alleged to be insufficient, we must assume not only the facts admitted in the pleadings, but those also which are set forth in the findings. It appears from these two sources conjointly, that the defendant corporation on the 16th of April, 1860, by Josiah Bates and Samuel S. Atchinson, its trustees, duly authorized for that purpose, made and delivered to the plaintiff and four others its promissory note for the sum of forty thousand pounds sterling, payable one day from the date thereof, with interest thereon from date until paid, at the rate of twenty per cent. per annum. That the consideration of said note was forty thousand pounds, loaned and advanced by the payees and others to the corporation before the date of the note. That to secure the payment of the note the corporation at the date thereof, by its said trustees, Bates and Atchinson, executed, acknowledged and delivered to the payees the “mortgage” set out in the complaint. In the indenture referred to the parties are de- scribed as “The Sierra Nevada Lake Water and Mining Company, a corporation, by their trustees, Josiah Bates and Samuel Atchin- son, of the first part, and plaintiff (and the other payees in the note, naming them) parties of the second part.” The conclusion of the indenture is as follows: “In witness whereof the said parties of the first part have here- unto set their several hands and seals the day and year above written. “JosiaH BATES, [Seal.] “SAMUEL S. Atcuinson.” [Seal.] The acknowledgment of the mortgage is to the effect that Bates and Atchinson were personally known to the notary as trustees of said corporation, and that they personally appeared and acknowl- edged each for himself that he executed the instrument for the uses and purposes therein mentioned “as and for the free act and deed of said Sierra Nevada Lake Water and Mining Company.” At the execution of the note and mortgage Bates was president of the company, and Bates and Atchinson were a majority of the trustees; and at and before that time they agreed for and on 46 ELEMENTS OF THE MORTGAGE. behalf of said corporation with the said mortgagees to subscribe the name of “The Sierra Nevada Lake Water and Mining Com- pany” to the said mortgage, and intended so to do, but failed by accident or mistake. The plaintiff was personally interested in the securities to the amount of twenty-four thousand eight hundred and forty-seven pounds sterling, with interest from the date of the note; and the other payees, Ridgway, F. and H. Wedgwood, and Robe, made defendants herein, refused to join as plaintiffs in this action. The remaining defendants are creditors of the Sierra Nevada Lake Water and Mining Company, having judgment liens on the property described in the mortgage, but subsequent thereto. It is a rule of conveyancing long established, that deeds executed by an attorney or agent must be executed in the name of the con- stituent. It was so resolved in Coombes’ Case (5 Coke 135, by Fraser), and the rule was recognized and applied by us in Echols y. Chenery, 28 Cal. 159. Tested by this rule, the instrument in suit is not a legal mortgage of the Sierra Nevada Lake Water and Mining Company. The paper is signed and sealed, not-by the corporation, but by Bates and Atchinson, acting, so far as the signatures, seals and testatum clause throw any light upon the sub- ject, for themselves and in their own right. Though the mortgage does not bind the company at law, it by no means follows, how- ever, that it may not be asserted against it in equity. We consider it as settled that an agreement under seal, made by an attorney for his principal, though inoperative at law for want of a formal execution in the name of the principal, is binding in equity if the attorney had authority; and if the instrument so defectively exe- cuted be a conveyance of real estate, it will be sustained in equity as an agreement to convey, and will be good against the principal, subsequent lien creditors and subsequent purchasers with notice. Or, more precisely stated, an agreement in writing to create a mortgage, or a mortgage defectively executed, or any imperfect attempt to create a mortgage, or to appropriate specific property to the discharge of a particular debt, will create a mortgage in equity, or a specific lien, which will have precedence of subsequent judgment creditors. (Am. Leading Cases 605; Leading Cases in Equity 666, and cases there cited.) The jurisdiction is some- times put upon the ground that equity will aid the defective exe- cution of a power—sometimes upon the jurisdiction to reform mis- takes in written instruments, and sometimes upon the maxim that equity considers that as done which ought to be done. These dif- ferent modes of expression all amount to the same thing in sub- stance. It was held by this court in Beatty v. Clark, 20 Cal. 12, that “though equity will not aid the non-execution of a power, still, where a party undertakes to execute a power, and by mistake does it imperfectly, equity will, in favor of creditors and others THE FORM. 47 peculiarly within its protective favor, aid the defective execution.” We held in Bodley v. Ferguson, 30 Cal. 511, that a deed of land bad as a conveyance might be good in equity as a contract to convey; and that the equitable right to the legal title was as avail- able for the purposes of defense in an action of ejectment, under our system, as ‘the legal title. We held in Daggett v. Rankin, 31 Cal. 322, “that an agreement in writing to give a mortgage, or a mortgage defectively executed, or an imperfect attempt to create a mortgage, or to appropriate particular property to the discharge of a particular debt, will create a mortgage in equity, or a specific lien upon the property so intended to be mortgaged.” We consid- ered further “that the maxim in equity upon which this doctrine rests is that equity looks upon things agreed to be done as actually performed; the true meaning of which is that equity will treat the subject-matter,'as to collateral consequences and incidents, in the same manner as if the final acts contemplated by the parties had been executed exactly as they ought to have been. (See also Ra- couillat v. Sansevain, ante, 376.) The facts found or admitted in the case at bar bring it broadly within these principles. Bates and Atchinson were a majority of the board of trustees through which the corporate powers were to be executed. The corporation gave the note described in the complaint by Bates and Atchinson, they being duly authorized for that purpose; and they also agreed, “for and on behalf of the corporation,” to give a mortgage collateral to the note, to which mortgage the name of the company was to be signed ; and the failure to do so was the result of accident or mis- take. The power being given, it is apparent on the face of the indenture that the trustees intended to act under the power in the matter of executing the mortgage. The corporation is named in the document as “party of the first part, by Josiah Bates and Samuel Atchinson, Trustees.” The note which the mortgage was given to secure is described as a note made by the company. Fur- thermore, the trustees state in their acknowledgment that they exe- cuted the mortgage “as and for the free act and deed of said Sierra Nevada Lake Water and Mining Company.” It urged that the defective execution of the mortgage was caused by a mistake of law, and that therefore the defective execu- tion can not be aided. The answer is that where there is a defective execution of a power, it is a matter of no equitable moment whether the error came of a mistake of law or a mistake of fact. It is enough that the power existed and that there was an attempt to act under it. The relief is not so much by way of reforming the instrument as by aiding its defective execution; which aid is ad- ministered through or by the application of the maxims already quoted. Or, as in the class of cases to which this belongs, the instrument defectively executed as a deed is considered as properly 48 ELEMENTS OF THE MORTGAGE. executed as a contract for a deed; and therefore as requiring neither reformation nor aid, but as ripe for enforcement according to the methods peculiar to courts of equity. Under our laws a contract for a mortgage need not be under seal; and when made through an attorney, his authority need not be evidenced by a sealed instru- ment. (Wood’s Digest 106, §6; Ang. & Ames on Corps. 193-266.) Though the indenture in this case is under the seals of the trus- tees, yet when considered as an agreement for a mortgage, it may be treated as a simple contract, nevertheless (Lawrence v. Taylor, 5 Hill 107; Worrall v. Munn, 1 Seld. 239; Wood v. A. & R. R.R. Co., 4 Seld. 167), and we consider it clear, from the authorities, that it is not indispensable, in order to bind the principal at law even, that such contract should be executed in the name and as the act of the principal. On the contrary, it will be sufficient, if upon the whole instrument it can be gathered from the terms thereof that the party described himself and acts as agent and intends thereby to bind his principals and not to bind himself. (Haskell y. Cornish, 13 Cal. 45; McDonald et al. v. Bear River and A. W. and Mining Company, 13 Cal. 221.) The other objections taken by the appellants to the judgment, though not pressed in argument, have been fully considered by us, and they are all overruled. Judgment affirmed.® 9 Accord: White Water Val. Canal Co. v. Vallette, 21 How. (U. 5.) 414 (stipulation in bonds that “the faith of the company and their effects real and personal are pledged,” held to create equitable lien); Peckham v. Haddock, 36 Ill. 38 (a legal mortgage having been paid and discharged the owner of the land undertook to revive the same by a written but un- sealed agreement—held not effective as a revivor at law for want of seal, but created equitable mortgage. “The surrounding circumstances ren- der it evident that they intended to give Thompson a security upon the land; and the language employed by them should be construed, if it con- sistently can be, so as to effectuate that intention”); Pinch v. Anthony, 8 Allen (Mass.) 536 (agreement in writing to pay “out of the proceeds of the sale of said lands, if sold, or if lands shall not be sold, and a company is formed to work the mines, then to convey stock to that amount, it being understood that the foregoing amount is to be a charge on the estate of the owners,” held to create equitable lien); Wayt v. Car- withen, 21 W. Va. 516 (M. having sold land to C. and subsequently recov- ered a judgment for the purchase-money, W. paid said judgment and C,, by a writing reciting these facts, agreed that “Said W. shall be subro- gated to the rights of said M. in reference to the lands aforesaid, and that he may retain the lien which said M. holds as vendor,” held to cre- ate an equitable mortgage). THE FORM. 49 JOHNSON v. JOHNSON. Court oF APPEALS OF MaryLanp, 1874. 40 Md. 189. Atvey, J. The late William Cost Johnson, by deed of the 14th of June, 1859, conveyed all his real and personal estate in Frederick county to the defendant in this cause, Thomas Johnson;-the real estate consisting of a farm called “Harmony Grove.” William Cost Jolinson died in 1860; and for several years prior to his death, and up to April, 1868, the plaintiff, Edwin M. Johnson, occupied the farm ; and after the death of his uncle, William Cost Johnson, he set up claim to the right of possession of the farm in respect of some pecuniary claims against his uncle, and also against his father, the defendant, who demanded possession of the farm by virtue of his title under the deed of the 14th of June, 1859. The defendant had advertised the farm for sale on the 21st of March, 1868, and the plaintiff filed his bill in equity in the circuit court for Frederick county, for an injunction to restrain such sale, and for a decree that the land be sold under the direction of the court for the satisfaction of his claims. In this state of contention in regard to the farm, the plaintiff and defendant entered into the agreement of the 6th of April, 1868, under their respective hands and seals. By this agreement the defendant promised and obligated himself to pay to the plaintiff the sum of two thousand five hundred dollars, in full satisfaction of all claims or demands whatever against him, the defendant; such sum to be paid in a specified manner, namely: Five hundred dollars on or before the expiration of thirty days from the date of the agreement; one thousand dollars out of the first payment made on the sale of the farm, “Harmony Grove;” and the other thousand dollars out of the second payment on said farm. The plaintiff, on his part, promised to give up and surrender to the defendant the immediate possession of the farm, and also all the personal property held by him which had belonged to the late William Cost Johnson, with certain specified exceptions. This covenant on the part of the plaintiff has been performed but the defendant has only paid the first instalment of five hundred dollars, of the sum agreed to be paid by him, and has wholly neglected or failed to pay the other two thousand dollars and has neglected or refused to sell the farm to raise the fund with which to discharge his obligation. It is on these facts that the plaintiff has filed his bill in this case, asking an enforcement of the defendant’s covenant as a charge or lien on the land, and, in that view, praying that the farm be decreed to be sold to raise the fund to pay off the amount due from the defendant on his covenant. The court below decreed 4 50 ELEMENTS OF THE MORTGAGE. in favor of the plaintiff; and the first and most material question on this appeal is, whether the covenant creates a charge or lien, in the sense of a court of equity, that can be enforced in the manner contemplated by the plaintiff’s bill? It is objected that the covenant creates only a personal obligation on the defendant, and that, consequently, there is no jurisdiction in , a court of equity to take cognizance of the case. If this were a mere personal covenant, and nothing more, the objection just stated would certainly be well founded. But that is not our conclusion as to the nature of the covenant. That the covenant does create a personal obligation on the defend- ant is doubtless true, and one that could be sued on at law; but it does not necessarily follow from that being so, that there may not be also an equitable lien or charge created at the same time. The covenant does not, as may be observed, stipulate in express terms that the land shall be sold and the proceeds of sale applied to the discharge of this particular debt. But we think that is the fair and reasonable implication from the terms employed. In a case like the present, the question whether there has been a charge created de- pends in a great measure upon the intention of the contracting par- ties ; and here we think it manifest, as well from the language of the covenant itself as from the circumstances leading to it and under which it was made, that the parties contemplated the sale of the farm, and the proceeds of sale as the fund from which the debt was to be paid. In other words, the farm was to be sold, and a sufficient amount of the purchase-money specifically appropriated to the pay- ment of the debt due the plaintiff. If such be the fair construction of the agreement, it created a charge on the land as a security to the plaintiff; for, as was said by Chancellor Sugden, in Rolleston v. Morton, 1 Dr. & W., 195, if a man has power to charge his lands, and agrees to charge them, in equity he has actually charged them; and a court of equity will execute the charge. Here, as we have seen, there are no express words creating the lien or charge upon the land; but there is no doubt of the proposition, that a charge may be created by fair and reasonable implication as well as where express words of trust or charge are employed in the covenant or agreement of the parties. Perry on Trusts, sec. 122, and authorities there cited; and 2 Story’s Eq. Jur., sec. 1246. This case in principle does not differ from that of Legard v. Hodges, 1 Ves., Jr., 477, and same case on rehearing, 4 Bro. C. C. 421. There, a party having obligated himself to pay a certain sum for a particular purpose, as means of raising that sum, covenanted with trustees that he would set apart and pay to such trustees one- third part of the annual profits of his particular estates; and failing to make the application of the profits according to the covenant, and having appropriated them to other purposes, the trustees filed their THE FORM.. 51 bill to have a trust declared as to the third of the profits of the land; and although it was there contended, as it has been contended here, that there was no lien upon the land, but a mere personal covenant only, it was held, that the covenant created in equity a lien on the land against the covenantor, and those claiming under him with notice. And in deciding the case, the Lord Chancellor said that there was a maxim which he took to be universal, and that was, wherever persons agreed concerning any particular subject, that in a court of equity, as against the party himself, and any claiming under him voluntarily or with notice, raised a trust. To the same effect is the doctrine fully stated by Mr. Justice Story, Eq. Juris., sec. 1231. He there says: “Indeed, there is generally no difficulty in equity in establishing a lien, not only on real estate but on personal property or on money in the hands of a third person, wherever that is matter of agreement, at least against the party himself, and third persons, who are volunteers, or have notice. For it is a general principle in equity, that, as against the party himself, and any claim- ing under him, voluntarily, or with notice, such an agreement raises a trust.” See also Power v. Bailey, 1 Ball & Beat. 52. And such being the well established principle upon the subject, the agreement in this case must be taken as having created a charge upon the land, and raised a trust in respect thereto, as security for the payment of the plaintiff’s debt; and hence it is the right of the latter, upon failure of the defendant to perform the trust, to have that trust specifically executed by a decree of a court of equity. The case of Berrington v. Evans, 3 Y. & Coll. 384, relied on by the defendant is not an authority to affect this case. There the covenant was that if the covenantor did not pay certain debts by a given day, he engaged to sell so much of his estates as might be necessary for that purpose. The learned Baron of the Exchequer, who decided the case, said that it did not appear to him that the covenant was anything more than a personal undertaking; but if it were, the case of Williams v. Lucas, 1 P. Wms. 430, n., shewed that the words of it were too general to create a specific lien upon the lands of the covenantor. This latter reason was all sufficient for the case, for it was expressly decided in the case referred to in P. Wms., and also in the case of Freemoult v. Dedire, 1 P. Wms. 429, that a covenant to mortgage or settle lands to secure sums of money, without mentioning or referring to any certain lands, was not sufficient to create any specific lien; and as the covenant in the case of Berrington v. Evans, according to the construction of the learned judge, referred to no particular lands or estates, it created no specific lien, and hence it could be nothing more than a mere personal undertaking. That case, there- fore, can have no application to this, even conceding it to have been well decided; a proposition in regard to which we express no opin- 52 ELEMENTS OF THE MORTGAGE. ion, in view of what was held in the case of Wellesley v. Wellesley, 4 My. & Cr. 561. See Mornington v. Keane, 2 De G. & J. 293.10 It is thought that, as the covenant fails to fix any definite time for the payment of the money, or to designate any time within which the farm should be sold, or how to be sold, the defendant was left free to exercise his discretion as to the time and mode of sale, and that a court of equity cannot enforce the sale to be made, as by so doing the defendant would be deprived of a discretionary right of which he was not deprived by the agreement. But, in reply to this suggestion, it is sufficient to say, that there is no such want of certainty and definiteness in the agreement as to prevent its execution by the court; and as it is alleged and proved that the defendant, although repeatedly requested, has utterly neg- lected and refused to sell the farm, but retains it for his own profit, and as a reasonable time had elapsed before filing the bill, a court of equity under such circumstances, will not permit him, under the pretense of exercising a discretion as to the time and manner of sale, to evade the performance of his contract. Wellesley v. Wellesley, 4 My. & Cr. 579. The money agreed to be paid the plaintiff out of the proceeds of sale of the farm became due and payable after the lapse of ‘a reason- able time, within which the farm could have been fairly sold, and the proceeds of sale realized by the defendant on the usual and ordinary terms of sale; Farrel v. Bean, 10 Md. 233; Triebert v. Burgess, 11 Md. 452; and this time having expired, and the defendant failing to show any good reason why he has not performed his contract, the land has become liable to be proceeded against for the enforcement of the charge on it. Another objection to the decree of the court below is, that, instead of appointing a trustee to make the sale, it should have required the defendant, himself, to make the sale in execution of the contract. This objection we do not regard as well founded. The defendant, by his own neglect or refusal to perform his contract, has occasioned the present application for relief, and as the court proceeds with the matter upon the footing of a trust, it is quite competent to it, in order to make its relief effectual, to appoint an officer of its own to execute its decree. The defendant has been allowed ample time for the sale of the farm or the payment of the money due the plaintiff; and if he does not desire the farm to be sold, he may still avoid that alternative by payment of the money without further delay. 10 That the agreement must specify the property seems uncontro- vertible. Langley v. Vaughn, 10 Heisk. (Tenn.) 553. But in the case of fungible property it may be sufficient specification to name a quantity to be taken from a larger mass. Thus in Dunman v. Coleman, 59 Tex. 199, an agreement charging 1,000 cattle in a herd of a larger number was er- forced. So in Payne v. Wilson, 74 N. Y. 348, an agreement to mortgage one of several houses was enforced. Cf. Williston, Sales, § 159. THE FORM. 53 The decree appealed from will be affirmed, and the cause remanded that the decree may be executed. Decree affirmed, and cause remanded.?1 VANIMAN v. GARDNER APPELLATE Court oF Ittrnois, 1901. 99 Ill. App. 345. On April 11, 1895, Anthony Robrts and his wife entered into the following written agreement with their son, Moss Roberts: “Agreement between Anthony Roberts and Sarah J., his wife, of first part, and Moss Roberts, their. son, second part. Witnesseth, that said Anthony Roberts is the owner of the N. W. %/, section 24, township No. 12,,range No. 6, west of the 3rd P. M., in Macoupin county, Illinois, on which all of said parties reside and occupy as a homestead; and, whereas, it is desirable that a new house shall be erected on said tract of land for the comfort and use of all said parties so long as they shall live upon said tract of land. It is therefore agreed by the said parties that said Moss Roberts shall ‘erect on said premises a house which shall be convenient and suit- able for the use of said parties, including the family of Moss Roberts. That Moss Roberts shall have the right to pull down the old house now on said premises and use the material thereon fit to be used in building the new house, and said new house shall be built and com- pleted within the next ninety days after the date of this agreement. And in consideration of the said building, the said parties of the first part agree that in case they shall sell the said tract of land, then there shall be due and payable to said Moss Roberts out of the money arising from such sale the sum of $500, together with interest thereon, from the time of the completion of said house until paid, at the rate of six per cent. per annum, and in case of the death of the said Anthony Roberts leaving no will by virtue of which said Moss Roberts shall become devisee and owner of said tract of land, then and in that case, there shall be paid to said Moss Roberts, out of the estate of said Anthony Roberts, the said sum of $500, together with six per cent. interest thereon from the completion of said house until paid. (Signed) ANTHONY Rogerts, (Seal) SARAH J. Roperts, (Seal) Moss Roperts.” (Seal) 11 Brown v. Brown, 103 Ind. 23, and Blackburn v. Tweedie, 60 Mo. 505, are substantially like the principal case except that possession of the land was given to the creditor to be retained until the land was sold and it was held that an equitable mortgage was_created. 34 ELEMENTS OF THE MORTGAGE The instrument was filed for record and recorded in the recorder’s office of Macoupin county, July 12, 1895. The house was built by Moss Roberts with money obtained from a bank at Virden, Illinois, on notes executed by him and George Vaniman as security. The written agreement was delivered to Van- iman and afterward indorsed as follows: “T assign the benefit of the within contract to George Vaniman as security to him for signing notes. : (Signed) Moss Roserts.” In 1898 Anthony Roberts and wife conveyed the land to Martha J. Roberts, wife of Moss Roberts, who on August 18, 1900, executed note and mortgage on the land to Alva L. Gardner, to secure an in- debtedness of $500, due ten days after date. Gardner filed a bill to foreclose. Appellants, the administrators of George Vaniman, who were made defendants, together with others, answered and filed a cross-bill, in which they set up that there was a lien in favor of the deceased, by virtue of the above quoted agreement, and its assignment, and a payment by them, as administrators of Geo. Vani- man, of the notes on which he was surety for Moss Roberts. The court sustained a demurrer to the cross-bill, holding that appellants had no lien on the land, and rendered a foreclosure decree in favor of Gardner. Mr. Presipinc Justice Harker delivered the opinion of the court. It is contended by appellant, first that under the written agree- ment of April 11, 1895, an equitable lien or mortgage was given Moss Roberts upon the land in question, whereby equity will enforce the payment of the $500 specified in the agreement, as a first lien upon the land ; second, that appellants are subrogated to all rights of Moss Roberts under the agreement by virtue of his assignment thereof to George Vaniman. While as a general rule, any written contract entered into for the purpose of pledging property or some interest therein as security for a debt, which is informal or insufficient as a common law or statutory mortgage, but which shows that it was the intention of the parties that it should operate as a charge upon the property, will constitute an equitable mortgage and may be enforced as such ina court of equity, yet a mere promise to pay out of the proceeds of the sale of the property is not sufficient to create an equitable mortgage upon the property itself. “The intention must be to create a lien upon the property, as dis- tinguished from an agreement to apply the proceeds of a sale of it to the payment of a debt.” Jones on Liens, sec. 32; Gibson v. Decius, 82 Ill. 304; Hamilton v. Downer, 46 Ill. App. 541. We are unable to see in the written contract involved in this case an intention on the part of Anthony Roberts to create a lien or THE FORM. 55 charge upon the land. It did not obligate him to sell the land and clearly contemplated that he might or might not sell it as he saw fit. It only provided two events in which there should be due his son the $500; one in case he should sell the land and the other in case ~ he should die leaving no will under which his son should become owner of the land. In the former case the son was to be paid out of the proceeds of sale, and in the latter he should be paid out of the estate of Anthony Roberts. As we view it the import of the contract was more to fix events for the maturity of an obligation than to pledge the land for its payment. It is evident that there was no intention that Moss Roberts should have a lien on the land for the money in the event of his father dying intestate because the language of the contract is, that in that event, he should be paid out of his father’s estate. Again, the provision that in the event of sale by Anthony Roberts, the money should be paid Moss Roberts out of the proceeds of the sale, fully recognizes the right of the former to sell, and that right carried with it the power to invest his purchaser with the title free from any lien arising out of the contract. If the contract created no equitable lien in favor of Moss Roberts, none, of course, can be held to exist in favor of his assignee. The evidence shows that the $500 note to Gardner represented a bona fide debt, and there is nothing in the record to warrant a sus- picion, even, that the giving of the mortgage to him had any other than an honest purpose to secure the debt. Decree affirmed.1? WASHINGTON BREWERY CO. v. CARRY. Court oF APPEALS OF MaryLanp, 1892. 24 Atl. 151. Bryan, J. Albert Carry filed a bill in equity against Stegmaier and the Washington Brewery Company, a body corporate. It was alleged in the bill that Stegmaier purchased at trustee’s sale a certain tract of land in Prince George’s county, and that after the sale was ratified he borrowed from the complainant $3,000 to make the cash 12 Accord: Finn v. Donahoe, 83 Mich. 165; Britt v. Harrell, 105 N. Car. 10; Hossack v. Graham, 20 Wash. 184. See also Clement, Bane & Co. v. Swanson, 110 Iowa 106, In Knott v. Manufacturing Co., 30 W. Va. 790, an agreement to in- sure buildings and transfer the policies to a creditor “as additional se- curity” was held to create no lien on the buildings, it being too explicit to be open to implication. The word “additional” was held to mean ad- ditional to the security, in the general sense of that term, which was con- stituted by the personal obligation of the debtor. 56 ELEMENTS OF THE MORTGAGE. payment, and at the same time promised to secure the repayment of the money by a mortgage on the land, and that he has failed and re- fused to do so; that afterwards Stegmaier conveyed his interest in the land to the brewery company, and that said conveyance was made for simulated and pretended considerations, and was intended to delay, hinder, and defraud the complainant and other creditors of Stegmaier. The prayer of the bill was that the deed might be de- clared void; that the agreement to execute the mortgage might be specifically enforced, or, if it could not be enforced, that compensa- tion might be decreed; and that Stegmaier’s interest in the land might be sold for the purpose of paying the debt and interest. The answers of the defendant denied the fraud, and pleaded the statute of frauds to the alleged agreement to make a mortgage; not admit- ting, however, the existence of said agreement. The circuit court passed a decree ordering a sale of the land, and the defendants appealed. At the time the money was loaned to Stegmaier he executed and delivered to Carry his promissory note for the amount, but the promise to make the mortgage was entirely by parol. The fourth section of the statute forbids any action on a contract or sale of lands, or any interest in or concerning them, unless the contract is in writing. It ought never to have been doubted that a contract to make a mortgage of land was within the terms and meaning of the statute. But, as almost every description of question has been made the subject of controversy, it is not surprising that we find this one adjudicated. Clabaugh v. Byerly, 7 Gill 362; Albert v. Winn, 5 Md. 77; Browne, St. Frauds, § 267. The appellee contends that by reason of the payment of the money the contract has been per- formed in part, and that he is therefore entitled to a decree for specific performance; and he places great reliance on certain ex- pressions in the opinion of the court in Cole v. Cole, 41 Md. 302. In that case the complainant had loaned one of the defendants a sum of money, with which he purchased a tract of land, and the borrower verbally agreed that he would secure the repayment of the money to the lender by a mortgage on the land, but afterwards refused to do so. The lender filed a bill in equity, praying for a sale of the land to satisfy the debt, or that the borrower might be decreed to execute a mortgage on it to secure the payment of the money loaned, and for general relief. The defendants did not deny the agreement — to execute a mortgage, nor did they set up the statute of frauds as a defense. In deciding the case this court used this language: “Cole, having obtained the said advance upon the agreement to exe- cute a mortgage upon the land to secure the repayment, is bound, in equity and good conscience, to performance on his part; and his in- terest in the property must be held answerable for the same, to the same extent as if the mortgage had been given according to the agree- THE FORM. 57 ment. A court of equity will hold him liable, and consider that as done which ought to have been done. There is nothing in the stat- ute of frauds, if it had been pleaded, in conflict with this equitable principle. That statute was enacted to provide as far as possible against the perpetration of frauds, and courts of equity never allow its provisions to be perverted and made instrumental in the accom- plishment of fraud. They decree the specific execution of agree- ments where there has been a performance on one side, because the refusal to perform on the other side is a fraud, and they will not permit the statute designed to prevent fraud’ to be made an engine of fraud.’’18 General expressions like these are frequently found in the reports of decided cases, and in the text-books. Their extreme generality ought to suggest that there must be a great many cases to which they could not be applied. If adopted as rules of decision, they would operate as a judicial repeal of the statute of frauds. The language of courts is usually intended to be inter- preted by its application to the case which they are considering, and not as establishing a rule for different cases, which are not at the time under discussion. A very eminent judge has put on record his estimate of these generalities. I allude to the opinion of Lord Chancellor Selborne in Maddison v. Alderson, L. R. 8 App. Cas. 474. Speaking of the equity of part performance of parol contracts, his lordship said: “That equity has been stated by high authority to rest upon the principle of fraud. ‘Courts of equity will not permit the statute to be made an instrument of fraud.’ By this it can not be meant that equity will relieve against a public statute of general policy in cases admitted to fall within it, and I agree with an observation made by Lord Justice Cotton in Britain v. Rossiter [11 Q. B. Div. 131] that this summary way of stating the principle (however true it may be when properly understood) is not an adequate explanation either of the precise grounds or of the established limits of the equitable doctrine of part perform- ance.” In like manner this court has had occasion to express its opinion on the other general rule quoted in Cole v. Cole, that “equity will consider that as done which ought to have been done.” In 13 Accord: King v. Williams, 66 Ark. 333; Dean v. Anderson, 34 N. J. Eq. 496; Sprague v. Cochran, 144 N. Y. 104; and see Baker v. Baker, 2 S. Dak. 261, which also rests on subrogation. Compare with the foregoing cases, the following from the same juris- dictions, which hold that on a parol contract of sale of land, payment of the consideration is not such part performance as takes the case out of the statute. Keatts v. Rector, 1 Ark. 391; Underhill v. Allen, 18 Ark. 466; Cole v. Potts, 10 N. J. Eq. 67; Nibert v. Baghurst, 47 N. J. Eq. 201; Miller v. Ball, 64 N. Y. 286; Cooley v. Lobdell, 153 N. Y. 596. In Martin v. Nixon, 92 Mo. 26, it was held equity would reform a mortgage by in- serting the description of a parcel omitted by mistake and that the omis- sion of the mortgagor’s signature could also be corrected; contra, Good- man v. Randall, 44 Conn. 321. 58 ELEMENTS OF THE MORTGAGE. Clabaugh v. Byerly, 7 Gill 354, the court were considering an alleged parol promise to make a mortgage of land. They say: “By the appellee it is insisted that he is to be preferred because of an agreement which the mortgagor made with him before the date of the deed to the appellants, and upon the principle that equity will consider that as done which ought to be done. No doubt this, when correctly understood, is an established maxim in equity. But there are many things which a man ought to feel himself bound to do, many promises which the party promising ought to feel himself bound to fulfill, and yet which the chancery court can not compel him to perform. The court, then, in order to be justified in regarding an act as done, must have jurisdiction of the case, and to be able to insist that it shall be done.” On a little reflection, many exceptions will be perceived to nearly all general rules, however great may be the latitude of the terms in which they are laid down. It becomes necessary to consider some of the leading cases in which the general expressions used in Cole v. Cole were applied to existing facts, so that we may see the practical limits of the doctrine which they state. In Clinan v. Cooke, 1 Schoales & L. 22, Lord Redesdale considered very fully the doctrine of part per- formance of parol contracts. Since his time it can not be said that much has been added to his exposition of the subject. On this account, as well as on account of his very great ability and repu- tation as an equity judge, I will make a considerable extract from his opinion: “But I think this is not a case in which part per- formance appears. The only circumstance that can be considered as amounting to part performance is the payment of the sum of fifty guineas to Mr. Cooke. Now, it has always been considered that the payment of money is not to be deemed part performance to take a case out of the statute. Seagood v. Meale, Finch, Prec. 560, is the leading case on that subject. There a guinea was paid by way of earnest, and it was agreed clearly that that was of no consequence, in case of an agreement touching lands. Now, if pay- ment of fifty guineas would take a case out of the statute, pay- ment of one guinea would do so equally; for it is paid in both cases as part payment, and no distinction can be drawn. But the great reason, as I think, why part payment does not take such agree- ment out of the statute, is that the statute has said (§ 13) that in another case, viz., with respect to goods, it shall operate as part performance. And the courts have therefore considered this as excluding agreements for land, because it is inferred that when the legislature said it should bind in the case of goods, and were silent as to the case of lands, they meant that it should not bind in the case of lands. But I take another reason also to prevail on the subject. I take it that nothing is considered as a part per- THE FORM. 59 formance which does not put the party into a situation that is a fraud upon him, unless the agreement is performed; for instance, if upon a parol agreement a man is admitted into possession, he is made a trespasser, and is liable to answer as a trespasser, if there be no agreement. This is put strongly in the case of Foxcroft v. Lester [Coll. P. C. 108, 2 Vern. 456]. There the party was let into possession on a parol agreement, and it was said that he ought not to be liable as a wrongdoer, and to account for the rents and profits, and why? Because he entered in pursuance of an | agreement. Then, for the purpose of defending himself against a charge which might otherwise be made against him, such evi- dence was admissible; and, if it was admissible for such purpose, there is no reason why it should not be admissible throughout. That, I apprehend, is the ground on which courts of equity have proceeded in permitting part performance of an agreement to be a ground for avoiding the statute; and I take it, therefore, that nothing is to be considered as part performance which is not of that nature. Payment of money is not part performance; for it may be repaid, and then the parties will be just as they were before, especially if repaid with interest. It does not put a man who has parted with his money into the situation of a man against whom an action may be brought; for in the case of Foxcroft v. Lester, which first led the way, if the party could not have produced in evidence the parol agreement, he might have been liable in dam- ages to an immense extent.” It might, perhaps, be thought that there was some subtlety in his lordship’s reasoning; but neverthe- less his opinion is received without dissent, and is regarded as an authoritative declaration of the fundamental doctrine of equity on this subject. In Hughes v. Morris, 2 De Gex, M. & G. 356, Lord Justice Knight Bruce said: “A parol contract for the sale of land, though all the money be paid, without part performance—for the payment of the money is no part performance—can not be carried into effect if the person sued chooses to avail himself of the defect.” In Britain v. Rossiter, 11 Q. B. Div. 131, it was said by Lord Justice Cotton: “But it is well established, and can not be denied, that the receipt of any sum, however large, by one party under the contract, will not entitle the other to enforce a contract which comes within the fourth section.” In Maddison v. Alderson, L. R. 8 App. Cas. 479, the lord chancellor said: “It may be taken as now settled that part payment of purchase money is not enough, and judges of high authority have said the same even of payment in full.’ And he quoted Clinan v. Cooke, Hughes v. Morris, Brit- ain v. Rossiter. In Purcell v. Miner, 4 Wall. 513, the Supreme Court of the United States said: “But the mere payment of the price in part or in whole will not, of itself, be sufficient for the interference of a court of equity; the party having a sufficient 60 ELEMENTS OF THE MORTGAGE. remedy at law to recover back the money.” In Story, Eq. Jur., § 760, the learned author’s conclusions are thus stated: “It seems for- merly to have been thought that a deposit or security or payment of the purchase money, or a part of it, or at least of a considerable part of it, was such a part performance as took the case out of the statute. But that doctrine Was open to much controversy, and is now finally overthrown. Indeed, the distinction taken in some cases between the payment of a small part and the payment of a considerable part of the purchase money seems quite too refined and subtle; for, independently of the difficulty of saying what shall be deemed a small and what a considerable part of the pur- chase money, each must, upon principle, stand upon the same rea- son, namely, that it is a part performance in both cases or not in either.” In 4 Kent Comm. (12th ed.) *451, we read: “It was formerly held that payment was part performance, but the more modern doctrine now is that payment of part, or even of the whole, of the purchase money, is not of itself, and without something more, a performance that will take the case out of the statute; for the money may be repaid.” In Fry, Spec. Perf., in a note on page 301, it is said: “The rule is now well settled, and all the best au- thorities agree, that the vendee will not be entitled to the specific performance of a parol contract for the purchase of real property, or an interest therein, merely upon the payment of money, where nothing else is done; and a large number of authorities are cited. In Artz v. Grove, 21 Md. 471, the court, in speaking of certain sums of money paid by the complainant, said that they “were not like part payment of purchase money, which the courts have de- cided, as between vendor and vendee, ‘do not constitute part per- formance, because they may be recovered back at law if the con- tract be vacated or annulled.” And the same thing was said in Hopkins v. Roberts, 54 Md. 316. In Green v. Drummond, 31 Md. 71, there was an agreement which was invalid under the fourth section of the statute of frauds, and a sum of money, more than $3,000, had been advanced in pursuance of it, yet it was held that a decree for specific performance of the agreement could not be passed in the case. The decision in Girault v. Adams, 61 Md. 1, has been cited by the appellee’s counsel. But in that case specific performance was not decreed. The contract was within the statute of fraud, and, because of the inadequacy of the remedy at law, compensation was decreed, to the extent of the money paid on the alleged contract; and, as the separate estate of a married woman was charged with the payment of the money, it was held that a decree ought to be passed for the sale. It is seen that at one time it was held that payment of purchase money, in whole or in part, was a sufficient part performance; but the contrary doctrine is, THE FORM. 61 however, now established by a vast preponderance of authority.14 When Stegmaier borrowed the money from Carry, it became his own, and. anything which he might purchase with it would like- wise become his own property. There could be no lien on the pur- chased property, arising from the fact that Carry had loaned the money. A lien might exist for money loaned where there was a valid contract for it; but I have shown that the contract in this case is within the prohibitory clauses of the statute of frauds. When a man borrows money, it is generally for the purpose of using it according to his own wishes; and his right to do so is ab- solute, and not qualified by any claim of the lender on purchases made with it, unless there are restrictions imposed by valid and binding contract. We can not decree compensation on the prin- ciples declared in Green v. Drummond, because, as a promissory note was given for the money borrowed, there is a complete and adequate remedy at law for its recovery. I do not find that the brewery company had notice of the agree- ment to make a mortgage; but it will be seen from what I have said that I regard this circumstance as immaterial. The decree ought to be reversed, and the bill dismissed.15 Epitor1AL NotTEe.—Deposit oF Titte Deeps. In England it is well settled that if an owner of land deposits his title deeds with a creditor as security, this creates an equitable lien on the land. Russel v. Russel, 1 Bro. C. C. 269; Ex parte Kensington, 2 V. & B. 79; Ex parte Haigh, 14 Ves. 402. This doctrine, though much criticised there, is better suited to the English practice in conveyancing, of producing, as evidence of title, the chain of deeds by which an estate is derived, than to our system of recording conveyances. In this country the doctrine has usually been repudiated as in conflict with the statute of frauds and out of harmony with our 14 “There is an evident distinction between the cases of loan and pur- chase; and without expressing any opinion on the question, whether in the former [latter] case, payment of the whole, or of part of the purchase- money, is, or is not, a part performance to take it out of the statute, it is enough to say that the advance of money upon a contract for loan af- fords, of necessity, no evidence of any intention but that of creating the ey of debtor and creditor.” Ld. Elden, in Ex parte Hooper, 1 Meriv. 7. In the following cases the statute was held to defeat a claim of equi- table mortgage, but the doctrine of part performance was not discussed. Goodman v. Randall, 44 Conn. 321; Pierce v. Parrish, 111 Ga. 725; Hack- ett v. Watts, 138 Mo. 502; Bower v. Oyster, 3 P. & W. (Pa.) 239; Boehl v. Wadgymar, 54 Tex. 589. 15 The other members of the court reached the same conclusion as Bryan, J., but upon the ground that the record showed the defendant Brewery Company to be a bona fide purchaser, so that, whether com- plainant was entitled to specific performance as against defendant Steg- maier, it was not as against the former. 62 - ELEMENTS OF THE MORTGAGE. system of conveyancing. Pierce y. Parrish, 111 Ga. 725; Van Meter v. McFadden, 8 B. Mon. (Ky.) 435; Gardner v. McClure, 6 Minn. 250; Gerhard v. Flynn, 25 Miss. 58; Bloom v. Nogle, 4 Ohio St. 45; Meador v. Meador, 3 Heisk. (Tenn.) 562; Bickness v. Bicknell, 31 Vt. 498. Contra, Hall v. McDuff, 24 Maine 311 (semble) ; Rockwell vy. Hoby, 2 Sandf. Ch. (N. Y.) 9; Chase v. Peck, 21 N. Y. 584 (sem- ble) ; Hackett v. Reynolds, 4 R. I. 512. See Jarvis v. Dutcher, 16 Wis. 307 (deposit of school land certificates which pass title by as- signment). Of course if the deposit of deeds is accompanied by a written contract the statute is satisfied; and a reference in the contract to the deeds is sufficient description of the land. Hackett v. Watts, 138 Mo. 502; English v. McElroy, 62 Ga. 413, explained in Pierce v. Parrish, 111 Ga. 725; Martin v. Bowen, 51 N. J. Eq. 452. And see, Bank v. Caldwell, 4 Dillon (U. S.) 314. Even where our courts recognize an equitable mortgage by de- posit of title deeds, it does not give the creditor the same prac- tical hold on the land which it does in England, where the owner finds great difficulty in disposing of his land without production of his title deeds. Burnett, J., in Lez v. Evans, 8 Cal. 424 (1857). There are two questions arising upon the record in this case: 1. Whether the grantee in a deed, absolute upon its face, can be permitted to show, by parol proof, that it was only intended as a mortgage, without alleging and proving fraud, accident, or mis- take, in the creation of the instrument? 2. If not, whether the answer substantially admits the allega- tions of the complaint, so as to dispense with proof. The question is one solely relating to evidence. What shall be competent evidence to prove certain facts? The statute says none but written testimony will do, and the courts say oral testimony is sufficient. Is not this a plain contradiction of the statute? The general rule, that parol shall not be received to contradict written evidence, is founded in true policy, and in good sense. Why should parties state, in solemn instruments, that which is not true? These instruments assume to state the truth, and the whole truth; and if parties will state that which is untrue, should they not justly suffer the consequences? Is not the rule, that parties must be held to mean what they say, the plain, honest, simple, and correct rule at last? It is intelligible, certain, and practical; and if always fairly carried out, will, in the end, be most useful. If not, the legislature should correct it. Where exceptions are intended, they should be specified. And if the legislature intended none, then the courts should not create them. THE FORM. 63 Many of the learned judges who have sustained the doctrine that a deed, absolute upon its face, may be shown by parol proof to be only intended as a mortgage, have endeavored to reconcile the rule with the statute. Thus Mr. Justice McLean says, in the case already referred to: “Tn cases of trust, equity will sometimes treat a deed, absolute upon its face, as a mortgage, but in doing this, parol proof is not heard in contradiction of the instrument, but in explanation of the trans- action, to prevent a perpetration of a fraud.by the mortgagee.” Now, I confess, I can not understand the force of this explanation. The rule that “treats a deed absolute upon its face, as a mortgage,” certainly contradicts the instrument. A written instrument speaks for itself, and if you make it mean contrary to what it says, there must be a contradiction. Nor can I understand how the parol evidence can be received, “in explanation of the transaction,’ without contradicting the in- strument, for the reason that the instrument and the parol testi- mony both assume to state the transaction; and as they differ, they must naturally be in contradiction. They both historically relate the same transaction, and the one says it was an absolute sale— the other, it was not such, but a mere mortgage, and is not this a plain contradiction? If A, gives his note to B, for five hundred dollars, and A seeks to prove, by parol evidence, that it was only intended as a note for three hundred dollars, is not this a contra- diction? And if the instrument (the very end and purpose of which is to state the contract as it was) says the sale was absolute, and the parol evidence says it was no sale, but only a mortgage, there must be a clear conflict between the two classes of testimony. And Chief Justice Gibson, in the case already referred to, says: “A formal conveyance may certainly be shown to be a mortgage by extrinsic proof, while a formal mortgage may not be shown to be a conditional sale by the same means. In the one case, the proof raises an equity consistent with the writing, and in the other would contradict it.’ But here, again, I must confess I can not see the reason of the distinction. To say that a deed absolute is a mere mortgage, is no contradiction—while, to say a mortgage can not be made a conditional sale, without a contradiction, is making a distinction without a difference. If two different witnesses should testify in relation to a transaction concerning personal property, and the one should say it was an absolute sale, and the other that it was only a pledge, I suppose there could be no doubt as to there being a contradiction in the evidence. And if we put in the place of one witness an instrument in writing it can not be said that this circumstance would remove the contradiction in the testimony. The same conflict would still exist. These attempted explanations only go to prove the difficulties of . 64 ELEMENTS OF THE MORTGAGE. the rule allowing these exceptions, in certain cases, and refusing them in others, when the statute has in terms excluded them in both. The object of the statute was to make writterf evidence the only testimony to prove certain contracts. And if the courts, con- trary to the words of the statute, can change the rule in one case, they can in all, and every written contract might be contradicted by parol proof. In the case of Stevens v. Cooper, 1 Johns. Ch. R. 429, Chan- cellor Kent says: “The plaintiffs in the original suit seek to avail themselves of a parol agreement alleged to have been made between the parties to the mortgage at the time it was executed, by which each lot was to be bound only for a ratable proportion of the mortgage-debt. The mortgage in this, as in ordinary cases, bound every part and parcel of the mortgaged premises for the entire debt, and if such a parol agreement, as is charged, can be proved and set up, it goes to vary, essentially, the operation of the mortgage-deed.” The parol evidence was not admitted, and the learned Chancellor makes these forcible remarks: “The general rule is certainly not to be questioned or disturbed. It ought not to be a subject of discussion. It is as well grounded in reason and policy as it is in authority. Nor does this case come within any exception, admitted here, to the operation of the rule; for there is no allegation of fraud, mistake, or surprise, in making or executing the mortgage; and those, I believe, are the only cases in which parol evidence is admissible in this court against a contract in writing.” In the case of Webb v. Rice, 1 Hill 608, Mr. Justice Bronson, in his able dissenting opinion, remarks: “Although I may yield to the opinion of others, I never shall be reconciled to the doctrine that an absolute deed can, at law, be turned into a mortgage by parol evidence, nor that it can be done in a court of equity, except on the ground of fraud or mistake. It is contrary to a first principle in the law of evidence to allow a deed, or other written instrument, to be contradicted by parol proof.” The learned judge quotes a passage from the opinion of Mr. Justice Cowen, in the case of Swart v. Service, 21 Wend. 36, where the latter says: “For one, I was always at a loss to see on what principle the doctrine could be rested, either at law or in equity, unless fraud or mistake was shown in obtaining an absolute deed, when it should have been a mortgage. In either case the deed might be rectified in equity, and perhaps even at law, in this state, where mortgages stand on the same footing in both courts. Short of that (fraud or mistake), the evidence is a direct contradiction of the deed.” THE FORM. 65 The general doctrine laid down by this court, in the case of Abell v. Calderwood, 4 Cal. R. 90, would seem to support the view we have taken. The learned judge who delivered the opinion of the court said: “The agreement being void, by the Statute of Frauds, courts of equity heretofore have, notwithstanding the statute, granted the re- lief sought in certain cases, where the refusal of it might enable one party to commit a fraud upon the other. In their abhorrence of fraud, these courts have, in a material degree, abrogated the letter and spirit and intention of the written law. In the effort to escape from an evil they have unavoidably fallen into another, and for many years past the best judicial minds of common law coun- tries have conceded that the one they have fallen into is the greater evil of the two.” We think the strict rule the true one, and that in no case can parol evidence be introduced to vary or contradict the deed, except in cases of fraud, accident, or mistake, and then only upon a direct allegation of the defect in the creation of the instrument. In this case the parties understood distinctly what was in the writing. They made it contain just what they intended it should contain. Evans executed just such an instrument as he intended to exe- cute, and no other. There was no mistake, fraud, or accident, in the creation of the instrument. If the view we have taken be correct the plaintiff must rely solely upon the admissions in the answer. And this brings us to the sec- ond question.1¢ [The learned justice proceeded to examine the pleadings and found an admission by the defendant that the conveyance was a mortgage. Judgment was accordingly rendered for the complain- ant. ] Frietp, J., in Prerce v. Roprnson, 13 Cal. 116 (1859). I place the question whether the conveyance is to be deemed a mortgage, entirely upon the admissibility of parol evidence to establish the fact. The evidence in the record, if admitted, clearly establishes it. The question as to the admissibility of such evidence came be- fore this court in Lee v. Evans (8 Cal. 424) and it was there held that it was inadmissible except in cases of fraud, accident, or mis- take, in the creation of the instrument, and the doctrine there as- serted was affirmed by Mr. Justice Burnett in Low v. Henry (9 Cal. 538). At the time I took my seat on the bench there were several cases pending before the court in which I had appeared as counsel, and, of course, I was precluded from participating in their decision or expressing any dissent therefrom. Lee v. Evans and 16 Accord: Brainerd v. Brainerd, 15 Conn, 575 (semble); McClane v. White, 5 Minn. 178 (semble); Frazier v. Frazier, 129 N. Car. 30. 5 66 ELEMENTS OF THE MORTGAGE. Low v. Henry were among the number. Both of these cases were decided in favor of the parties I represented, but upon other grounds than those arising from the admissibility of parol evidence. In Johnson v. Sherman, decided at the July term, 1858, the same question was again presented, and I took the occasion to give, in a separate opinion, the reasons of my dissent from the doctrine an- nounced in Lee v. Evans. A rehearing having been granted, and a change on the bench having since taken place, and Mr. Justice Baldwin concurring with me, I avail myself of this opportunity to reaffirm the views I then expressed, using substantially the lan- guage of my dissenting opinion in Johnson v. Sherman, trusting thereby to place the doctrine of this court in harmony with the re- ceived doctrine of courts of equity, on this subject, everywhere else. I consider parol evidence admissible in equity, to show that a deed absolute upon its face was intended as a mortgage, and that the restriction of the evidence to cases of fraud, accident, or mis- take, in the creation of the instrument, is unsound in principle and unsupported by authority. The entire doctrine of equity, in respect to mortgages, has its origin in considerations independent of the terms in which the instruments are drawn. In form, a mortgage in fee is a convey- ance of a conditional estate, which, by the strict rules of the com- mon law, became absolute upon breach of its conditions. But, from an early period in the history of English jurisprudence, courts of equity interposed to prevent a forfeiture of the estate and gave to the mortgagor a right to redeem, upon payment within a reason- able time, of the principal sum secured, interest and costs. As the right to thus recover the estate forfeited arose not from the terms of the instrument, but from a consideration of the real char- acter of the transaction, as one of security and not of purchase, it could be enforced only in equity, and was hence termed an equity of redemption. And when the right to redeem had been once es- tablished, to prevent its evasion, the rule was laid down and has ever since been inflexibly adhered to, that the right is inseparably connected with the mortgage, and can not be abandoned or waived by any stipulations entered into between the parties at the time, whether inserted in the instrument or not. (Vernon v. Bethell, 2 Eden 113; Butler’s Note to Coke on Litt. 2046; 4 Kent 142-144; Story’s Equity, § 1019.) As the equity upon which the courts act arises from the real character of the transaction, it is of no consequence in what man- ner this character is established, whether by deed or other writing, or by parol. Whether the instrument, it not being apparent on its face, is to be regarded as a mortgage, depends upon the circum- stances under which it was made, and the relations subsisting be- tween the parties. Evidence of these circumstances and relations THE FORM. 67 is admitted, not for the purpose of contradicting or varying the deed, but to establish an equity superior to its terms. It is against the policy of the law to allow irredeemable mortgages, just as it is against the policy of the law to allow the creation of inalienable estates. Under no circumstances will equity permit this end to be effected, either by express stipulation, or the absolute form of the instrument. The rule which refuses the admission of parol evidence to contradict or vary written instruments is directed to the language employed by the parties. That. language can not be qualified, but must be left to speak for itself. The rule does not exclude an inquiry into the objects and purposes of the parties in executing the instruments. It may be shown, for instance, that a deed was made to defraud creditors, or a release given to render a witness competent. The purposes and objects of the parties are considered by a Court of Chancery, and constitute a large ground of its jurisdiction, which will be exercised to restrain or to effectu- ate them, as may best promote justice. Thus, a deed executed for a fraudulent purpose will be set aside; and as it is the settled policy of equity, admitting of no departure, never to permit a security to be converted by any contemporaneous agreement into a sale, the purposes of the parties in giving and taking an absolute con- veyance will be inquired into; and when the rights of third per- sons have not intervened, a Court of Chancery will control the use of the instrument intended as security in the hands of the grantee, so as to effectuate its object. Unless parol evidence can be ad- mitted, the policy of the law will be constantly evaded. Debtors, under the force of pressing necessities, will submit to almost any exactions for loans of a trifling amount, compared with the value of the property, and the equity of redemption will elude the grasp of the court and rest in the simple good faith of the creditor. A mortgage, as I have observed, is, in form, a conveyance of a con- ditional estate, and the assertion of a right to redeem from a for- feiture involves the same departure from the terms of the instru- ment, as in the case of an absolute conveyance executed as se- curity. The conveyance upon condition, by its terms, purports to vest the entire estate upon the breach of the condition, just as the absolute conveyance does in the first instance. The equity arises and is asserted, in both cases, upon exactly the same prin- ciples, and is enforced without reference to the agreement of the parties, but from the nature of the transaction to which the right attaches, from the policy of the law, as an inseparable incident. In Lee v. Evans, the majority of the court appear to have over- looked, in their anxiety to preserve the integrity of conveyances from attacks of parol, the distinction between evidence of facts raising an equity which will control the operation of the instru- ment in the hands of the grantee, and evidence to contradict or 68 ELEMENTS OF THE MORTGAGE. vary the legal effect of its terms, and yet that distinction is the foundation of the entire equitable doctrine of mortgages. Fraud, accident, and mistake are special grounds of equity juris- diction, and may be shown by any satisfactory evidence, written or verbal, with reference not merely to mortgages, but to all writ- ten instruments. From their nature they must generally be estab- lished by parol evidence. And the evidence is admissible, not for the purpose of contradicting or varying the terms of the instru- ment—not to make its language mean one thing, when it speaks another, but to show a state of facts dehors the instrument, raising an equity, which a Court of Chancery will enforce by annulling or reforming the instrument, or limiting its operation, or enjoining its use. And the doctrine is both novel and startling which re- stricts, in matters of fraud, its jurisdiction over the operation of written instruments to those cases where the fraud has been com- mitted in their creation. If maintained, it will sweep away its heretofore admitted jurisdiction in an infinite variety of cases, of almost daily occurrence, where the fraud alleged consists in the use of instruments entered into upon mutual confidence between the parties. Fraud in their use is as much a ground for the inter- position of equity, as fraud in their creation. There is no distinc- tion in the principle upon which the jurisdiction is asserted in the two cases. In both there is the same abuse of confidence, and from both the same injury results. In Hultz v. Wright, the Supreme Court of Pennsylvania said: “As to fraud, it is not supposed to be necessary to have proof express that a writing has been obtained fraudulently, in order to admit parol evidence against it on that score; but parol evidence may be admitted to resist the fraudulent use of a writing in the obtaining of which no fraud can be made to appear.’”’ (16 Seargt. & Rawle 346.) And in Oliver v. Oliver (4 Rawle 144) the same court said: “When the fairness of the transaction is impeached, it is immaterial whether the party intended a fraud at the time of the contract, or whether the fraud consists in the fraudulent use of the instrument. * * * It is no answer to say that the parol evidence is in opposition to the deed; for where there is fraud, or the party attempts to make a fraudulent use of an instrument con- trary to his contract, parol evidence is admitted to prevent injus- tice.” “A deed,” says Kent, “absolute upon the face of it, and though registered as a deed, will be valid and effectual as a mortgage as between the parties, if it was intended by them to be merely a se- curity for a debt. And this would be the case, though the de- feasance was by agreement resting in parol, for parol evidence is admissible in equity to show that an absolute deed was intended as a mortgage, and that the defeasance has been omitted, or de- THE FORM. 69 stroyed by fraud, surprise, or mistake.” (4 Com. 143.) And Mr. Justice Story, after quoting this passage, adds: “It is the same if it be omitted by design, upon mutual confidence between the parties, for the violation of such an agreement would be a fraud of the most flagrant kind, originating in an open breach of trust against conscience and justice. I do not comment upon this subject at large because it seems to me wholly unnecessary, in the present state of the law, to do more than enunciate the principles which govern cases of this nature, and which are as well established as any which govern any branch of our jurisprudence.” (Taylor v. Luther, 2 Sumner 233.) 17 CULLEN vy. CAREY. SUPREME Court oF MassacuHusetts, 1888. 146 Mass. 50. Bill in equity to compel the reconveyance of land on the ground that the transaction by which the defendant’s testator gained title was in substance a mortgage. Writ dated December 24, 1885. 17 Accord: Blakemore v. Byrnside, 7 Ark. 505 (semble); Ruckman v. Alwood, 71 Ill, 155 (semble); Brown v. Follette, 155 Ind. 316; McDonald v. Kellogg, 30 Kans. 170; Oberdorfer v. White, 25 Ky. L. 1629; Stinch- field v. Milliken, 71 Maine 567; Campbell v. Dearborn, 109 Mass. 130; McMillan v. Bissell, 63 Mich. 66; O’Neill v. Capelle, 62 Mo. 202; Strong v. Stewart, 4 Johns Ch. (N. Y.) 167; Wallace v. Smith, 155 Pa. St. 78; Loving v. Milliken, 59 Tex. 423; Wright v. Bates, 13 Vt. 341; Russell v. Southard, 12 How. (U. S.) 139. In Campbell v. Dearborn, supra, the court, while sustaining the broad rule of the principal case, say, by Welles, J., “We can not concur in the doctrine advanced in some of the cases, that the subsequent at- tempt to retain the property, and refusal to permit it to be redeemed, constitute a fraud and breach of trust, which affords ground of juris- diction and judicial interference. There can be no fraud or legal wrong in the breach of a trust from which the statute withholds the right of judicial recognition. Such conduct may sometimes appear to relate back, and give character to the original transaction, by showing, in that, an express intent to deceive and defraud. But ordinarily it will not be connected with the original transaction otherwise than constructively, or as involved in it as its legitimate consequence and natural fruit. In this aspect only can we regard it in the present case.” By the great weight of authority, when land is conveyed by absolute deed upon an oral trust for the grantor equity will not enforce the oral trust, nor will it create a resulting or constructive trust to prevent the wrong thereby inflicted upon the grantor. The argument that there is fraud in the use of the deed, or a breach of confidence, which justifies relief, is usually rejected as an evasion of the statute, “because the fraud consists only in the refusal to execute the trust. The court, therefore, can not say that there is a fraud, without first saying that there is a trust. And the parol evidence, if admitted, must be admitted to establish the trust, in order that the court may 70 ELEMENTS OF THE MORTGAGE. In the superior court the case was referred to a master, who found the following facts: ; In 1869 the plaintiff bought the land in question, subject to a mortgage, and proceeded to erect a tenement house. Leonard Carey, the husband of the defendant, who was a carpenter and indebted to the plaintiff for money lent, built the house for the plaintiff, supplying nearly all the materials and labor under an oral agreement whereby his indebtedness to the plaintiff was to be ap- plied in payment of the cost of construction. When the house was completed the balance due Carey, after paying his debt to the plain- tiff, was $1,106, and the value of the house and land above the existing mortgage was $3,300. The plaintiff moved into the house and occupied it about six months. On or about June 1, 1870, the plaintiff and Carey made an oral agreement that Carey should gain title to the premises by levy on execution, and by a sale under the power in the mortgage, and hold them as security for the plaintiff’s debt to him, and, after pay- ment of the debt and expenses out of the rents, should reconvey to the plaintiff. In pursuance of this agreement, the plaintiff, on June 1, 1870, gave to Carey a note for $4,000, upon which an action was brought and judgment obtained by default against the plaintiff as agreed. An execution was issued and levied by a sale to Carey of the plaintiff’s equity of redemption in the premises for $4,317.39, and a conveyance in due form was made to him on May 29, 1871. On July 6, 1871, Carey, by the payment of $583.17, procured the assignment of the mortgage to a third person, who proceeded in due form to sell the premises under the power therein to Carey for $950, and:a deed was given to him and duly recorded. Prior to the sale on execution and under the mortgage, Carey was put in possession of the premises by the plaintiff, and so continued until his death, on October 25, 1885. At various times the plaintiff demanded of Carey a settlement and reconveyance of the premises, his last demand being made a few days before Carey’s death, in the presence and hearing of the defendant. Carey made a will, by which his real estate was devised to the defendant, who took possession of the premises and continued to receive the rents and profits. The defendant declined to file an account, but it was agreed by both parties that the receipts by Carey and the defendant had been sufficient to pay the plaintiff’s debt to Carey, including interest and expenses. The master also found that there had been no laches on the part of the plaintiff. The case was then heard on the report of the master, and a charge the party with fraud in setting up his claim against it.” Paine, J., in Rasdall v. Rasdall, 9 Wis. 379. See Article by J. B. ay Harv. L. Rev. 549. ee Article by J. B. Ames, in THE FORM. 71 decree was entered that the defendant convey the premises to the plaintiff. The defendant appealed to this court. Morton, C. J. It was held in Campbell v. Dearborn, 109 Mass. 130, that, although a deed be given which is absolute in form, yet the grantor may prove by parol testimony that it was understood and agreed by both parties to be given as security for a debt; and that upon such proof a court of equity will treat the deed as a mortgage. This is decisive of the case at bar. For some reason, which does not appear to be fraudulent, the plaintiff did not directly convey the estate in question to the de- fendant’s testator; he permitted the latter to obtain a judgment upon a debt in part fictitious, and thus to get a title by a levy upon the execution, and also to foreclose by a sale under an existing mortgage. But the substance of the transaction was the same as if a deed had been directly given by the plaintiff. Both parties agreed that the title thus obtained was to be held solely as security for the debt of the plaintiff to the defendant’s testator, and a court of equity will treat the transaction according to its real nature as a mortgage. The defendant does not stand in the position of an innocent pur- chaser, as she contends. She took as a general devisee under the will of her husband, and besides is shown to have had notice of the nature of the transaction. Decree affirmed.1§ Epitor1aL Note. When land is conveyed by absolute deed, either upon a present consideration or upon a pre-existing indebtedness, and the grantee agrees that, upon payment to him of a certain sum at a certain time, he will reconvey the premises to the grantor, it 18 “It is frequently the case that parties desire to give security upon lands the title to which is not in them, but is subject to their control. It is also frequently true that they desire to give it upon lands owned by them, but liable to be sold on judicial proceedings against them. The rule itself being once established, that parol evidence may be admitted to show an absolute deed a mortgage, when such an agreement is clearly established, we do not think it material whether a judicial sale was adopted merely as a means of conveying the title to the mortgagee, or whether it was conveyed to him by some third party for and on account of the mortgagor. These circumstances furnish no substantial grounds for dis- tinguishing the case from a direct conveyance from the mortgagor, and the cases which have established the rule do not make any distinction.” Paine, J., in Sweet v. Mitchell, 15 Wis. 641, 664. See also, Smith v. Cremer, 71 Ill. 185; Beatty v. Brummett, 94 Ind. 76; Fisk v. Stewart, 24 Minn. 97; Niggeler v. Maurin, 34 Minn. 118; Stod- dard v. Whiting, 46 N. Y. 627. Cases of this sort are sometimes disposed of under the theory of resulting trust. McDonough v. O’Niel, 113 Mass. 92; Hidden v. Jordan, 21 Cal. 92. Pomeroy Equity, § 1038. 72 ELEMENTS OF THE MORTGAGE. is often a very difficult problem to determine whether this trans- action amounts in law to a mortgage, or simply to what is called a “conditional sale,’ meaning thereby a conveyance with contract for repurchase. The latter is, of course, what the transaction, upon its face, appears to be; but, under the equitable doctrine of mort- gages, if the parties have used this form of transaction to secure a debt to the grantee, equity will treat it as a mortgage, and parol evidence is admissible to determine what the real purpose of the transaction was. The question, then, becomes one of intention—whether the in- tention of the parties was to effect a sale or a security; and this, in turn, depends chiefly upon the question whether there was a debt to secure. Authorities on this subject are therefore placed in section 2 of this chapter, entitled The Debt, g. v. Section 2.—THE SuBject MATTER. TirFany, REAL Property, § 509. Any interest in land which may be the subject of sale, grant, or assignment may be mortgaged. Accordingly, there may be a mortgage of a rent, an estate in ex- pectancy, an estate tail, an estate for life, including a widow’s dower estate, and an estate for years. A mortgagee’s interest may itself be mortgaged, whatever theory be held as to the char- acter of such interest. An heir or devisee may mortgage his interest in the estate of the deceased, subject to the payment of the latter’s debts. A mortgage may be made of improvements on land apart from the land itself, and growing crops may be mortgaged by the owner of the land. Equitable interests, as well as legal, may be mortgaged; a usual in- stance of such a mortgage occurring in the case of a mortgage by the vendee under a contract of sale. The mortgage of an equitable inter- est in land cannot, it would seem, in states in which the legal theory of mortgages is recognized, have the effect of passing the legal title to the mortgagee, since the mortgagor has no such title to pass.19 And 19 Nor can it, in states in which the lien theory of mortgages is recognized, have the effect of creating a legal lien, since no legal interest can be raised out of an equitable interest. In short it is an equitable mortgage, though it be perfectly regular in form. Brockway v. Wells, 1 Paige (N. Y.) 617. If the mortgagee afterward gets in the legal title from the trustee or vendor, either with the consent of the mortgagor, ¢ THE SUBJECT MATTER. 73 so in England it is recognized that a second mortgage—that is, a mortgage of the mortgagor’s interest—passes no legal title to the mortgagee. In this country, however, no such distinction between the positions of first and second mortgagees seems to be recog- nized.2° SEYMOUR v. THE CANANDAIGUA RAILROAD CO., SUPREME Court oF NEw York, 1857. 25 Barb. (N. Y.) 284. This action was commenced for the foreclosure of a mortgage, given by the Canandaigua and Niagara Falls Railroad Company upon its railroad, track and franchises, and appurtenances, to secure the payment of $1,000,000 of the bonds of said company, issued to, and held by different persons. The mortgage was exe- cuted in due form, and bore date March 17, 1852. Niggeler v. Maurin, 34 Minn. 118, or without his consent, Meigs v. Mc- Farlan, 72 Mich. 194, we then have an equitable mortgage of the sort presented in the preceding chapter, the legal title being acquired by absolute deed but for the purpose of security. Cf. Cullen v. Carey, supra. 20 The English doctrine regarding junior mortgages is the logical result of the English theory that the first mortgage passes the whole legal estate leaving only an equity in the mortgagor. In this country the status of junior mortgages has not been frequently passed upon, due to the fact that our recording system has largely eliminated the practical significance of the distinction between legal and equitable mortgages. The logic of our lien theory leads irresistibly to the conclusion that senior and junior mortgages are technically alike, except for priority, for the legal title, remaining always in the mortgagor, is capable of raising an indefinite number of legal liens. This seems never to have been ques- tioned. Under the title theory, while the logic of the case is not so simple, the same result would flow from the accepted, though para- doxical position, that, while the mortgage passes a legal title to the mortgagee, for the purpose of security, the general ownership, at law as well as in equity, remains in the mortgagor. If the general legal owner- ship remains in the mortgagor, it is capable of raising more “legal titles for the purpose of security.” That a second mortgagee has a legal title was held in Gooding v. Shea, post; and see Sanders v. Reed, ante. But see Jackson v. Turrell, 39 N. J. L. 329, “A second mortgagee is, at law as well as in equity, a mere lien holder. * * * The reasons which sup- port the claim of the first mortgagee defeat the claim of every other one, to be regarded as the legal owner of the fee.” And see Goodman v. White, ante, accepting the English doctrine without qualification. 74 ELEMENTS OF THE MORTGAGE. The defendants were duly organized as a corporation, under the general railroad act of this state, passed April 2, 1850, for the purpose of constructing a railroad between the village of Canan- daigua in the county of Ontario, and the suspension bridge over the Niagara river, near the village of Niagara Falls. It did not appear at what precise date the company were organized ; but from the proceedings of the company, produced in evidence, it must have been in or before the year 1851. And from like proceedings it appeared that the route of the said road was surveyed in or before the termination of the said year 1851. From proceedings of the board of directors of March 18, 1852, in evidence, it appeared that they claimed or asserted that the route of the said road, from the Genesee river west to the Tonawanda creek, had been located before that time; that on the 16th of April, 1852, the directors al- tered the route; and that the route from Tonawanda to Niagara Falls was also altered July 16, 1852. It was in proof that a certificate of location in Erie county, according to the statute, with a map or profile annexed, was filed in Erie county clerk’s office on the 4th day of April, 1852. This location of the road crossed the Tonawanda creek at a considerable distance east-of Tonawanda village, and laid down no branch track to the river. On the 22d of December, 1852, the company changed, in due form, the location of their road for a considerable distance in Erie and Niagara counties, and laid down a branch or side track in the village of Tonawanda, from such altered line to the Niagara river, a distance of 7,132 feet; and filed a map and certificate of such change in the clerk’s office of Erie county, December 30, 1852, and in the Niagara county clerk’s office December 31, 1852. It did not appear when the work of constructing the railroad was actually commenced; or when the company commenced ac- quiring the title to lands needed for it, or what lands, if any, were actually acquired before the date or giving of the mortgage in ques- tion. It appeared that the road was open for travel from Canan- daigua to Batavia, in January, 1853, and thence west to the sus- pension bridge, in July 1853; thus completing the line of railway from New York to the suspension bridge via the New York & Erie railroad. The mortgage was recorded in the counties of Ontario, May 3, 1852, Monroe, May 4, Erie and Niagara, May 5, Livingston, May 6, and Genesee, June 10; the railroad being situated in parts of said counties. The mortgage, after reciting that the said railroad company, in pursuance of the power conferred upon them by the act of the legislature of the state of New York, entitled “An act to authorize the formation of railroad corporations, and to regu- THE SUBJECT MATTER. 75 late the same,” passed April 2, 1850, were then engaged in con- structing a railroad from Canandaigua to the suspension bridge in the village of Niagara Falls; and that the said company, for the purpose of completing and operating the said railroad, had deemed it necessary to borrow money, and had resolved to borrow $1,000,000, to be applied to the construction and completion of the said railroad, and to issue bonds in the sum of $1,000 each, to be secured by a mortgage, did for that purpose “grant, convey, trans- fer and set over” to the plaintiff and one George S. Coe, in trust for said bond holders, “the said railroad constructed and to be constructed, together with all and singular the railways, rails, bridges, fences, privileges, rights and real estate now owned by said company, or which shall hereafter be owned by them, and all the tolls, incomes, issues and profits (whenever the said party of the first part shall be in default of making payment) to be had from the same, and all the franchises of the said company, and all lands used and occupied, or which may hereafter be used and occupied for railways, depots or stations, with all buildings erected or which may hereafter be erected thereon.” The company covenanted, in said mortgage, to use the money borrowed in the construction of the railroad, and to make, execute and deliver all and singular and further assurances and instruments as should from time to time be necessary and as the counsel of the trustees should advise or re- quire—so as to embrace said railroad when complete, and all its property intended to be conveyed or acquired, and to be thereafter acquired. On the 16th of April, 1853, the company executed a second like mortgage, to secure another loan of $750,000, which contained the following clause: “Subject to a previous mortgage, of sterling bonds equivalent to $1,000,000.” Also, ‘on the 20th of December, 1853, a third mortgage was executed by the company to secure an- other loan of $600,000, subject to the two mortgages above men- tioned, in the same manner. The defendant Hines, on the 10th of June, 1854, recovered a judgment against the railroad company for $12, 227, of which a transcript was duly filed in the counties of Erie and Genesee July 11, and Niagara July 12, and were duly docketed. The defend- ants Otis and Worthington, on the 30th day of June, 1854, recov- ered a judgment against the railroad company for $698.34, of which transcripts were duly filed and judgment docketed July 5 and 6 thereafter, in Niagara, Genesee, Ontario, Monroe and Liv- ingston counties, and on the 23d in Erie county. The premises whereon the branch track was built, at Tonawanda, as soon as located from the present main track to Niagara river, and the lands occupied by the dock and warehouses of the com- 76 ELEMENTS OF THE MORTGAGE. pany on the river, were conveyed to the company subsequent to the recording of the plaintiff’s mortgage, and on or about the first day of March, 1853. The judgment of the defendant Hinds was recovered for work done and materials furnished in constructing such docks. The title to the lands occupied by the branch track and dock was purchased by the company as above stated, and paid for in the stock of the company. An association was formed at Tonawanda, in 1852, of which Hinds was a member, to secure and divert a portion of the business from Lake Erie to Tonawanda; and the railroad company, in December, altered the line of their track, as above stated, in aid of that enterprise. It was proved, also, that many pieces of land, taken and used for the said railroad, were purchased and the title thereto actually received, in Genesee county, after the plaintiff’s mortgage was recorded in that county. And that five pieces or parcels of land purchased at Batavia, in that county, were never used or occupied for railroad purposes. The defendants Hinds, Otis and Worthington, claimed that their respective judgments were liens upon all the lands of the railroad company acquired after the plaintiff’s mortgage was recorded, and particularly upon the lands taken for the branch or side track at Tonawanda, and upon the lands not taken, acquired or used for railroad purposes at Batavia and other places, contiguous to said railroad, within said counties, through which the same passes. To show that the branch road or track aforesaid was contemplated by the company before the giving of the first mortgage, the plain- tiff’s counsel presented a report, made by the president of the said company, printed in 1851, but otherwise without date. This report contained a general description of the corporation and its fran- chises; the project for the road; the supposed cost; the length of road; the cost of depots and machinery; its relation to other rail- roads; and its prospects of business and income, were given. In this report it was stated that the road would be ‘‘the shortest route between New York City and Tonawanda, the best harbor on Lake Erie.” In another part of the report was the following statement: “The harbor of Tonawanda is probably the best on Lake Erie, and is far safer and more capacious than that of Buffalo. A thriv- ing town has grown up at this point, which bids fair, at no distant day, to become a place of great importance, if not, indeed, the center of the lake trade. The imports of Tonawanda, in the year 1851, amounted in value to nearly $100,000, and its progress of late has been more rapid than that of any town on the lake. At this point the Canandaigua and Niagara Falls road will receive the traffic of the lake, while at Niagara it will receive that of the land route.” THE SUBJECT MATTER. 77 SmitH, J. * * * At the time when the mortgage was thus put upon record, it doubtless took effect as a valid mortgage, at law, in behalf of all persons who then had made advances, or should thereafter make advances upon these bonds or any of them. As a legal instrument of conveyance it was then notice to all the world, and was valid and operative to bind all the property and franchises then owned by the corporation embraced within its terms and description. So far as relates to property then acquired, this is not disputed and is indisputable. The chief question in controversy relates to the property of the railroad company not then owned or acquired by it. When the mortgage was first put on record, May 3d, 1852, it does not appear how far, or to what extent, the railroad company had acquired the right of way for the railroad. They obviously commenced the work of constructing the road at Canandaigua, its eastern terminus, and * worked westward, for it appears it was completed and put in op- eration from Canandaigua to Batavia by the Ist of January, 1853, and from that point to the suspension bridge, at Niagara, on the [st of July following, and there is no proof that the right of way was not all acquired up to the east line of Genesee county, at the time of recording the mortgage. In Genesee, Erie and Niagara counties, confessedly, much of the right of way was acquired after the mortgage was recorded in those counties respectively. Upon all such lands clearly the plaintiffs’ mortgage was not and is not a valid lien at law. It is a fundamental maxim of the common law that a man can not grant or convey what he does not own. (Per- kins, tit. Grant No. 65 Noy’s Maxims 62. Bacon’s Maxims reg. 14.) In giving the mortgage, the railroad company did not pro- fess to own or to mortgage the whole right of way for the railroad. They granted “all and singular the railways, rails, bridges, fences, privileges, rights and real estate now owned by the said company, or which shall hereafter be owned by them, and all lands used and occupied, or which may hereafter be used and occupied for rail- ways, depots or stations, with all buildings erected, or which may be hereafter erected thereon.” Here was a distinct notice that there were lands yet to be acquired, and buildings yet to be erected. The mortgage contains a covenant that the money loaned shall be used in constructing the railroad. The railroad company, there- fore, did not profess to mortgage the road as complete, or with a title to the lands required for its use as acquired. There is there- fore no question of estoppel in the case, as law, as against the railroad company itself.24_ But the plaintiffs claim that their mort- 21 “Recitals, it is true, and covenants, may conclude parties and privies, and estop them from denying that the operation of the deed is what it 78 ELEMENTS OF THE MORTGAGE. gage is a valid lien, in equity, upon the subsequently acquired property. It is not denied by the learned counsel for the defend- ants that such a lien may exist which courts of equity may sustain and enforce in many cases where there is no relief at law, but it is insisted that this is not a case of equitable mortgage, and that the rights of the defendants as judgment creditors are superior to any equities of the plaintiffs in respect to these subsequently acquired lands. é Courts of equity, though unembarrassed by the strict and tech- nical rules of the common law, do not administer justice except in conformity with settled principles. It is the province and duty of, such courts to relieve against defects and imperfections at law in the making of contracts. Regarding all just and honest con- tracts as binding in conscience and equity, they seek to give to them , full effect and operation, according to the real intention of the con- tracting parties. Upon this principle they enforce the specific exe- ' cution of contracts and give relief in numerous cases of agree- ments relating to lands, and things in action, and contingent inter- ests or expectancies, upon the maxim that equity considers that done which, being distinctly agreed to be done, ought to have been done. (Grounds and Rudiments of Law and Equity 75.) Upon this principle, when it is expressly agreed to give a lien upon lands, courts of equity have long held that such agreement was to be treated and considered as giving a specific lien upon the land. The learned counsel for the defendants concede this to be so, and con- tend that the rule was rightly stated in Fonblanque, b. 1, ch. 5, § 8, and in the cases reported in 1 Peere Williams, pp. 282, 429. Fonblanque states the rule thus: “A covenant to settle or convey particular lands will not, at law, create a lien upon the lands, but in equity such a covenant, if for a valuable consideration, will be deemed a specific lien on the lands, and decreed against all persons claiming under the covenanter except purchasers for a valuable consideration, and without notice of such covenant,” and refers to professes to be. And when a deed purports to pass a present interest, recitals and covenants have, in many cases, been held efficacious to pass to the grantee an interest subsequently acquired by the grantor. But when the deed does not undertake to convey any existing estate, when the subject of the grant is only an expectancy, it is difficult to conceive of it as anything more than a covenant for a future conveyance. In the very nature of things it must be executory. The case in hand is an apt illus- tration. The intention of the parties was not to convey any immediate interest, for it was known Mrs. Jay had none, The grant and the cove- nants alike contemplated an assurance to the mortgagee of an estate which might possibly thereafter be acquired either by descent or will, an assurance necessarily future.” Strong, J., in Baylor v. Commonwealth, 40 Pa. St. 37. See on Estoppel, Tefft v. Munson, post. THE SUBJECT MATTER. 79 Coventry v. Coventry, reported at the end of Francis’ Maxims. Fonblanque also says (b. 1, ch. 4, §2): “So, although a grant of a possibility is not good at law, yet a possibility, or a trust in equity may be assigned. So a covenant to settle lands, of which he has only a possibility of descent, shall be carried into execution in equity, for the court does not bind the interest, but instead of dam- ages, enforces the performance in specie.” Chancellor Walworth, in the Matter of Howe (1 Paige 129), and in White v. Carpenter (2 id. 266) affirms this principle, and in Howe’s case he refers to most of the English cases holding this doctrine, with approval, and cites quite a number of American cases, from other states, to the same effect. The counsel for the defendant Hinds, however, among other cases cited and commended to my particular attention on this point, the case of Otis v. Sill (8 Barb. 102). This was a case at law. The only question raised and decided was whether at law a chattel mortgage bound property not im esse at the time of its execution. The mortgagor professed to sell and assign to the plaintiff not only all the scythes, iron, steel and coal then owned and possessed by him, but also all scythes, iron and coal which might be purchased in lieu of the aforesaid property. The court, in that case, held that a chattel mortgage could not operate at law on property not in actual existence at the time of its execution.22 The decision 22“To the proposition that a prior general mortgage, which in terms covered after acquired property, attached to rolling stock as soon as ac- quired, to the displacement of a contractual lien on it, the Supreme Court of the United States, by Justice Bradley, said, ‘The doctrine is intended to subserve the purposes of justice and not injustice. A mortgage in- tended to cover after acquired property can only attach itself to such property, in the condition in which it comes to the mortgagor’s hands. If that property is already subject to mortgages or other liens, the gen- eral mortgage does not displace them, though they may be junior to it in point of time.” U.S. v. New Orleans Railroad Co., 12 Wall. (U. S.) 362. And it was added, that such a prior lien or equity does not come within the reason of the registry laws, which are intended for the protec- tion of subsequent, not prior, purchasers and creditors. “This court, touching the same matter, in Shorter v. Frazer, 64 Ala. 74, quotes approvingly the language of C. J. Marshall in Vattier v. Hind, 7 Pet. (U. S.) 272, that, ‘The rules respecting a purchaser without notice, are framed for the protection of him who purchases a legal estate, and pays the purchase money without knowledge of an outstanding equity. They do not protect a person who acquires no semblance of title. Even the purchaser of an equity is bound to take notice of any prior equity.’ And in the same case, the court hold, that if the purchase is of a mere equity, which can be enforced only through the instrumentality of a court of equity, there is no reason for a departure from the general prin- ciple, that priority in point of time creates priority in point of right, and that the transfer or conveyance must be limited to the interest of the grantor.” Haralson, J., in Wood v. Holly Mfg. Co., 100 Ala. 326, 351. 80 ELEMENTS OF THE MORTGAGE. was clearly right. (1 Man. Gran. & Scott 379.) The learned judge who gave the opinion of the court, it is true, in the course of his opinion, discussed at some length the question whether the mortgage was valid in equity, but concluded that the pleadings did not raise that question so that relief could be given in equity, and the case was decided as purely one of law; and although the learned judge doubted whether the rule in equity in respect to mortgages or contracts for a lien upon subsequently acquired property applied to that case, and considered that Judge Story had carried the doc- trine too far in the case of Mitchell v. Winslow (2 Story 630), yet he assents to the rule so stated above in Fonblanque, and by the Chancellor. He says, page 129, “The agreement to execute a mortgage on particular lands described in the agreement is doubt- less, in equity, a specific lien on the land, and will be preferred to subsequent judgment creditors.” The rule as here stated, that the mortgage or agreement must refer to particular lands, is doubtless the true one. It was so laid down in the leading case of Fremoult v. Dedire (1 Peere Wil- liams 430). In this case, Dedire had covenanted to settle his lands in Rumney Marsh, and also other lands that should be of the value of £60, upon his wife for her life. The lord chancellor held, that with regard to the lands in Rumney Marsh, the marriage articles created a specific lien upon them, but the covenant for settling lands of the value of $60 per annum, did not specifically bind any lands. The same obvious distinction runs through all the cases. When the agreement would be void, for uncertainty, in not describ- ing, or designating plainly, any lands or property, no lien can at- tach. A lien must have a specific reference. It must necessarily apply to some designated property, either im esse or expectancy, © and this clearly and unmistakably. Unless the agreement, or mort- gage plainly describes or designates particular lands, it must be re- garded as a mere executory contract, and enforceable only as such. (Winslow v. Merchants’ Insurance Co., 4 Met. 306.) And it must clearly appear too, that it was the intention of the parties, in any covenant or agreement, to give a lien upon the property. (Rogers v. Hosack’s Executors, 18 Wend. 319.) In this last case, referred to by Judge Paige in Otis v. Sill, the covenant was to pay the bal- ance of a debt from a certain fund. This was held to create no lien upon the fund, and to be a mere executory agreement. Judge Cowen (p. 334) says: “Here is no assignment, no mortgage, of pledge, no order, or any other specific appropriation of the French funds, but a mere covenant to pay them over on their being ob- tained by the covenantee.” Senator Dickinson, also speaking of another fund, says: “The English claim is disposed of by words of assignment and transfer. Can it be possible then, that with an in- THE SUBJECT MATTER. 81 tention to create a specific lien or equitable mortgage upon the French fund, the parties should have left this large fund to the caprice of implications?” In both these opinions the rule is clearly recognized that an agreement for a lien is a lien in equity, when it is clear that it was the intention to give or create such lien. In the case of Otis v. Sill, however, the learned judge says of these cases of assignments or mortgages of property, to be acquired in futuro, “If such an assignment of property, to be acquired, is valid in equity, it is only valid as a contract to_assign, when the property shall be acquired, not as an assignment of a present interest in the property ; and if it is enforced in equity, it can only be enforced as a right under the contract, and not as a trust attached to the property.” If the learned judge means by this, that a sale, assignment or mortgage of property not im esse, or of contingent interests, or expectancies, confers no title or interest in the thing, in presenti, that is self-evident. But if it is meant that the sale or assignment of such property, to be acquired im futuro, or of contingent inter- ests, or expectancies, rests in contract merely till some new assur- ance, and does not attach, as a lien, or charge, as soon as the prop- erty is acquired, or has a substantial existence, I can not agree with him. As soon as the property is acquired, or comes into ex- istence, the lien in or upon it attaches. They come into being together and coexist. Equity executes the contract by holding that what is agreed to be done is done. That the right to the lien creates the lien. (Wright v. Wright, 1 Vesey 409, 410.) Judge Story, in Mitchell v. Winslow (2 Story 644), states the rule with great clearness, as follows: It seems to me a clear result of all the authorities, that whenever the parties, by their contract, intend to create a positive lien or charge, either upon real or per- sonal property, whether then owned by the assignor or contractor, or not, or if personal property, whether it is then in being or not, it attaches in equity as a lien or charge upon the particular prop- erty, as soon as the assignor or contractor acquires a title thereto against the latter, and all persons asserting a claim thereto under him, either voluntarily, or with notice or in bankruptcy.” The same doctrine is also asserted, in substance, by Vice Chancellor Wigram, in Langton v. Horton (1 Hare 549), in an opinion of great clearness and ability; and in 1 Jac. & W. 526; 4 Simons 624. An assignment of that which is expected to be the fruit of an un- dertaking already commenced, of possibilities coupled with an in- terest, or of a thing which, in the ordinary course of events, will exist at a future time, is valid in equity (1 Myl. & K. 488, 6 Simons 414, 224; 8 Price 269), but not a mere naked possibility, and not an interest incapable of being made the subject of a contract. (4 Kent 144.) These cases, and this view of the rule in equity, in 6 82 ELEMENTS OF THE MORTGAGE. respect to the assignments of future interests or possibilities, is clearly sustained and affirmed in the opinion of Judge Wells, in Field v. The Mayor of New York (2 Selden 186).?8 Considering, therefore, the rule in equity to be that a grant of particular lands, to be acquired in futuro, is valid, and takes effect as a specific lien upon the lands as soon as they are acquired, it remains to apply the principle to the facts of this case. Upon the evidence, I think that I am to assume that the line of this rail- way, from Canandaigua to Suspension Bridge, was located before the mortgage was put on record in any county. It is true that it was afterwards altered in Erie and Niagara counties, but that, I think, does not affect the question I am now considering. The railroad company, by the 28th section of the general railroad act, which must be deemed a part of its charter, and to be part of the contract with the plaintiffs, (whose rights may be considered as acquired under it and governed by it), was authorized to enter upon the lands and waters of any person, for the purpose of mak- ing examination and survey of its proposed road. And by § 22, the corporation was required to file a map or profile of the route of its intended road, duly certified, in every county named in its articles of association, before proceeding to construct any part of its road in such county. In addition to this map, the corporation was, by § 14, required to file a certificate of location in conformity with such map, signed by a majority of the directors, in and by which map and certificate, the line of the said railroad is to be designated and located. Upon the line thus fixed or located, the railroad company was entitled, by subdivision 4 of said § 28, “To lay out its road, not exceeding six rods in width, and for the pur- pose of cuttings and embankments, to take as much more land as may be necessary for the proper construction and security of the road.” On the route of the proposed railroad of the company from Canandaigua to Niagara Falls, immediately upon the location of 23 See also, Frost v. Galesburg, E. & E. R. Co., 167 Ill. 161; Beach v. Wakefield, 107 Iowa 567; Omaha & St. L. R. Co. v. Wabash, St. L. & P. R. Co., 108 Mo. 298; Hamlin v. European Ry., 72 Maine 83; Barnard v. Norwich & W. R. Co., 4 Cliff. (U. S.) 351; Central Trust Co. v. Kneeland, 138 U. S. 414. “The ground of the doctrine is, that the mortgage, though inoperative as a conveyance, is operative as an executory agreement, which attaches to the property when acquired, and in equity transfers the beneficial interest to the mortgagee, the mortgagor being regarded as a trustee for him, in accordance with the familiar maxim, that equity considers that as done which ought to be done.” Bailey, J., in Borden v. Croak, 138 IIL. 68, 75, involving a mortgage of future chattels. The chief controversy in cases of this class is upon the question whether particular property comes within the description in the mort- gage. See Jones, Corporate Bonds and Mortgages, §§ 99-113. THE SUBJECT MATTER. 83 such road, in manner aforesaid, a strip of land six rods in width was laid out and designated for the road of this company, of which it was entitled to take so much as it required for the use of the railroad, on making due compensation therefor. The company had, in effect, by its charter, a patent from the state to enter upon and appropriate such strip of land to its own use so soon as it had made due compensation therefor. Its right was absolute, subject only to that single reservation or condition, and the strip of land is clearly defined and designated by law. This strip of land is the land referred to in the plaintiff’s mortgage, with sufficient par- ticularity and definiteness to answer the rule in equity. This strip of land is particular land, in the language and sense of the rule in equity, as laid down in the case in Peere Williams and by Fon- blanque. The description in the mortgage of the land acquired, and to be acquired, must be deemed to refer to the charter, and the law defines the land which the mortgage is designed to cover, and the lien of the mortgage clearly attached to such unacquired land so soon as the title thereto passed to the corporation. But if the rule be as some of the cases hold, that a disposition by deed, or mortgage, or assignment, of after acquired property, while it is inoperative as a conveyance of the title, may be considered as a declaration precedent, which will derive its effects from some new act of the party after the property is acquired. (Bacon’s Max. Reg. 14. Sumner v. Thurston, 1 Man.; Gran. & Scott 379). Then certainly the two subsequent mortgages executed by the railroad company, one September 16, 1853, and the other December, 1853, both after the road had been constructed and was in operation, and both containing an express reference to the plaintiff’s mortgage, and both expressly covering all this property, and subjecting it in terms to the prior lien of such mortgage, must be deemed a suffi- cient act of new or further assurance or ratification to satisfy the rule in question. But I think this mortgage covers and embraces the subsequently acquired lands upon another and distinct ground, independent of the rule in equity above referred to. The statute (Gen. Rail Road Act, Subd. 10, § 28) authorizes a railroad corporation, organized under stich act, “from time to time, to borrow such sums of money as may be necessary for completing or finishing or operating their railroad, and to issue and dispose of their bonds for an amount so borrowed, and to mortgage their corporate property and fran- chises to secure the payment of any debt contracted by the company for the purpose aforesaid.” The mortgage in this case was made in pursuance and by virtue of this statute, and is clearly authorized by it. The charter of the Niagara Falls Rail Road Company was itself a franchise, and it included a right to enter upon and take lands for this railroad, and to construct and operate the road. The 84 ELEMENTS OF THE MORTGAGE. right to enter upon and take the particular lands required for the purpose of the railroad, was included and embraced in the mort- gage, and is clearly conveyed and bound by it. The legislature au- thorized the corporation to mortgage their ‘franchises, together with their corporate property.” All the rights and interests of the corporation were included in these words. I think the legislature intended to give authority, by this statute, to railroad corporations to mortgage all and singular the property of the corporation, with all its franchises, rights and interests acquired, and to be acquired, as an entirety, and that the mortgage in this case is of the whole railroad, and of all the real property of the corporation, and its entire franchises, in as full and complete a manner as the corpora- tion could possess, exercise and enjoy such rights and franchises. In this aspect of the question it is therefore entirely immaterial whether the right of way for the railroad was all acquired or not, at the time the mortgage was put on record; and it is equally im- material whether the road had or had not been at that time entirely located, or the location thereof, if previously made, was afterwards changed. The right to change its location was one of the chartered privileges of the corporation, and was embraced within the grant of its franchises. So also was the right to take such lands as might be requisite to complete the road upon its original, or upon any altered line. This point was so held by my brother Johnson in the case of John A. Stevens and others vs. The Buffalo, Corning and New York Rail Road Company, tried before him at special term at Corning, in November, 1856, as appears from notes of his deci- sion furnished me by counsel, no opinion having been written by the judge. The question has been decided in the same way by the supreme judicial court of New Hampshire, in the case of Pierce and others v. Emery and others. In that case the Portsmouth and Concord Rail Road Company, under an act of the legislature, had mortgaged its road to secure bonds to the amount of $350,000. The mortgage conveyed all the real and personal estate of the corporation, with all rights, franchises, powers and privileges. It was held that the all rights, franchises, powers and privileges. It was held that the mortgage covered the whole railroad, with all its corporate rights and franchises, as an entire thing, including subsequently acquired property. In the case of Willinck v. The Morris Canal and Bank- ing Co. (3 Green’s Ch. Rep. 402), in the court of chancery of New Jersey, the chancellor asserts the same doctrine. In that case, un- der an act of the legislature of New Jersey, the Morris Canal Com- pany had mortgaged its canal, then in course of completion from the Delaware to the Hudson river, with all and singular its prop- erty and franchises. The question was whether the mortgage cov- ered the canal between Newark and Jersey City. The route had been surveyed, but the canal had not been excavated, or any of THE SUBJECT MATTER. 85 the lands purchased, till after the mortgage was given. The chan- cellor held that the mortgage embraced the entire canal and every- thing connected with it, including feeders, wharves, docks and piers, and all other appendages.24 The only remaining question to be now considered, relates to the branch track from the main track at Tonawanda to the Niagara river, or to the docks on the banks of the river. This branch was 24“This doctrine, that the mortgage of a railroad as an entire thing covers parts of the thing which have been acquired or constructed after its execution, so far as it relates to such after-acquired property as ac- tually becomes a part of the original thing mortgaged, rests upon the doc- trine of accession, which prevails in ordinary mortgages where improve- ments are made upon real estate mortgaged, which become a part of the realty, or where repairs are made on an article of personal property. “The doctrine is not generally supported that after-acquired property of a railroad company passes, as incident to the franchise to acquire prop- erty, by a mortgage of the franchises and property of the company exe- cuted by lawful authority. This view was strongly urged upon the court in the case of Dinsmore v. Racine & Mississippi Railroad Company, 12 Wis. 649, but the court, after examining the grounds of the doctrine and some of the cases supporting it, declined to adopt it, and stated the ob- jection to it. It is true that at that time there was no statute in force in Wisconsin authorizing a railroad company to mortgage its franchises, and it is admitted that a corporation would have no power to make a mort-: gage by which property after acquired would pass as incident to the franchise to acquire property, except by virtue of express legislative au- thority to convey the franchises of the corporation. None of the cases which support this doctrine do so upon the general principle that a rail- road, with its franchises and property is an indivisible, entire thing, ex- cept as it becomes so by virtue of some special or general legislative au- thority. On general principles of law, a railroad corporation, with its franchises and property, though undoubtedly having many things pecu- liar to itself, can not be regarded as one entire and indivisible thing. It can not be likened to a machine, or to a vessel. If a mortgage which does not in terms include after-acquired property can be held to embrace property which is personal in its nature, and is not attached to the realty as fixtures, without a special statute manifesting an intention on the part of the legislature that such mortgage should pass the entire franchises and property of the company, and without any general law giving to a mortgage made by a railroad company greater effect than is given to a mortgage by a natural person, a revolution would be worked in the regis- try laws.” Jones, Corporate Bonds & Mortgages, §§ 95, 97. ‘The principle of accession, while it may have been erroneously ap- plied in the principal case, has an important place in mortgage law, giv- ing rise to a class of cases which must be carefully distinguished from simple cases of after-acquired property. Such is the case of fixtures, an- nexed to mortgaged land; so the case of natural products of the soil; so that of the increase of mortgaged animals. Another case which must be distinguished from the simple mortgage of future property, and which is related to the doctrine of accession, is that of the mortgage of property having a potential existence by reason of being the fruit of a thing owned by the mortgagor at the date of the mortgage, e. g., a mortgage of crops to be grown on the mortgagor’s land, unconnected with any mortgage of the land. The principal case is cited in Fisk v. Potter, 2 Keyes (N. Y.) 64, as 86 ELEMENTS OF THE MORTGAGE. not laid out at the time of the original location of the road, and obviously was not then projected or contemplated, at least at the place where it is now located. But I think it is covered by the mortgage, as an incident to the principal subject of the grant, upon the maxim “that whoever grants a thing is supposed tacitly to grant that without which the grant itself would be of no effect.” (Broom’s Legal Maxims 198, 11 Rep. 52.) When a thing is granted, all the means to attain it and all the fruits and effects of it, are granted also. (Shep. Touch. 89.) It is a rule of law that the incident passes by the grant of the principal (Broom 205) whatever is es- sential to the use and enjoyment of the principal thing. (4 Kent, 467). ce the railroad ‘company, most obviously, contemplated meet- ing the business of Lake Erie at Tonawanda, and expected to de- rive a large revenue from that source. The report of the presi- dent of the company, made in 1851, speaks of Tonawanda as being the best harbor on Lake Erie, and goes into a calculation in respect to the amount of business that will come to the railroad at that point. In another place in the report, speaking of Tonawanda, it states that “at this point the road will receive the traffic of the lake,” and adds, that the imports of that harbor had amounted to nearly $100,000 in the year 1851, and describes the thriving village of Tonawanda in language well adapted, and doubtless designed, for a foreign market. But independently of this report and of all the evidence of a purpose or expectation on the part of the com- pany to connect its road by a branch with the Niagara river at this point, the company had the undoubted right to do so, and what was so obviously for their interests the law will not presume that they would be likely to overlook. Tonawanda was an important point on the line of their railroad, doubtless the most important point between Canandaigua and the suspension bridge at Niagara. Perhaps more important even than its terminus at the suspension bridge. At such a point it is not to be intended or supposed that the railroad company would not construct a branch to meet the business designed for the railroad on the bank of the river, and make such erections and connections by branch and side tracks as should be adapted to facilitate and promote their convenience. and interest in receiving freight from and delivering it to lake vessels in the harbor. The branch road is, therefore, in my opinion, a legitimate incident of the main road, as necessary or convenient for its use and enjoyment as sidetracks, turnouts, woodyards, shops authority for the position that “The legal title of the land in question, upon which plaintiff’s conveyance was made to the railroad company, vested in the latter. At the same instant, the lien of the mortgage which had before that been given by the railroad company, and which, before that time, remained but an equitable claim upon ‘rights to be acquired,’ became a vested legal right upon the premises in question.” THE SUBJECT MATTER. 87 and engine houses, and it therefore passed with the grant of the railroad and its franchises, as an appurtenance—as a legitimate prospective incident to such road. But the railroad company, be- ing bound to make further assurance, and this branch having been constructed before the second and third mortgages were given, and before any of the judgments of the defendants were recovered, I think the plaintiffs can hold it under their mortgage by force of the new declaration or assurance contained in these mortgages, as they may hold upon the same principle, the lands purchased for depots and station houses and the like uses. The defendant Hines sets up no equity that attaches to the right of way. The railroad company paid for the land on which the branch track is located, in its stock. The consideration for the judgment of the defendant Hinds is for labor, services and materials found in constructing such branch. He has no equity which can take priority over the plaintiffs’ mortgage. As the plaintiffs have an equitable lien upon the railroad, its tracks and appurtenances, upon well settled prin- ciples, such lien must prevail over the lien of the judgment cred- itors. Courts of equity control judgments and enforce and pro- tect the prior equitable title in preference to the judgment. (23 Eng. Ch. Rep. 561, 1 Paige 284, 3 Comstock 187, 3 Kernan 188.) But the equitable rights of the plaintiffs only extend to the par- ticular lands designated by statute, and which the company was authorized to take, and did take, for the use of its road. The railroad company, in addition to the right to lay out its road not exceeding the width of six rods, and to take the land therefor, and as much more as should be necessary for cuttings and em- bankments, was also entitled by subdivision 3 of § 28 “To purchase, hold and use all such real estate, and other property, as may be necessary for the construction and maintenance of its railroad and the stations and other accommodations necessary to accomplish the objects of its incorporation.” Under this provision the company was authorized to purchase and hold such lands as were necessary for depots, stations, warehouses, woodyards, shops and other legiti- mate railroad purposes. All such lands, with the erections thereon, would pass to the complainants, under their mortgage, as part of the railroad, or as essential to its use and enjoyment. But lands acquired by the railroad company and not thus used or employed for railroad purposes, would not come within the description of the mortgage. The particular lands which were to be acquired after the mort- gage was put on record in the several counties through which the railroad passed, within the-rule above stated, must necessarily be the lands designated by the statute for the railroad, and such as the company was authorized to acquire and take for its track and legitimate use, as above stated. These are embraced within the 88 ELEMENTS OF THE MORTGAGE. purview of the mortgage and nothing beyond. It is in proof that some of the lands purchased in Batavia have never been used for railroad purposes. That in some instances whole lots were pur- chased to secure a right of way across them. If the railroad com- pany for this purpose had purchased a lot of ten or one hundred acres, it can not be that any more of such lots would be embraced in this mortgage to the plaintiffs than was actually taken and re- quired for the road. In respect to all such lands outside of the legal limits of their railroad track and branches, and excepting land used for shops, depots, stations, turnouts for wood or water, or other legitimate purposes, the lien of the defendants’ judgments must prevail. The plaintiffs have no legal or equitable lien upon such lands, and the lands are liable therefor to the legal claims of the .other creditors of the corporation. It is not in proof with sufficient distinctness what lands were acquired by the company which, within the principle above stated, will not be covered by the plaintiffs’ mortgage. It will, therefore, be necessary, in such decree as shall be made, to direct a reference, to ascertain what lands were owned by the railroad company which are subject to the lien of the judgments of the defendants, Hinds, Otis and . Worthington, and to determine the relative rights of the defend- ants in respect to such lands, as among themselves; or to the pro- ceeds of the lands, if the same or any part thereof shall have been sold. The plaintiffs are entitled to a decree for a foreclosure of their mortgage for the amount due them, with costs, upon the whole rail- road, its track, franchises and depots, and all its real property and appurtenances, upon the principles above stated. SECTION 3.—TuHE Dest. HOFFMAN v. MACKALL. SUPREME Court oF Onto, 1855. 5 Ohio St. 124. Barttey, J. This is a proceeding in chancery, instituted by the complainants as judgment creditors of Benjamin Mackall, to set aside a deed of conveyance, made by him to trustees, in contempla- tion of insolvency. The terms of the conveyance, the object of which is expressly declared to be the-benefit of all the grantor’s creditors, are expressed in the following language, to wit: “And to that full and complete extent the said trustees are hereby author- ized and empowered to sell, either at public or private sale, and THE DEBT. 89 with such notice of sale, and in such manner, as they shall think most expedient and beneficial to my creditors, the above-described tracts of land. And out of the proceeds of said sales to pay as fast as they may be realized: 1. The costs of this assignment, and the reasonable costs, expenses, and compensation to the said trus- tees, of the execution and carrying into effect the trust aforesaid; 2. That they pay out the balance of said fund equally and pro rata, to all my creditors, in proportion to the amount of their respective demands, hoping and expecting that the trust fund hereby created will satisfy all my debts, leaving a balance, which said balance, should it arise, the said trustees are to pay over to the undersigned, B. Mackall, or his personal representatives.” It appears that at the time of the execution of the deed, judgments were about to be taken against the grantor, one of which was for a security debt; and that he declared that he intended the conveyance to be security for his own debts, and not for his surety debts; and also that he desired by the conveyance to prevent a sacrifice, thinking that in the hands of trustees the property could be made to go further, etc. The grounds upon which the complainants seek to set aside the conveyance are the following: * * ** * * * * 2. That the deed is a deed of trust, in the nature of a mortgage, which could not take effect until entered for record; that it was not entered for record until after the recovery of the judgments ; and, therefore, that the judgments have the first lien. * * * * * * * 2. There is a manifest and well-settled distinction between an unconditional deed of trust and a mortgage, or deed of trust in the nature of a mortgage. The former is an absolute and indefeasible conveyance of the subject-matter thereof, for the purpose ex- pressed; whereas the latter is conditional and defeasible. A mort- gage is the conveyance of an estate, or pledge of property, as security for the payment of money, or the performance of some other act, and conditioned to become void upon such payment or performance. A deed of trust in the nature of a mortgage is a conveyance in trust by way of security, subject to a condition of defeasance, or redeemable at any time before the sale of the prop- erty. A deed conveying land to a trustee as mere collateral security for the payment of a debt, with the condition that it shall become void on the payment of the debt when due, and with power to the trustee to sell the land and pay the debt in case of default on the part of the debtor, is a deed of trust in the nature of a mortgage. By an absolute deed of trust the grantor parts absolutely with the title, which rests in the grantee unconditionally, for the purpose of the trust. The latter is a conveyance to a trustee for the pur- pose of raising a fund to pay debts; while the former is a convey- 90 ELEMENTS OF THE MORTGAGE. ance in trust for the purpose of securing a debt, subject to a con- dition of defeasance. (Woodruff v. Robb et al., 19 Ohio 216, 1 Hilliard on Mort. 359.) It is manifest from this distinction that the conveyance in controversy, in this case was not a mortgage or deed of trust in the nature of a mortgage, but an absolute deed of trust; and therefore, that it took effect from the time of its deliv- ery, on the 15th day of May, and prior to the recovery of the judg- ments by the complainants. But even had it been a deed of trust in the nature of a mort- gage, it would have taken effect on the 15th of May, for it was delivered for record on that day. The neglect of the recorder to mark the time of the delivery, because he did not know who would pay his fees, can not be allowed to defeat the delivery, for he ought to have made that objection when the deed was delivered to him; and not having made it then, it was too late to make it afterwards. The maxim of the law, that he who does not speak when he ought to speak shall not be permitted to speak when he would speak, would seem to be applicable in the case before us. The deed became effectual the moment it was delivered, what- ever may have been afterward done or left undone. It is imma- terial, in this case, whether the deed was recorded in the proper book or not. An unrecorded deed is, of course, good, except as against subsequent bona fide purchasers. It may be added here that this deed, being an absolute and indefeasible conveyance in trust, and not in the nature of a mortgage, should have been recorded in the book denominated “record of deeds.”25 * * * * * * * HENLEY v. HOTALING. SUPREME CourT oF CALIFORNIA, 1871. 41 Cal. 22. William R. Storms was in the possession of two thousand acres of public land at Round Valley, Mendocino county, and gave to _ 5. P. Storms a power of attorney, of which the following is a copy: “Round Valley, 7th Oct., 1859. “Know all men by these presents, that I, Wm. R. Storms, of Boston, County of Suffolk, State of Massachusetts, have made, constituted, and appointed and by these presents do make, consti- 25 Compare Cadwell’s Bank v. Crittenden, 66 Iowa 237; Comstock v. Stewart, Walker Ch. (Mich.) 110; Hart v. Blum, 76 Tex. 113; Grimes v. Malcolm, 164 U.S. 483. See also 5 Enc. L. & P. (New Am. & Eng.) 1009. THE DEBT. 91 tute, and appoint S. P. Storms, of Round Valley, County of Men- docino, State of California, my true and lawful attorney, for me, and in my name, place, and stead, to buy and sell all kinds of stock that is on my ranch in said Round Valley, or in the State of California; to buy and sell any claims of land in said valley or State; to buy or sell all kinds of merchandise, and to make con- tracts in any business that may occur to carry on my business in the State of California, giving and granting unto my said attorney full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in the whole State of California, as fully to all intents and purposes as I might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all my said attor- ney or his substitute shall lawfully do or cause to be done by vir- tue hereof.” On the 13th of December, 1860, the attorney in fact called upon defendant, Hotaling, and solicited a loan of five thousand dollars, and offered as security a mortgage on said land. Hotaling agreed to make the loan on the security, if his counsel approved of it; and Storms and Hotaling went to the office of his attorney, who advised that the power of attorney did not authorize S. P. Storms to negotiate a loan or execute a mortgage. Hotaling then declined to make the loan. S. P. Storms then offered to sell the land to Hotaling for five thousand dollars, and Hotaling accepted the proposition. S. P. Storms, as attorney in fact, then, on the 13th of December, 1860, executed to Hotaling a deed of the land, abso- lute on its face, and Hotaling paid him the five thousand dollars. Hotaling then executed to William R. Storms a bond, conditioned that if said Storms paid him five thousand dollars, with interest at three per cent. per month one year from date, he would convey the land to him. The bond provided, that until the payment of the money, it should remain in the custody of Hotaling’s attorney as an escrow, and that if Storms failed to pay the money, the bond should be delivered -up to Hotaling to be canceled. Hotaling, .at ‘the same time, gave S. P. Storms a lease of the land for one year. At the end of the year Storms refused to deliver up possession, and Hotaling recovered possession in an action for holding over contrary to the terms of the lease. In 1862, Wm. R. Storms, being indebted to the plaintiffs, executed to defendant Tevis a deed of the land in trust for the plaintiffs. The plaintiffs brought this ac- tion to have the deed to Hotaling canceled, and to obtain possession of the land, and a conveyance from Tevis, their trustee. Storms did not pay the five thousand dollars mentioned in the bond. De- fendant, Hotaling, recovered judgment, and the plaintiffs appealed. By the court, RHopES, C. J.: Was the instrument which was executed by William R. Storms; 92 ELEMENTS OF THE MORTGAGE. by his attorney in fact, S. P. Storms, to Hotaling, what it purported to be, an absolute conveyance of the premises in controversy, or was it a mortgage? The court below found it to be the former, and the evidence was amply sufficient to justify the finding. The parties consulted the legal adviser of Hotaling, and by him they were in- formed that the letter of attorney did not empower the attorney in fact to execute a mortgage. Thereupon a proposition was made by one party, and accepted by the other, for a sale of the premises, and the deed and the other papers relating to the transaction be- tween the parties were prepared and executed under the supervision of the same counsel; and in giving his testimony he says: “The parties gave me positive instructions to have it a sale, and not a mortgage, and if those papers make it anything else, then the papers did not perform the object of the parties and their transaction.” The attorney in fact manifested some annoyance when informed that the power of attorney did not authorize him to execute a mortgage, and he suggested a sale, and the papers were drawn with that object. There can be no question, from the evidence, that the counsel who prepared the deed and the other papers re- lating to the- transaction, understood from the parties that they desired a sale of the premises, and that they were prepared and executed under his direction, in the manner stated in the evidence, with the intent that the transaction should not, by construction, be held to amount to a mortgage. When the intention of the parties to a deed, absolute in form, is sought to be ascertained, not in the usual way, by reading and construing the instrument, in connection with evidence to identify the subject-matter, the parties, etc., but by evidence to establish an equity beyond and outside of the deed, and thus to convert the deed into a mortgage, the evidence ought to be so clear as to leave no doubt that the real intention of the parties was to execute a mort- gage, otherwise the intention appearing on the face of the deed ought to prevail. There can be no question that a party may make a purchase of lands either in satisfaction of-a precedent debt or for a consideration then paid, and may at the same time contract to reconvey the lands upon the payment of a certain sum, without any intention on the part of either party that the transaction should be, in effect, a mortgage. There is no absolute rule that the cove- nant to reconvey shall be regarded, either in law or equity, as a defeasance. The covenant to reconvey, it is true, may be one fact, taken in connection with other facts, going to show that the parties really intended the deed to operate as a mortgage, but standing alone, it is not sufficient to work that result. The owner of the lands may be willing to sell at the price agreed upon, and the purchaser may also be willing to give his vendor the right to re- purchase upon specified terms; and if such appears to be the in- THE DEBT. 93 tention of the parties, it is not the duty of the court to attribute to them a different intention. Such a contract is not opposed to public policy, nor is it in any sense illegal; and courts would depart from the line of their duties should they, in disregard of the real inten- tion of the parties, declare it to be a mortgage. “To deny the power of two individuals,” says Chief Justice Marshall, “capable of act- ing for themselves, to make a contract for the purchase and sale of lands defeasible by the payment of money at a future day; or, in other words, to make a sale with a reservation to the vendor, of the right to repurchase the same land, at a fixed price and at a specified time, would be to transfer to the Court of Chancery, in a considerable degree, the guardianship of adults as well as infants.” (Conway’s Executors v. Alexander, 7 Cranch 237). Conceding to parties the right to contract in that manner, it necessarily follows that something more than a reservation of the right to repurchase, or a covenant to reconvey, must be shown in order to convert an absolute deed into a mortgage. There is one fact which is indispensable for this purpose. A mortgage is a se- curity for the performance of an agreement, which is usually to pay a sum of money. Leaving out of view other agreements than those for the payment of money, it is essential that there be an agree- ment, either express or implied, on the part of the mortgagor, or some one in whose behalf he executes the mortgage, to pay to the mortgagee a sum of money. If there is no debt there is no mort- gage. We look in vain, in this case, to find any evidence of a promise on the part of Storms to repay the purchase money, or of the existence of a debt of any kind from him to Hotaling. The arrangement was, that Hotaling should execute a bond to reconvey the premises; but Storms did not agree to repurchase, and the bond was delivered as an escrow, and it remained an escrow until after the time therein mentioned for the execution of the deed, and was then canceled. If the deed was intended as a mortgage, the mort- gagee would have a right of action to foreclose the mortgage; but if he had brought such an action, the answer that there was no promise, either express or implied, on the part of the alleged mort- gagor, to repay the purchase money, would have been a complete bar. This case differs from Sears v. Dixon, 33 Cal. 326, in the im- portant particular, that in that case the mortgagor covenanted to repay thé purchase money at a fixed time, and, under the name of rent, to pay interest thereon at a stipulated rate. And the court also found that the parties intended to execute a mortgage; but in this case the court found that the parties intended the deed to be, in fact, as it was in form, an absolute conveyance. * * * * * * * Judgment affirmed.?¢ 26 To the same effect, Goodman v. Grierson, 2 Ball. & B. (Ireland) 04 ELEMENTS OF THE MORTGAGE. Mr. Justice Temple dissented; Mr. Justice Sprague did not ex- press an opinion. Story, J., in Fracc v. Mann, 2 Sumner 486 (U.S. C. C,, 1837): Did, then, the transaction between the Richardsons and Walker and Fisher create mortgage in the premises? Some things are, to my mind, exceedingly clear. In the first place, the deed to Walker and Fisher, and the bond by them to Luther Richardson, are to be treated as part of one and the same transaction. They were, in my judgment, executed at the same time; and if not, at all events they were intended to be contemporaneous in their object and opera- tion. Neither was to be of any force or validity without the other. The bond must have the same precise effect and construction, as if it were inserted in the body of the deed. If, by being so in- serted, a mortgage could be created, it was equally created by its being in a separate instrument. In the next place, no consideration whatsoever was paid by Walker and Fisher to Luther or Prentiss Richardson, on account of the deed, at the time of the execution of it, or has been at any time since. It is true, that there is the consideration of the thousand dollars stated in the deed; but it was purely nominal. No person pretends, that that sum, or any other sum was in fact paid, or intended to be paid. If this were the whole case, the deed would be merely voluntary; and the question of a conditional purchase could never arise; for to con- stitute a conditional purchase, there must be a sale for a valuable consideration between the parties, with a right of repurchase. A mere gift would not raise the question; and, indeed, there is no pretense in the present case to say, that any gift was intended. What, then, was the real consideration between the parties? To me it appears plain, that there was an agreement by Walker and Fisher, at the request and for the benefit of Luther Richardson, to pay off forthwith the incumbrance of Bennett on the premises, and thereby to save the equity of redemption from being totally extin- guished. On the part of Richardson, there was an agreement to convey the premises to Walker and Fisher, to secure the payment of this advance and all other advances made by them towards the extinguishment of the antecedent mortgages and all expenditures in improvements with a right reserved to Richardson of reconveyance upon his repayment thereof within five years. This was the basis of the papers actually executed; and the whole transaction would 274; Hawke v. Milliken, 12 Grant Ch. (Canada) 236; Conway v. Alexan- der, 7 Cranch (U. S.) 218; Burgett v. Osborne, 172 Ill. 227. And see Page v. Foster, 7 N. H. 392, where the court stated a like doctrine upon a case where the transaction was in the form of a legal mortgage. A mortgage may be made by A to B to secure a debt of C to B with- out any personal liability on the part of A. Spear v. Ward, 20 Cal. 659; Bartlett v. Bartlett, 4 Allen (Mass.) 440; Metz v. Todd, 36 Mich. 473; Heath v. Van Cott, 9 Wis. 516. THE DEBT. 95 otherwise be without any just aim or object. Bennett’s title to the premises would become in a few days absolute, unless he was re- deemed. Richardson was, notoriously, unable to redeem from his own funds, and that inability constituted the ground of the appli- cation to Walker and Fisher. It would have been the idlest of forms, and the most useless of contrivances, to shift the title from Prentiss Richardson to Walker and Fisher, if it was the design of all parties, that it should perish in the space of twelve days, without any attempt of redemption. The very nature of the transaction demonstrates to my mind that the redemption of Bennett by Walker and Fisher was the sine qua non of the whole arrangement. If there could be the slightest doubt upon this head from reading the testimony of Walker and Fisher, it would be entirely removed by the other evidence, and by admitted facts. Bemis says, that about the time the papers were finished, Bennett passed in the street, and was called in; and Walker and Fisher requested Bemis to ask Bennett to appoint a time, when they should meet him at Billerica, and pay him the money. He did so; and Bennett appointed the time. And on the day so appointed, Walker and Fisher, and Rich- ardson, and Bemis met at Billerica, and the money was paid by Walker and Fisher, and the deed was accordingly executed to them by Bennett. This is as pregnant and conclusive a proof of the real nature of the transaction, as can be desired. Upon this posture of the case, what ground is there to say that there was a conditional sale of the premises to Walker and Fisher? They paid nothing to Luther Richardson for any transfer of his right to them. They simply paid, at his request, a subsisting debt due from him to Bennett, and took a transfer from Bennett of his interest in the premises. Beyond this they paid nothing; and upon the reimbursement of this and all other advances, on account of the premises, within five years, the premises were to be restored to Richardson. It was in truth but the transfer of a debt from one creditor to another, with the assent of the debtor, expanding the equity to redeem the estate pledged for it from a few days to five years. It has been said, that the true test, whether the conveyance in this case was a mortgage or not, is to ascertain, whether it was a security for the payment of any money or not. I agree to that; and indeed, in all cases the true test, whether a mortgage or not, is, to ascertain, whether the conveyance is a security for the performance or non-performance of any act or thing. If the transaction re- solve itself into a security, whatever may be its form, it is in equity a mortgage. If it be not a security then it may be a con- ditional or an absolute purchase. It is said, that here there was no loan made, or intended to be made, by Walker and Fisher to Richardson; and that they refused 96 ELEMENTS OF THE MORTGAGE. to make any loan. There is no magic in words. It is true, that they refused to make a loan to him in money. But they did not refuse to pay for him the amount due to Bennett, and to take the premises as their security for reimbursement within five years. It is said, that there is no covenant on the part of Richardson to repay the money paid, which should be paid by Walker and Fisher to discharge the incumbrances on the premises. But that is by no means necessary in order to constitute a mortgage, or to make the grantor liable for the money. The absence of such a covenant may, in some cases, where the transaction assumes the form of a conditional sale, be important to ascertain, whether the transaction be a mortgage or not; but of itself it is not decisive. The true question is, whether there is.still a debt subsisting be- tween the parties capable of being enforced in any way, im rem or in personam.2* The doctrine is entirely well settled; and for this purpose it is sufficient to refer to Floyer v. Lavington (1 P. Will. R. 270, 271,) King v. King (3 P. Will. R. 360,) Longuet v. Scawen (1 Ves. R. 406,) Mellor v. Lees (2 Atk. R. 496,) Goodman v. Grierson (2 Ball & Beat. R. 278,) and Conway’s Ex’rs. v. Alex- ander (7 Cranch R. 237,) out of many cases. Now, it seems to me clear, upon admitted principles of law, that, upon the pay- ment of the money due to Bennett by Walker and Fisher, Rich- ardson became their debtor for that amount, as it was paid at his request, and for his benefit. It is a common principle, that if A, at the request of B, pays a debt due by him to C, A may recover the amount in assumpsit for money paid to his use, or for money lent and accommodated. In my judgment, that is the very case at bar.?8 27“T do not appreciate the force of the argument, that because the notes were given up, the debt was extinguished. For the purpose of regu- lating the amount to be paid on the redemption the debt was to be kept on foot, and the amount is specified in the agreement. It is not essential that the personal remedy against the mortgagor should be preserved. There is a debt quoad the redemption, but not in respect to the personal remedy.” Denio, V. C., in Holmes v. Grant, 8 Paige (N. Y.) 243, 251. The decision of the Vice-Chancellor that the transactions in that case amounted to a mortgage was reversed by the Chancellor, who said, inter alia, “If the consideration paid is about the fair cash value of the property, the fact that there was no contract for the re-payment of the purchase money and interest which was binding upon the person making the con- veyance, so as to make his general right to redeem as a mortgagor, and the corresponding right of the grantee to recover back his money instead of keeping the land, mutual and reciprocal, is a strong circumstance in favor of construing the contract to be a conditional sale and not a mortgage.” 28 Cf. Campbell v. Dearborn, 109 Mass. 130, holding that an advance of money by the grantee to the grantor created a debt upon an implied assumpsit, In King v. King, 3 P. Wms. 358, it was said, “Every mortgage implies a loan, and every loan implies a debt; and though there were no covenant a ‘ THE DEBT. 97 If it should be asked, why no personal obligation was given by Richardson, on this occasion, to pay the money, it might be answered, that the whole circumstances of the present case show an extreme looseness in the transaction of business between the parties; and considering, that much of it was done by the advice and with the assistance of counsel, it is not very creditable to the skill and dili- gence of the profession. The negotiations between Flagg and Mann and Richardson evince a most obstinate carelessness in the draft and execution of important instruments, leaving much to personal confidence, and the imperfect recollections of the parties, as well as that of the witnesses. And there is no ground for sur- prise in finding the same laxity pervade the arrangements of Rich- ardson with Walker and Fisher. But the satisfactory answer is, that Richardson was poor and embarrassed, and Walker and Fisher relied on the premises for a full indemnity and satisfaction of all their advances, believing that Richardson would never be able to or bond, yet the personal estate of the borrower of course remains liable to pay of the mortgage.” See also, Brown v. Dewey, 1 Sandf. Ch. (N. Y.) 56, 73. “A mortgage of real property does not imply a covenant for the pay- ment of the sum intended to be secured; and where such covenant is not expressed in the mortgage, or a bond or other separate instrument to secure such payment has not been given, the remedies of the mortgagee are confined to the property mentioned in the mortgage.” 4 Consol. Laws of N. Y. (1909) Chap. 50 § 249. This statute is copied in several states. “The counsel for plaintiff urges that the statute only applies to cases where the action is based upon the mortgage, but has no bearing where it is prosecuted upon the original undertaking. If this rule is allowed to obtain, it is difficult to see what point is gained by the statute. In every case where a mortgage is given to secure a loan or other debt, if the mortgage does not become the sole security, and the mortgagee may have a personal judgment, as well as the mortgage security, he gains precisely the same end that he would if permitted to recover upon an implied cove- nant in the mortgage. * * * It is hardly necessary to enumerate the many instances in which statutes have been passed avoiding the assump- tion of liabilities by parol, where they formerly existed, as they are fa- miliar. We think this act is of the same character, and that when a party takes security upon land by mortgage for a debt or other liability, without a covenant to pay, and takes no bond or other separate instrument to se- cure such payment, he is confined to the land mentioned in the mortgage.” Flandrau, J., in Van Brunt v. Mismer, 8 Minn. 232 (Gil. 202). “The statute seems to be aimed against sustaining an action for a debt secured by mortgage merely by the production of the mortgage, when it contains no express covenant to pay the debt. It sets out with the dec- laration that no mortgage shall be construed as implying a covenant, etc., and what follows seems to be intended to carry out that principle. That a personal action can be maintained for a mortgage debt when proved by competent evidence, whether in writing or by parol, can not be ques- tioned.” Wheeler, J., in Demond v. Crary, 9 Fed. 750, 752. See also, Gaylord v. Knapp, 15 Hun (N. Y.) 87. It is common practice, even when the mortgage is collateral to a note or bond, to insert in the mortgage a covenant to pay the debt. 7 98 ELEMENTS OF THE MORTGAGE. redeem. They were indifferent about the personal obligation, as they possessed an adequate fund in their own hands. MATTHEWS v. SHEEHAN. Court or APPEALS OF NEw York, 1877. 69 N. Y. 585. Ear, J. In December, 1869, an arrangement was made between the plaintiff’s testator, O’Keefe, and the defendant, whereby O’Keefe was to procure a policy of insurance on his life from the Phoenix Life Insurance Company, and assign it to the defendant, who was to pay the premiums and have the benefit of the policy, with the understanding that, if at any time O’Keefe desired to re- deem the policy, he could do so by paying the premiums advanced by defendant, with the interest thereon. In pursuance of this ar- rangement, O’Keefe procured the company to issue a policy on his life, which was immediately assigned to the defendant by an assignment absolute in form, and he paid all the premiums to the time of O’Keefe’s death in 1874. Before that time, O’Keefe, for the purpose of redeeming the policy, offered to pay the defendant the amount advanced by him for premiums, and defendant refused to take the money. After the death of O’Keefe, the defendant re- ceived: from the issurance company the amount insured, and re- tained the same, refusing, upon plaintiff's demand, to pay any portion thereof to her. This action was brought to recover the sum received by the defendant, less the amount for which he held the policy as security. Upon the trial, the facts above stated ap- pearing, and there being no conflicting evidence, the court directed a verdict for the plaintiff. The verdict was properly directed. Upon the undisputed evi- dence, O’Keefe had the option to treat the policy as a security for the premiums paid by the defendant, and to redeem the same. While O’Keefe was not bound to redeem, or personally liable for the money advanced by the defendant, there was sufficient considera- tion for the arrangement made. O’Keefe submitted to examina- tion, procured his life to be insured, and assigned the policy to the defendant in consideration that the defendant would pay the prem- iums, and give him the option to redeem. The substance and legal effect of the transaction was to make the defendant a mortgagee of the policy to secure him for the premiums paid, and he could not claim an absolute title thereto, except upon O’Keefe’s failure THE DEBT. 99 to exercise his option to redeem. This was not simply an agree- ment by the defendant to sell to O’Keefe, upon payment by him of the amount of the premiums advanced with interest, a policy ab- solutely belonging to the defendant, an agreement void. under the statute of frauds; because there was no writing or part payment. It was an agreement that the defendant might take and hold the policy as security and the right to redeem attended the policy into the defendant’s hands, and at all times affected his title. Such an agreement may be shown by parol, although the assignment be absolute in form. (Hodge v. The T. M. and T. Fire Ins. Co., 8 N. Y., 416; Despard v. Walbridge, 15 N. Y., 374; Horn v. Keteltas, 46 N. Y., 605; Hope v. Balou, 58 N. Y., 380.) It matters not that O’Keefe did not absolutely promise to pay the amount which defendant should advance for the premiums. To constitute a valid mortgage, it is not essential that the mortgagee should have any other remedy but that upon his mortgage. This is recognized by the Revised Statutes in reference to real estate mortgages (1 R. S. 739), which provide that when there shall be no express covenant in the mortgage for the payment of the money received, and no bond or other separate instrument to se- cure such payment, the remedies of the mortgagee shall be con- fined to the lands mentioned in the mortgage. In all cases the remedy of the mortgagee may by the agreement of the parties be. confined to the mortgage. It is sometimes difficult to determine whether a transaction con- stitutes a mortgage or an absolute sale and a conditional resale; and whether it shall be construed to be one or the other depends upon the intention of the parties as evidenced by the instrument executed, and all the circumstances of the case. No general rule upon the subject can be laid down which will govern all cases, al- though it is said that the fact that there was no debt which could be personally enforced is a strong, but not an absolute controlling circumstance, that the transaction was not a mortgage, but a sale and a conditional resale. In all doubtful cases a contract will be construed to be a mortgage rather than a conditional sale, because in the case of a mortgage the mortgagor, although he has not strictly complied with the terms of the mortgage, still has his right of redemption; while in the case of a conditional sale, without strict compliance, the rights of the conditional purchaser are for- feited. (Longuet v. Scawen, 1 Ves. Sen., 402; Glover v. Payn, 19 Wend.,-578; Conway’s Exrs. v. Alexander, 7 Cranch, 218; Edring- ton v. Harper, 3 J. J. Marshall, 354; Floyer v. Lavington, 1 P. Wms., 268; Chapman’s Admin’x. v. Turner, 1 Colls. R., 280; Wharf v. Howell, 5 Binney, 499.) In Floyer v. Lavington, it is said: “As to the objection that here was no covenant for the 100 ELEMENTS OF THE MORTGAGE. payment of the principal or interest, that was not material; the same not being necessary for the making of a mortgage, nor yet necessary, that the right should be mutual, viz: for the mortgagee to compel the payment as well as for the mortgagor to compel a redemption; since such conveyance as in the present case, though without any covenant or bond for the payment of the money, would yet be plainly a mortgage.” In Brown v. Dewey (1 Sandf. Chy. R., 56), it was held that “the absence of the personal liability of the grantor to repay the money is not a conclusive test in deciding whether the conveyance is absolute or is intended as a security.” In Holmes v. Grant (8 Paige, 243, 257), Denio, V. C., says: “It is not essential that the personal remedy against the mortgagor should be preserved. There is a debt quoad the redemption, but not in respect to the personal remedy.” In Flagg v. Mann (14 Pick., 467), Putnam, J., says: “There was no collateral undertak- ing on the part of Luther (the grantor) to pay the money which Walker and Fisher (grantees) should advance in the five years; so there was no mutuality. And this fact, though not conclusive, is to be taken into consideration in ascertaining whether the trans- action was a mortgage or a sale, with a contract for a repurchase upon strict terms.” (See also Rice v. Rice, 4 Pick., 349.) In Kerr v. Gilmore (6 Watts, 405), Kennedy, J., says: “The want of -a personal security for the repayment of the money has, taken in connection with other circumstances, been regarded as tending to show that a defeasible purchase and not a mortgage was intended, but this circumstance alone has never been held sufficient to pre- vent a redemption.” Again, “that the mortgagee should have a remedy against the person of the mortgagor also, in order to make the conveyance a mortgage, is more than I can assent to.” In Brown v. Dewey, (2 Barb., 28), the Supreme Court had under review the decision of the Vice Chancellor, whose opinion is re- ported 1 Sandf. Chy. R., 56, and his decree was reversed, not upon the law but upon the facts. The court was very much influenced by the consideration that to hold the contract there to be a mort- gage, would render it void for usury. Harris, J., says: “Although it is true that courts of equity lean strongly in favor of the right of redemption, and for this reason in doubtful cases contracts of this description have frequently been construed as mortgages rather than conditional sales, yet when the aid of the court is sought, not to establish a right of redemption, but to have a conveyance de- clared a mortgage for the purpose of avoiding it on the ground of usury, the reason why in doubtful cases the court should incline to hold the conveyance to be a mortgage seems to fail. On the con- trary, it seems to me that before giving to a transaction a construc- tion which should have the effect to create a forfeiture of the se- THE DEBT. curity, a court of equity ought to be well satisfied that such con- struction does no violence to the intention of the parties themselves. It is the right of redemption in favor of which the court leans in doubtful cases, and not the right to have the security avoided on the ground of usury.” He further says: “I do not say that either of these circumstances (among them being the one that the grantee could not enforce payment of the money against the grantor per- sonally) is to be regarded as a decisive test upon the question whether a transaction, doubtful in its character, is to be regarded as a mortgage or a conditional sale. On the contrary, I admit that neither adequacy of price nor the want of an obligation to repay the money, nor even both circumstances combined, are to be held as conclusive evidence that a conditional sale and not a mortgage was intended. Both, however, are important circumstances in determin- ing the question.” _ In Horn v. Ketaltas (supra), Allen, J., says that the circumstances that there was no agreement to pay the money secured, is one entitled to considerable weight in determin- ing whether a conveyance was intended as a mortgage, but that it is only one of the circumstances to be considered and not conclu- sive; and Ch. J. Marshall, in Conway’s Exrs., v. Alexander (7 Cranch, 218), says: ‘The want of a covenant to repay the money is not complete evidence that a conditional sale was intended, but is a circumstance of no inconsiderable importance.” It is clear therefore both upon principal and authority that the circumstances that O’Keefe was not personally obligated to pay to the defendant the amount of the premiums which he should ad- vance is not absolutely controlling upon the question whether here was a mortgage or a sale and a conditional resale. It is an im- portant circumstance in such cases and in the conflict of evidence not unfrequently a controlling one. There are many cases, some of which are cited by the learned counsel for the appellant, in which it has been held to be not as matter of law conclusive, but as matter of fact decisive. If we should hold this to be a case of conditional resale, and that the consequence follows which has been so learnedly argued on behalf of the defendant that the. agreement is void under the statute of frauds, the intention of the parties would be defeated. This is therefore a case where the court should learn to hold the transaction to constitute a mortgage, thus giving what was clearlv intended, the right of redemption. There was nothing said about a re-purchase or a re-sale, or a re- assignment, but the right to redeem was expressly stipulated. The language used shows that the parties intended that the policy should be held as security for the premiums paid.. Such a construction is at least as admissible as any other, and hence the court did not err in directing a verdict for the plaintiff. 102 ELEMENTS OF THE MORTGAGE. I have treated the transaction as a mortgage, but it is unimportant to determine whether it was a mortgage or a pledge, as the same course of reasoning would apply and the same consequences would follow, whether it was one or the other. The judgment must therefore be affirmed. All concur. Judgment affirmed.?® ROBINSON vy. WILLIAMS. Court oF APPEALS OF NEw York, 1860. 22 N. Y. 380. Action by the receiver of the Hollister Bank, against Williams, the receiver of the Reciprocity Bank, and other defendants, for the foreclosure of a mortgage. Prior to September, 1857, both banks were doing business in the city of Buffalo. Upon the trial these facts were proved: On the 24th of October, 1854, the defendants Gibson and his wife executed and delivered a mortgage to the Hollister Bank, which recited that in consideration of the sum of $1 to them in hand paid, and for the purposes therein- after declared and stated, they granted and conveyed to said bank certain premises therein particularly described. The mortgage con- 29 See also, Hickox v. Lowe, 10 Cal. 197; Mills v. Darling, 43 Maine 565; Campbell v. Dearborn, 109 Mass. 130; Cook v. Johnson, 165 Mass. 245; Fisk v. Stewart, 24 Minn. 97; Niggeler v. Maurin, 34 Minn. 118; Brant v. Robertson, 16 Mo. 129; Mooney v. Byrne, 163 N. Y. 86; Russell v. Southard, 12 How. (U. S.) 139. Cf. cases in which the personal remedy is barred by bankruptcy or the statute of limitations, post, Chap. VII. Where there is an absolute conveyance and contract for reconveyance, the existence or non-existence of a personal obligation on the part of the grantor to repurchase is the most important of the several circumstances which fix the legal nature of the transaction as a mortgage or a condi- tional sale. Conway v. Alexander, 7 Cranch (U. S.) 218; Campbell v. Dearborn, supra; Brant v. Robertson, supra; Holmes v. Grant, 8 Paige (N. Y.) 243; Glover v. Payn, 19 Wend. (N. Y.) 518. Other circumstances bearing upon the question are, (1) the character of the negotiations leading up to the transaction; (2) the adequacy of the consideration, as a fair purchase price; (3) the possession following the transaction. See Jones, §§ 256-281. It has been frequently said that equity leans toward the mortgage construction, as that least dikely to work injustice, but on the other hand it has been said that, the transaction appearing upon its face to be a con- ditional sale, very clear evidence is necessary to convert it into a mort- gage. Jones §§ 260, 279, THE DEBT. 103 tained a further recital as follows: “Whereas, it is contemplated that the said party of the second part will hereafter from time to time make loans or advances, by way of discount or otherwise, to the said Charles D. Gibson, upon drafts, bills of exchange, promissory notes and commercial paper, either made and drawn, or accepted or indorsed by said Gibson, and it has been agreed that these presents shall be executed to indemnify and secure the said party of the second part on account of any such loans, ad- vances or discounts. Now therefore the condition of these presents is expressly this: that if the said Charles D. Gibson, his heirs, etc., shall and do well and truly pay, retire and take up at maturity any and all such drafts, bills of exchange, promissory notes or com- mercial paper, as may be discounted or advanced upon by the said party of the second part, for or to the said Gibson, and shall well and truly pay at maturity all and any such loans, discounts or ad- vances, as above recited, and shall well and truly indemnify pay and save harmless the said party of the second part from and against all loss, costs, damages, expenses and interests by reason thereof, then these presents shall cease and be null and void.” But in case of the non-fulfillment of the above conditions, then the party of the second part was authorized to sell the mortgaged premises and to make and execute to the purchaser a deed there- for. The mortgage was duly acknowledged on the 25th of October, 1854, and recorded ‘on that day in the clerk’s office of Erie county. On the lst of December, 1855, the defendant Gibson drew his bill of exchange on one Greenleaf, at Boston, whereby he requested said Greenleaf to pay to his own order the sum of $2,500, sixty days from the date thereof; and before said bill became due and payable Gibson indorsed the same to the Hollister Bank, which, on the faith and security of said bill and said mortgage, discounted the same and advanced to said Gibson the amount thereof. This bill was protested at maturity, and no part thereof has ever been paid. On the 29th of December, 1855, Gibson drew another bill of exchange on Greenleaf at sixty days from date, whereby he re- quested him to pay to his (Gibson’s) order, the sum of $1,800. Before this bill became due, Gibson indorsed it to the Hollister Bank, which discounted it and advanced to him the amount thereof, on the faith of said bill and the mortgage. This bill was also pro- tested at maturity, and no part thereof has been paid. The complaint set up that the defendant Williams, among others, claimed some interest in the mortgaged premises, and prayed the usual judgment of foreclosure and sale, and that said defendant, and all others claiming interest therein subsequent to that of the Hol- lister Bank, might be barred and foreclosed. The defendant Will- 104 ELEMENTS OF THE MORTGAGE. jams set up and proved that, on the 29th of January, 1856, the Sackett’s Harbor Bank (whose name was subsequently changed, by an act of the legislature, to that of the Reciprocity Bank), recovered a judgment against said Gibson to the amount of $2,798.29; that. a transcript thereof was duly docketed in the clerk’s office of .Erie county on that day; that said Gibson was then the owner of said mortgaged premises; and Williams insisted that said judgment was a lien on said premises, and prior to that of the mortgage. Neither of said bills of exchange were due at the date of the recovery of said judgment. The Superior Court of Buffalo, at special term, gave judgment in favor of the plaintiff, and declared said mortgage to be a prior lien to said judgment. On appeal, the same was affirmed at general term, and from that judgment the defendant Williams appealed to this court. Davies, J. There can be no doubt that, as between the original parties to this mortgage, the validity of it, as a pledge of the mort- gaged premises to secure the amount of these two drafts, could not be questioned. It was clearly the intent of the parties that the land described should stand as security for all advances and discounts made by the Hollister Bank to Gibson. If, therefore, there were no legal mortgage, there was, undeniably, an equitable one, which a court of equity would enforce against the original parties to it, and all others not in the condition of bona fide purchasers or subsequent incumbrancers without notice. The advances made to Gibson were before the recovery of the Reciprocity Bank’s judgment. As soon as the advances were made, they were embraced in and secured by the mortgage. That judgments and mortgages may be taken to secure future advances, though no present indebtedness was sub- sisting at the time of their execution or rendition, has long been well settled. (Conrad v. The Atlantic Ins. Co., 1 Peters, 386; Leeds v. Cameron, 3 Sumn., 488; Hubbard v. Savage, 8 Conn., 215; Walker v. Snediker, 1 Hoff. Ch., 145; Com. Bank v. Cunning- ham, 24 Pick., 270; Monell v. Smith & Jenkins, 5 Cow., 441; Lyle v. Ducomb, 5 Bin., 585; 4 Kent’s Com., 175; Lansing v. Wood- worth, 1 Sand. Ch., 43; Barry v. Merchants’ Ex. Co., 1 id., 314; United States v. Hooe, 3 Cranch, 73; Livingston & Tracy v. Mc- Inlay, 16 Johns. 165; Truscott v. King, 2 Seld., 147.) In Conrad v. The Atlantic Insurance Company (supra), a mort- gage was given to secure a debt upon a respondentia bond, and it was said that the debt was of too contingent a nature to uphold a mortgage as collateral security for the payment of it. Story, J., at page 448, says: “We know of no principle or decision that justifies such a conclusion. Mortgages may as well be given to secure future advances and contingent debts as those which already exist and are certain and due.” THE DEBT. 105 The case of Hooe v. United States (supra), is, in some respects, not unlike the present. There, one Fitzgerald conveyed property in trust to W. & J. C. Herbert, to indemnify Hooe for all indorse- ments or liabilities he might incur on behalf of Fitzgerald; and if Fitzgerald should pay and discharge all such liabilities, the trustees were to reconvey the property to him; but if Hooe should pay any such liabilities on account of Fitzgerald, then, on demand of Hooe, the trustees were to sell the trust property, and pay and satisfy the amount demanded by Hooe. Hooe became liable to pay sev- eral notes of Fitzgerald, indorsed by him, and on Fitzgerald’s death he was largely in arrears to the United States, and they claimed a preference over all other creditors, under the laws thereof, and that such lien was superior to that created by the trust deed for the benefit of Hooe, and that it was fraudulent as to the United States. It will be observed that, in this case, no sum certain, for which the property was held in trust, was mentioned in the deed. Mar- shall, Ch. J., in delivering the opinion of the court, says (p. 88): “That the property stood bound for future advances is, in itself, unexceptionable. It may, indeed, be converted to improper pur- poses, but it is not positively inadmissible. It is frequent for a person who expects to become more considerably indebted to mort- gage property to his creditors as a security for debts to be. con- tracted, as well as that which is already due. All the covenants in this deed appear to the court to be fair, legitimate, and consistent with common usage.” It is pressed upon us that this mortgage is invalid, because no sum certain is mentioned therein. There might be some force in the argument if the Reciprocity Bank stood in the position of a subsequent purchaser or incumbrancer in good faith, although it will be attempted to be shown that the mortgage would be good as against the bank, even if such were its position. That question will be considered hereafter. The Supreme Court of this state, in the case of Monell v. Smith (supra), held that a surety, who held a bond and warrant of attorney, conditioned to pay all notes theretofore or thereafter to be indorsed, and to indemnify him against such indorsements, might enter up judgment and issue exe- cution thereon for the sum for which he was actually liable, al- though the bond was not for a specified sum. That a bond and warrant of attorney might be taken by a surety, to secure him against future liabilities to be incurred by him, the court say, is warranted by the cases cited and considered by the late Chancellor in Roosevelt v. Mack (6 Johns. Ch., 266, 279-285). The court adds, “the only question is, whether the same course may be pursued where the bond relates in general terms to liabilities as surety or in- dorser, past and prospective, without mentioning a sum certain; 106 ELEMENTS OF THE MORTGAGE. and we think it may. It is true, the sum does not appear on the face of the bond; and there is no doubt that, in an action on such bond, breaches must be assigned. It would be the same, however, we think, as to a bond conditioned to pay specified sums to third persons. The certainty is the same in both cases. In both, we may be obliged to look beyond the face of the bond to see what is due. In a technical sense that is certain which may be made certain. We all know the objects of the parties to these instruments. It is, to afford the most prompt indemnity.” In Shiras v. Craig (7 Cranch, 34), the subjejct under considera- tion seems to have elicited a very full examination; and it was there held, that it was not necessary to the validity of a mortgage that it should truly state the debt it is intended to secure, but it shall stand as a security for the real, equitable claims of the mortgagees, whether they existed at the date of the mortgage or arose after- wards upon the faith of the mortgage, before notice of the de- fendant’s equity. Chief Justice Marshall, in delivering the opinion of the court, at page 50, says: “It is true that the real transaction does not appear on the face of the mortgage. The deed purports to secure a debt of £30,000, due to all the mortgagees. It was really intended to secure different sums, due at the time to particular mortgagees, advances afterwards to be made and liabilities to be incurred to an uncertain amount. It is not denied that a deed which misrepresents the transaction it recites, and the consideration on which it is executed, is liable to suspicion. It must sustain a rigor- ous examination. It is certainly always advisable fairly and plainly to state the truth. But if, upon investigation, the real transaction shall appear to be fair, though somewhat variant from that. which is described, it would seem to be unjust and unprecedented to de- prive the person claiming under the deed of his real, equitable rights, unless it be in favor of a person who has been in fact in- jured and deceived by the misrepresentation.” These principles, and the cases upon which they rest, have lately been emphatically affirmed by the Supreme Court of the United States, in Lawrence v. Tucker (23 How., 14). I arrive, therefore, to the conclusion, that this is a valid mortgage as between the parties to it, and that the mortgagee was secured thereby the amount of the advances upon the two drafts mentioned in the complaint, although no sum certain was mentioned on the face of the mortgage. These advances were made prior to the recovery of the judgment of the Reciprocity Bank, and _ prior, therefore, to any equities of that bank. It follows, therefore, they were made prior to any notice to the Hollister Bank of any such equities. No notice could be given of that which had not an ex- istence. It is established then, it is submitted, that, at the date of THE DEBT. 107 the recovery of the judgment by the Reciprocity Bank against Gib- son, the Hollister Bank had a good legal, and certainly equitable, mortgage upon the premises, to secure the amount of the two drafts already referred to. Was that judgment a prior lien to the mortgage? The judgment became a lien, at the time it was docketed, upon the interest of the defendant therein in all lands in the county of Erie. (2 R. S., 359.) In equity, the land was un- deniably bound to pay off the amount of these two drafts. The law is well settled, that the equitable mortgage is entitled to a pref- erence over subsequent judgment creditors. (Matter of Howe, 1 Paige, 129, and the cases there cited; Willard’s Eq. Jur., 441, 442; Rockwell v. Hobby, 2 Sand. Ch., 9; Hilliard on Mortg., vol. I, 451.) If this mortgage is to be regarded simply as an equitable mort- gage, there can be no question that, in accordance with well- settled rules of law and a uniform current of decision, it is a valid security, and is entitled to priority over the subsequent judgment of the Reciprocity Bank. But, I think, if that bank had been a purchaser on the day of the recovering of its judgment, or an incumbrancer by way of mort- gage for money then advanced, the mortgage of the Hollister Bank would equally have been entitled to priority. The recording of the mortgage was notice that the Hollister Bank had a mortgage on the premises for the purposes therein specified. There was enough to have put a bona fide purchaser or incumbrancer upon inquiry; and an application to the Hollister Bank would have disclosed the sum certain for which the security was held. As was said by the Supreme Court in Merrell vy. Smith (supra), ‘“‘we may be obliged to look beyond the face of the bond to see what is due. In a techni- cal sense, that is certain which may be made certain.” The precise sum for which the mortgage was held as security might, at any time, readily and with certainty, have been ascertained, and a bona fide purchaser or incumbrancer, with the notice which the record of this mortgage furnished him, if he had omitted to make the in- quiry which it indicated, could hardly have claimed to have been a bona fide purchaser or incumbrancer. The authorities bearing on this question of notice are fully reviewed in the case of Williamson vy. Brown (15 N. Y., 354), and the result of them stated as fol- lows: “The true doctrine on this subject is, that where a purchaser has knowledge of any fact sufficient to put him on inquiry as to the existence of some right or title in conflict with that he is about to purchase, he is presumed either to have made the inquiry and ascertained the extent of such prior right, or to have been guilty of a degree of negligence equally fatal to his claim to be considered as a bona fide purchaser.” But we are not without direct authority on the point now under consideration. The case of Kramer v. The 108 ELEMENTS OF THE MORTGAGE. Trustees, &c., of the Farmers’ Bank of Steubenville (15 Ohi, 253), is of this character. The question there was, originally, whether mortgages given to one Doyle, in May, 1840, were to have priority over those given to one McDowell, which, though dated prior to Doyle’s mortgage, were not recorded until 30th September, 1842. The mortgage to Doyle specified no sum in it, but the con- dition was, “that, whereas the said Alexander Doyle had thereto- fore indorsed paper of the said Wells, Henry & Co. (the mort- gagors), and had also promised to make further indorsements, it was provided that if the said Wells, Henry & Co. should indemnify and save harmless the said Doyle, then the said deed was to be void,” &c. Doyle alleged that, relying on this indemnity, he had continued to indorse for the mortgagors, and claimed that his mortgage was a prior lien to that of McDowell and of the judg- ment creditors. The court sustained Doyle’s claim, and directed a sale of the property mortgaged, and that he be paid the amount of his liabilities. Kramer and others, judgment creditors, filed a bill of review, claiming that the court had erred in giving validity and priority to Doyle’s mortgage. Among other things, they al- leged that Doyle’s mortgages were not good and valid as against the complainants, because they were void for uncertainty, and it could not be ascertained how or when the same became forfeited, or how the same could or would be satisfied. In the opinion, at page 260, the court say, “Doyle had a right to ask indemnity, and the mortgagors had a right to give it. It was done by way of mort- gage; and although these mortgages were intended to cover sub- sequent as well as previous liabilities, they could not, on this ac- count, be objectionable as between the parties. If, during the ex- istence of these mortgages, a third person had recovered a judg- ment against the mortgagors, the lien of such judgment might, and probably would, have been preferred to the lien of the mortgagees for liabilities subsequently incurred by Doyle. But these complaints are not in that situation. The liabilities of Doyle had been fixed before the rendition of their judgment. It is not perceived that there would be any difficulty in ascertaining when the condition of the deeds was broken and the mortgage forfeited, nor as to the manner in which thev could be satisfied. A similar rule may be deduced from the following cases in Connecticut: Merrill v. Swift (18 Conn., 266) ; Lewis v. De Forest (20 id., 442) ; Ketchum v. Jauncey (23 id., 127). In any aspect in which this case may be regarded, we think it THE DEBT. 109 free from doubt, and that the judgment appealed from should be affirmed, with costs. All the judges concurring. Judgment affirmed.?° GRIFFIN v. NEW JERSEY OIL CO. Court or CHANCERY oF NEw Jersey, 1855. 11 N, J. Eq. 49. THE CHANCELLOR (WiLLIAMsoN). This bill is filed upon a mort- gage given by the New Jersey Oil Company to the complainant. The other defendants are made parties to the suit, by reason of their claiming liens upon the mortgaged premises. The difficulties all arise in reference to the validity of the complainant’s mortgage, and as to its priority over the liens set up by the defendants. * aK 2k 2K ok *K * The mortgage is further objected to, on the ground that at the time of its execution the debt due was only $1,243.90, and the residue was for future advances; that this does not appear upon the face of the mortgage, but on the contrary, the mortgage declares that the debt then due was ten thousand dollars. It is insisted that 30 “It is the policy of our laws, and experience has demonstrated the wisdom of it, that the titles to real estate should be registered, for the benefit, not of the parties, but of creditors, and all others interested. ‘All grants and mortgages of houses and lands shall be recorded at length by the town clerk; and no deed shall be accounted good and effectual to hold such houses and lands, against any other person or persons, but the grantor or grantors, and their heirs only, unless recorded as afore- said.’ Stat. 302, § 9. It is the object of this law to prevent fraud and give security and stability to title. It results, unquestionably, that the condition of a mortgage deed must give reasonable notice of the incum- brances on the land mortgaged. A creditor is not obliged by law to make inquiry in pais, concerning the liens on the property of his debtor; but on application to the record, he may acquire all the information, which his interest demands. At least, he must have the power of knowing from this source, the subject matter of the mortgage, that his investigation may be guided by something which will terminate in a certain result. And what is not of less importance, the incumbrance on the property must be so defined, as to prevent the substitution of everything, which a fraudu- lent grantor may devise, to shield himself from the demands of his cred- itors.” Hosmer, Ch. J., in Pettibone v. Griswold, 4 Conn. 161, 162. Compare, Garber v. Henry, 6 Watts (Pa.) 57; Brewster v. Clamfit, 33 Ark. 72; Joseph v. Lyon, 9 Ky. L. 324; Hyland v. Habich, 150 Mass. 112; Michigan Ins. Co. v. Brown, 11 Mich. 265; Hyde v. Shank, 77 Mich. 517; Witczinski v. Everman, 51 Miss. 841; Youngs v. Wilson, 27 N. Y. 351; McDaniels v. Colvin, 16 Vt. 300. In some jurisdictions the question is affected by statute. See Jones, § 366 110 ELEMENTS OF THE MORTGAGE. a mortgage under such circumstances is not valid, because it is a fraud upon creditors. This is not a new question. It has been much discussed, and has been frequently reviewed by the courts. Such a mortgage was sus- tained in the case of Craig v. Tappen, 2 Sand. Ch. Rep. 78. Numer- ous authorities are there cited and reviewed. The court said, “it is no longer a question that mortgages to secure future advances are good to the extent secured thereby ;” and further declared, that it is not necessary that the intention should be expressed in the mort- gage. The authorities settled the question, and I am not disposed to disturb them. And yet it appears to me there are very weighty objections to a mortgage to secure future advances, unless it is so expressed on the face of the mortgage. The instrument declares, under the seal of the party, that the debt is actually due. It is placed on the record as an encumbrance, for the whole amount, on the debtor’s property. Why should not the mortgage declare’ the true consideration for which it has been executed? It may operate greatly to the prejudice of creditors. It does deceive and mislead them when they apply to the records for the purpose of ascertaining the condition of their debtor’s property. They find it encumbered for more than its value, and the encumbrance stands there to enable the debtor to obtain money which ought to go to pay his debts al- ready contracted. It was said by the Assistant Vice Chancellor, in the case of Craig v. Tappan, that the record would not in any case afford the creditor any certainty, and that he may make application to the mortgagee to ascertain whether all or how much of the money is due. But the mortgagee may not be easy of access, and the creditor not be able to avail himself of the necessary informa- tion. He finds an encumbrance on record: for as much as the deb- tor’s property is worth, and thinks it useless to take legal means to secure his debt; whereas, if the mortgage had truly expressed the debt actually due, the creditor might have secured his debt. It is calculated to put a creditor off his guard—it is calculated to mis- lead him, and is therefore objectionable. He is misled by the party’s executing a paper which is false upon its face, and plac- ing it upon record as notice of what is due. At all events, it appears to me to be of doubtful policy to encourage such securi- ties. If the transaction is an honest one, let the parties place the truth upon the record. It is unnecessary to speculate how it may work mischief. It ought to be condemned, when it is ascer- tained that, instead of expressing the true, it gives a false considera- tion upon its face. Notwithstanding all the arguments I have seen advanced in support of such a mortgage, I would not give it my judicial sanction if the question were newly presented. But as | THE DEBT. 111 stated, the authorities are in favor of the validity of such mort- gages, and they are such as I feel bound to follow.31 * * * * * * * Orton, J., IN SHORES Vv. Dour 65 Wis. 153 (1886) : The learned counsel of the respondent contends that the mortgage was given to secure $2,000 only of advances, and when such ad- vances amounted to that sum and were paid the mortgage was satisfied. On the other hand, the learned counsel of the appellant contends that the bond and mortgage were intended to be a con- tinuing security for all advances finally unpaid, to the amount of the penalty of the bond. * * * The condition of the mortgage is not only to pay $2,000, but according to the conditions of the bond. The conditions of the bond must therefore be consulted, to ascertain the limitations of the mortgage security. The condition of the bond is “‘to pay all the advances which may be made to them under this agreement at the times, in the manner, and with the interest agreed upon.” This language is certainly explicit enough to make the mortgage a continuing security for all unpaid advances. 31In Bell v. Fleming’s Exrs., 12 N. J. Eq. 11, Chancellor Williamson, in sustaining a similar mortgage, said: “Although the statute requires that the registry must contain the amount of the mortgage, and when payable, the registry is not intended as notice of the amount which is actually due upon the mortgage. A mortgage may be half paid a week after it is executed, and so only half the amount be due upon it as it stands upon the record. It may be a mortgage of long standing, with a large accumulation of interest upon it, so that the amount due upon it is very much larger than appears from the record. Neither the mortgagor nor the mortgagee is bound to keep the record accurate as to the amount due upon the mortgage. If it had been intended that the amount appear- ing upon the record should be conclusive between the parties, and if the object of recording the amount was that purchasers and creditors might rely upon the record as to the amount actually due between the parties, then the statute is very imperfect in its provisions for accomplishing such an object. But this was not the object. It was simply to give to parties interested such notice as would lead them to proper inquiries, and en- able them to protect their interest.” The decision was affirmed by the Court of Appeals, 12 N. J. Eq. 490. See Hendon v. Morris, 110 Ala. 106; Tully v. Harloe, 35 Cal. 302; Col- lins v. Carlile, 13 Ill. 254; Johnson v. Bratton, 112 Mich. 319; Foster v. Reynolds, 38 Mo. 553; Bank of Utica v. Finch, 3 Barb. Ch. (N. Y.) 293; Hendricks v. Gore, 8 Ore. 406; Shiras v. Craig, 7 Cranch (U. S.) 34. In Johnson v. Bratton, supra, Moore, J., says: “The general rule is that you can not import into a written agreement a parol agreement which alters the terms or legal effect of the written agreement. An ex- ception to this rule, however, is made in relation to mortgages. * * * Though the mortgage, on its face, is for the payment of a specific sum of money, parol evidence is admissible to show that it was really intended to secure future advances.” In Rhines v. Baird, 41 Pa. St. 256, it was held that an absolute deed may be shown by parol to have been executed to secure a future advance and is valid for that purpose. 112 ELEMENTS OF THE MORTGAGE. The bond is like the penal official bond of an officer required to keep, pay over, and account for all moneys which come to his hands in whatever amount and at whatever times. Such moneys may be an hundred fold greater than the penalty of the bond, and when all has been paid or accounted for except an amount equal to or within the penalty of the bond, the sureties, even, are held liable on such bond for such deficit. It is very clear that from the object and purpose of giving the bond and mortgage it was intended to be a continuing security for the last balance of advances on the contracts. The advancements were being paid by the delivery of the timber and logs from time to time, and others were being made to assist Hay & Stratton in completing their contract and paying their men. The security would have been very inadequate, and indeed of little use, if not continuous and to apply to any and all future advances after the preceding ones had been paid.3? ACKERMAN v. HUNSICKER. Court oF APPEALS OF NEw York, 1881. 85 N. Y. 43. Anprews, J. The mortgage from Levi, to the plaintiff, was given to secure the mortgagee, for any indorsements he had made, or should thereafter make, for the mortgagor, or the firm of Levi & Miller, to the amount of $6,000. It was dated May 2, 1874, and was recorded May 3, 1874. The first indorsement was made May 7, 1874, and the last October 16, 1874. The plaintiff has been compelled to pay the indorsed paper, and has advanced for that purpose the sum of nearly $5,000, over and above all payments made by the mortgagor. This action is brought to foreclose the mortgage, and the only controversy relates to the priority of lien as between the mortgagee and judgment creditors of the mortgagor, whose judgments were obtained subsequent to the mortgage, but prior to the indorsement by the plaintiff, of some of the notes, which enter into and form a part of the mortgage debt. The question is whether the mortgage is a paramount lien to the judgments, as to that part of the mortgage debt, arising out of in- dorsements made after the judgments were docketed. It is not claimed that the plaintiff had actual notice of the judgments when 32 To the same effect, Lawrence v. Tucker, 23 How. (U. S.) 14; In re York, Fed. Cas. 18138; Courier-Journal Co. v. Schaeffer-Meyer Co., 101 Fed. 699; Hannum v. Wallace, 4 Humph. (Tenn.) 143. But see Truscott v. King, 6 N. Y. 147. THE DEBT. 113 he indorsed the paper, and it is found by the referee that he never had personal notice or knowledge, or any notice of their existence, until after all the indorsements had been made. The judgments were docketed in the county where the mortgaged premises were situated. If the docketing of the judgments was constructive no- tice to the plaintiff of their existence, then he had notice of the judgments; otherwise he had none. There is no question as to the validity of mortgages to secure fu- ture advances or liabilities. They have become a recognized form of security. Their frequent use has grown out of the necessities of trade, and their convenience in the transactions of business. They enable parties to provide for continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security, on each new transaction. It is well known that such mortgages are constantly taken by banks, and bankers, as security for final balances, and banking facilities are extended and daily credits given, in reliance upon them. Mortgages for future ad- vances have sometimes been regarded with jealousy, but their validity is now fully recognized and established. (Bank of Utica v. Finch, 3 Barb. Ch. 294; Truscott v. King, 6 N. Y. 147; Robin- son v. Williams, 22 id. 380; Shirras v. Caig, 7 Cranch, 34; Law- rence v. Tucker, 23 How. [U. S.] 14; Leeds v. Cameron, 3 Sumn. 492.) There can be no doubt, therefore, that the mortgage in this case, as between the parties to it, is a valid security for the plaintiff’s debt. It is equally clear that to prefer an intervening incumbrance over the claim of the plaintiff, would violate the understanding of the parties to the mortgage, at the time it was executed, for the plain intention was, that the interest of the mortgagor in the land, as it existed when the mortgage was given, should be bound as se- curity for all liabilities which the plaintiff might incur as indorser, upon the faith of the mortgage. It could not have been intended that the plaintiff should be deprived of any part of the security of the mortgage, for any part of the indorsed paper. It would have been a clear breach of good faith on the part of the mortgagor, if he had, without notice to the mortgagee, voluntarily incumbered the land by liens having priority of the mortgage, and then ap- plied to the plaintiff for, and procured further indorsements. If the judgments have a preference over the plaintiff’s mort- gage, as to indorsements made after the judgments were docketed, it must result from some superior equity of the judgment creditors, or from the effect of docketing the judgments, as constructive no- tice to the plaintiffs of their existence. The authorities are clear to the point, that upon general principles of equity, no such pref- erence can be claimed. In Gordon v. Graham (2 Eq. Cas. Abr. 8 114. ELEMENTS OF THE MORTGAGE. 598) Lord Chancellor Cowper is reported to have held that a first mortgagee, in a mortgage covering future advances, has priority not only for what may be due to him at the time of a second mort- gage, but also for advances made by him after notice of the second mortgage. This case was doubted in England, as to the point re- ported to have been decided, that the first mortgagee was entitled to a preference for advances made after notice of the second mort- gage, and in Hopkinson v. Rolt (9 H. L. Cas. 514) this doctrine was overruled ;33 but the court distinctly recognized and affirmed the doctrine, that the first mortgagee was protected as to advances made after the second mortgage without notice. The case of Shirras v. Caig (7 Cranch, 34), is a leading case in this country upon this point. The mortgage in that case was executed to se- cure existing debts and future advances. The mortgagors subse- quently conveyed the equity of redemption to the defendants, who were bona fide purchasers without notice of the plaintiffs’ mort- gage, and one of the questions was, whether the mortgagees who had made advances to the mortgagors on the faith of the mortgage, after they had conveyed to the defendants, but without notice of their title, could enforce the mortgage for such advances, and it was held that they could, Marshall, Ch. J., saying, that the mort- gage stood as security for “the payment of debts still remaining due to'them, which were either due at the date of the mortgage or were afterward contracted upon its faith, either by advances ac- . tually made, or incurred, prior to the receipt of actual notice of the subsequent title of the defendants.” The effect of the registry laws was not involved, and the case was decided upon the general equities. The advances in Shirras v. Caig were optional; that is, the mortgagees were not bound to make them; and the same is true of the advances in Gordon v. Graham. Shirras v. Caig has been frequently cited with approval by the courts in this state, and its authority, so far as I know, has not been questioned. (Brinkerhoff v. Marwin, 5 Johns. Ch. 320; Griffin v. Burnett, 4 Edw. Ch. 673; Truscott v. King, supra; Robinson v. Williams, 22 N. Y. 380.) It must, I think, be conceded that, according to general principles of equity, the lien of the plaintiff’s mortgage is superior to the lien 33 “In this country there has been some leaning toward the early Eng- lish rule. See Witczinski v. Everman, 51 Miss. 841; 1 Jones Mortg,, § 373; 3 Pom. Eq. Jur., § 1199; Rowan v. Sharps’ Rifle Mfg. Co., 29 Conn. 282; Brinkmeyer v. Helbling, 57 Ind. 435; Brinkmeyer v. Browneller, 55 Ind. 487; Wilson v. Russell, 13 Md. 494. But the stronger array of au- thority is found on the side of the doctrine established by the House of Lords in the Hopkinson case. See Frye v. Bank, 11 Ill. 381; 1 Jones Mortg., §§ 368, 369; 3 Pom. Ea. Jur., § 1199, and cases in note 1, p. 180.” Corliss, C. J., in Union Nat. Bk. v. Moline, Milburn & Stoddard Co., 7 N. Dak. 201, 208. THE DEBT. 115 of the judgments, as weil for indorsements made prior, to their ren- dition, as for those subsequently made without notice. It remains to consider whether, under the statutory system for the registry of liens, the docketing of the judgments was construc- tive notice to the plaintiff. If the docketing of the judgments was constructive notice to him, of their existence, then, unquestionably, the judgments have preference to the plaintiff’s mortgage as to all advances subsequently made. The general principle of construction of the registry laws upon the point of notice, is that the registration of incumbrances is no- tice to subsequent incumbrancers only. They are prospective, and not retrospective, in their operation. (Stuyvesant v. Hall, 2 Barb. Ch. 151; King v. McVickar, 3 Sandf. Ch. 192; Howard Ins. Co. v. Halsey, 8 N. Y. 271.) The plaintiff’s mortgage was first made, and first recorded, and regarding these facts only, the mortgage was the prior lien. It is claimed, however, that the mortgage did not become an actual lien or incumbrance until the indorsements were made, and that as to each indorsement it became in effect a new mortgage, as of the time when such indorsement was made, and that as to indorsements made subsequent to the docketing of the judgments, the mortgage must be deemed a subsequent lien. It is manifestly true that the mortgage did not become an actual charge on the land, so as to be enforceable by the plaintiff, until he had incurred liability as indorser. But the plaintiff’s mortgage was an instrument capable of being recorded under the statute, be- fore any liability had been incurred. It is the general practice to record mortgaged, and docketed judgments, taken to secure future advances and contemplated liabilities, before an actual indebtedness arises. On being recorded, the record is notice to subsequent pur- chasers and incumbrancers, and they are put upon inquiry and have the means of ascertaining to what extent advances have been made, and by notice, to prevent further advances to their prejudice. In Truscott v. King (6 N. Y. 147), judgment had been entered on a bond and warrant of attorney for $20,000, to secure existing and future liabilities, and Jewett, J., said there could be no doubt that the judgment in its inception was a valid security upon the land to the full amount, whether a debt only in whole or part then existed, if it was agreed at the time that it should be given as an indemnity for advances thereafter to be made, or such advances were there- after made. In Robinson v. Williams (22 N. Y. 386), a mortgage had been executed to secure future liabilities of the mortgagor to the Hollister Bank, on paper which might be discounted by the bank for the mortgagor. The mortgage was recorded on the day it was executed, and before any liabilities had been incurred. Davies, J., in giving the opinion of the court, said: “The recording of the 116 ELEMENTS OF THE MORTGAGE. mortgage was notice that the Hollister Bank had a mortgage on the premises for the purpose therein specified.” It does not, I think, aid the argument for the judgment creditors, that the plaintiff had no claim on the land for the indorsements in question, until after the docketing of the judgments, or that by our law a mortgage is a mere lien or security, and not a title. The mortgage when executed was a conveyance within the recording act, and the plain- tiff was entitled to put it upon record. It was a potential lien for its full amount, of which subsequent purchasers or incumbrancers had notice. They were informed by the record of the existence of a.bond containing the condition upon which the mortgage was given, and through that of the agreement between the parties, that the interest of the mortgagor in the land, as it existed at the date of the mortgage, was pledged for any indorsements which the plaintiff might make, up to the limit fixed; for this, as we have said, was the plain reading of the transaction. It would be in- equitable to permit third persons to deal with the mortgagee in respect to the land, to the prejudice of the plaintiff’s security, with- out notice to him, or to allow a subsequent purchaser or incum- brancer, having notice by the record, to acquire a preference over the mortgage, for indorsements made upon the faith of the mort- gage, after the second incumbrance, in ignorance of the interven- ing lien or title. The question presented in this case has not been decided in this state by the court of last resort. In Brinkerhoff v. Marvin (5 Johns. Ch. 320), the chancellor, after referring to the observation of the court in Livingston v. McInlay (16 Johns. 165), that if it was a part of the original agreement, a judgment might be entered as a security for future advances beyond the amount then actually due, in like manner as a mortgage may be held as a security for fu- ture advances, said: ‘The limitation to this doctrine I should think would be, that when a subsequent judgment or mortgage intervened, further advances after that period could not be covered.” The remark of the chancellor has been repeated in subsequent cases. (Lansing, Rec’r. v. Woodworth, 1 Sandf. Ch. 43; Barry v. Mer. Ex. Co., id. 280; Goodhue v. Berrien, 2 id. 630.) What was said by the chancellor in Brinkerhoff v. Marvin was unnecessary to the decision of the case, but with the qualification that the first in- cumbrancer had notice of the intervening right when the subse- quent advances were made, the observation is not open to contro- versy. Neither in that, nor any of the subsequent cases referred to, was it material to decide, whether the record of the subsequent incumbrance, was notice to the party holding the prior lien, and in none of them was this question considered. In Craig v. Tappin (2 Sandf. Ch. 78), it does not appear whether the first mortgagee had notice of the second mortgage when the subsequent advances THE DEBT. 117 were made. He knew that the second mortgage was to be given, and the inference that he knew of its existence when the advances were made, is not an unreasonable one. In Truscott v. King (6 Barb. 346) the Supreme Court expressly decided the point involved in this case in accordance with the view I have expressed. The judgment of the General Term was reversed in this court on another point, but one of the judges who wrote an opinion for reversal, expressed his concurrence in the views expressed by Judge Parker in the court below, upon the point now in controversy. (See opinion of Edwards, J.,6 N. Y. 166.) The adjudications in the courts of other states upon the question are conflicting. It would not be profitable to refer to them at length. They will be found cited in Jones on Mortgages, § 364 et seq: The doctrine that a party who takes a mortgage to secure further optional advances, upon recording his mortgage is protected against intervening liens, for advances made upon the faith and within the limits of the security, until he has notice of such intervening lien, and that the recording of the subsequent lien is not constructive no- tice to him, has, we think, been generally accepted as the law of the state, at least since the decision in Truscott v. King. It would not be wise, under the circumstances, now to adopt the opposite view, even though we should regard it as better supported by rea- son. It seems to us, however, that the doctrine which we have affirmed in this case-is most consistent with equity, and establishes a rule which is reasonable, and easy of application. The opposite rule imposes the burden of notice and vigilance upon the wrong person. The party taking the subsequent security may protect him- self by notice, and as is said by Mr.. Jarman in his notes to Byther- wood’s Conveyancing: “No person ought to accept a security sub- ject to a mortgage authorizing future advances, without treating it as an actual advancement to that extent.” These views lead to a reversal of the order of the General Term and an affirmance of the judgment entered upon the report of the referee. All concur. Order reversed and judgment affirmed.34 34See Tapia v. Demartini, 77 Cal. 383; Schmidt v. Zahrndt, 148 Ind. 447; Nelson v. Boyce, 7 J. J. Marshall (Ky.) 401; Ward v. Cook, 17 N. J. Eq. 93; Union Nat. Bk. v. Moline &c. Co., 7 N. Dak. 201; McDaniels v. pole, ke 300; Wilson v. Russel, 13 Md. 494; Witczinski v. Everman, Miss. 841. 118 ELEMENTS OF THE MORTGAGE. LADUE v. DETROIT & MILWAUKEE R. R. CO. Supreme Court oF MicHicANn, 1865. 13 Mich. 380. . CuRISTIANCY, J.: The mortgage which the bill in this case seeks to foreclose, was executed by John Ladue to the complainant and Francis E. Eldred, composing the firm of Ladue & Eldred, on the fourth day of August, 1852, to secure and indemnify the firm against any indorsements which might be made, or liabilities to be incurred by them as sureties for John Ladue, as well as for any moneys they might advance for him, according to the condition of a bond to which the mortgage was collateral, and which was of like effect. There was nothing in the papers or in the arrangement between parties which bound Ladue & Eldred to make any ad- vances, or indorse any paper for John Ladue, or to incur any lia- bility for him, nor was the latter bound to accept any such accomo- dation. The effect of the arrangement was that such advances and liabilities, if made or incurred, would be purely optional on the part of the mortgagees. This mortgage was duly recorded on the day of its date. On the ninth day of May, 1853, John Ladue, the mortgagor, sold and conveyed the mortgaged premises to Charles Howard (through whom the railroad company derive their title), by warranty deed, which was duly recorded on the ninth day of July, 1853. John Ladue, however, remained in possession, using the premises as before, until his death, December 4, 1854. No claim is made for any advances made by Ladue & Eldred to John Ladue, but the whole claim under the mortgage is based upon indorsements made for him by the mortgagees, which have been paid by Andrew Ladue, one of the complainants, and all these indorsements, as shown by the proofs, were made some time after the sale to Howard and the recording of his deed. Whatever in- dorsements were made prior to that time, seem to have been taken up by John Ladue; and it does not satisfactorily appear by the evidence that any of these indorsements, made since the recording of Howard’s deed, were made in renewal of paper indorsed by them previous to that time. No indorsements made prior to the recording of Howard’s deed are in any way involved, and the case may, therefore, be considered in all respects in the same light as if no such previous indorsements had ever been made, especially as it does not appear that at the time of the sale to Howard, or the re- cording of his deed, there was any existing unsatisfied indorse- ment, or any subsisting liability, inchoate or otherwise, incurred by the mortgagees for the mortgagor. The mortgagees, at the time of the indorsements in question, had THE DEBT. 119 no notice of the deed to Howard, unless the record of that deed is to be considered such notice, the deed having been some months previously recorded. The validity of the mortgage, as between the parties, for any amount of advances which might be made, or lia- bilities incurred under it, after they should have been thus made or incurred, is not questioned by the defendants; nor is it denied that the record of it would be sufficient notice to subsequent purchasers and incumbrancers, of the amount which the mortgagees might ac- tually have advanced or indorsed for the mortgager; or, in other words, the amount for which it had become an actual or subsisting security, at the time when the question of notice of the mortgage became material—which, for the purposes of this case, is admitted to cover the period from the purchase by Howard down to the time of the recording of his deed, the record of which is claimed to be notice to the mortgagees as regards any advances made to, or liabilities incurred by them for the mortgagor after the recording of the deed. Nor is it denied, that if the mortgagees, by the con- tracts or arrangements between them and the mortgagor (to secure which, on the part of the latter, was the object of the mortgage), had been bound to make advances or to indorse for the mortgagor, the record of the mortgage would have been full notice to Howard, and the mortgage would have been good against him, though the: advances were not in fact made or the paper indorsed until after the deed to him and actual notice of that deed to the mortgagees. The defendants also admit that the result would be the same un- der this mortgage, as to any advances made or paper indorsed by the mortgagees for the mortgagor, before they had actual or con- structive notice of the sale and deed to Howard; but they insist that, as there was not at the time of Howard’s purchase or the re- cording of his deed any debt of the mortgagor, or any liability in- curred for him by the mortgagees, absolute or inchoate, nor any obligation on their part to incur such liability, the mortgage was not then an incumbrance in fact or in legal effect; that it could only become such from the time when the advances or indorsements were actually made; and it being optional with the mortgagees whether they would make any such advances or indorsements; and the indorsements being made subsequent to the recording of How- ard’s deed, the mortgage is, in legal effect, subsequent to the deed, and the record of the deed was notice to the mortgagees of How- ard’s rights. The first question, therefore, for our determination is, what was the legal effect of the mortgage (if any) upon the land, at the time of the recording of the mortgagor’s deed to Howard? That a mortgage in this state, both at law and in equity, even when given to secure a debt actually subsisting at its date, con- veys no title of the land to the mortgagee (especially since the 120 ELEMENTS OF THE MORTGAGE. statute of 1843, taking away ejectment by the mortgagee) ; that the title remains in the mortgagor until foreclosure and sale, and that the mortgage is but a security, in the nature of a specific lien, for the debt has been already settled by the decisions of this court: Dougherty v. Randall, 3 Mich., 581; Caruthers v. Humphrey, 12 Mich., 270; and Crippen v. Morrison, to be reported in 13 Mich. This is in accordance with the well settled law of the state of New York, from which our system of law in regard to mortgages has been, in a great measure, derived: Jackson v. Willard et al., 4 Johns., 41; Collins v. Torrey, 7 Johns., 278; Runyan v. Mersereau, 11 Johns., 534; Gardner v. Heart, 3 Denio, 232; Edwards v. Ins, Co., 21 Wend., 467; Waring v. Smyth, 2 Barb. Ch., 119; Bryan vy. Butts, 27 Barb., 504; The Syracuse City Bank v. Tallman, 31 Barb., 201; Cortwright v. Cady, 21 N. Y., 343. ‘ This view of a mortgage is also sustained by several of the English decisions, and substantially this is the more generally re- ceived American doctrine, as will sufficiently appear by reference to the decisions, most of which have been carefully collected in the elaborate brief of the defendant’s counsel, but which are too numerous to be cited here. There are exceptions and peculiarities in particular states in some of which, as in some of the New Eng- land states and Kentucky, the old idea of an estate upon a condi- tion continues to rankle in the law of mortgages, like a foreign sub- stance in the living organism, but is rapidly being eliminated and thrown off by the healthy action of the courts under a more vigor- ous application of plain common sense. But few of the incidents of this antiquated doctrine are now recognized in most of the states of this Union. The title, for nearly all practical purposes, being now recognized, both at law and in equity, as continuing in the mortgagor, and the mortgage as a mere lien for the security of the debt. But wherever any vestige of this now nearly exploded idea continues to prevail, in connection with the more liberal doc- trines of modern times which the courts have been compelled, from time to time to adopt, it serves only to confuse and deform the law of mortgages by various anomalies and inconsistencies, making it a chaos of arbitrary and discordant rules resting upon no broad or just principle; while, by recognizing the mortgage as a mere lien for the security of the debt, at law as well as in equity, and thus giving it effect according to the real understanding and in- tention of the parties, the law of mortgages becomes at once a sys- ter of homogeneous principles, easily understood and applied, and just in their operation. A mortgage, then, being a mere security for the debt or liability secured by it, it necessarily results, 1st, That the debt or liability secured is the principal, and the mortgage but an incident or ac- cessory. See cases above cited; also Richards v. Synes, Barnadis- THE DEBT. 121 ton’s Ch. R., 90; Roath v. Smith, 5 Conn., 133; Lucas v. Harris, 20 Iil., 165; Vansant v. Allmon, 23 Ill. 30; Ord v. McKee, 5 Cal., 515; Ellison v. Daniels, 11 N. H., 274; Hughes v. Edwards, 9 Wheat., 489; Green v. Hart, 1 Johns., 580; McGan v. Marshall, 7 Humph., 121; 4 Kent’s Com., 193; McMillan v. Richards, 9 Cal. 365. 2nd. That anything which transfers the debt (though by parol or mere delivery), transfers the mortgage with it, see cases above cited, especially Vansant v. Allmon, 23 IIL, 30; Ord v. McKee, 5 Cal., 515; Ellison v. Daniels, 11 N. H. 274. See also, Martin v. Mowlin, 2 Burr., 978; Clark v. Beach, 6 Conn., 164; Southern v. Mendurn, 5 N. H., 420; Wilson v. Kimball, 27 id., 300; 36 N. H., 39; Crowl v. Vance, 4 Iowa, 434; 1 Blackf., 137; 5 Cow., 202; 9 Wend., 410; 1 Johns., 580. 3rd. That an assignment of the mortgage without the debt is a mere nullity. Ellison v. Daniels, 11 N. H. 274; Jackson v. Bronson, 19 Johns. 325; Wilson v. Throop, 2 Cow. 195; Weeks v. Eaton, 15 N. H. 145; Peters v. Jamestown Bridge Co., 5 Cal. 334; Webb v. Flanders, 32 Me. 175; Kent’s Com., ubi supra; Thayer et al. v. Campbell et al., 9 Mo. 277. 4th. That payment, release, or anything which extinguishes the debt, ipso facto extinguishes the mortgage: Lane v. Shears, 1 Wend. 433; Sherman v. Sherman, 3 Ind. 337; Ryan v. Dunlap, 17 Ill. 40; Armitage v. Wickliffe, 12 B. Mon. 496; Paxton v. Paul, 3 Harris & Mc. H. 399; Perkins v. Dibble, 10 Ohio 434; Breckenridge v. Ormsby, 1 J. J. Marsh. 257; Cameron v. Irwin, 5 Hill 272. (It will be seen from these authorities, that some, if not all, of these incidents or characteristics of a mortgage are recognized by some of the courts which still hold the mortgage to be a conveyance of the estate—an idea, however, with which they are utterly inconsistent, as such inci- dents can only logically flow from the doctrine that the estate still remains in the mortgagor, and that the mortgage is but a’ lien for security of a debt.) These propositions, being established, the necessary result is that the mortgage instrument, without any debt, liability or obligation secured by it, can have no present legal effect as a mortgage or in- cumbrance upon the land. It is but a shadow without a substance, an incident without a principal; and it can make no difference in the result whether there has once been a debt or liability which has been satisfied, or whether the debt or liability to be secured has not yet been created, and. it requires, as in this case, some future agreement of the parties to give it existence. At most, the difference is only between the nonentity which follows annihilation, and that which precedes existence. The instrument can only take effect as a mortgage or incumbrance from the time when some debt or liability shall be created, or some 122 ELEMENTS OF THE MORTGAGE. binding contract is made which is to be secured by it. Until this takes place, neither the land nor the parties, nor third persons, are bound by it. It constitutes, of itself, no binding contract. Either party may disregard or repudiate it at his pleasure. It is but a part of an arrangement, merely contemplated as probable, and which can only be rendered effectual by the future consent and further acts of the parties. It is but a kind of conditional proposition, neither binding, nor intended to bind, either of the parties, till subsequently assented to or adopted by both. Though the question does not properly arise here, we take it for granted, for the purposes of this case, that the mortgage instrument may, if properly executed, go upon the record, and become effectual between the parties when the debt or liability contemplated shall have been created, unless the mortgagor has, in the meantime—as he had a clear right to do—parted with the title and deprived himself of the power of creating an incumbrance upon it. But the mere re- cording of the instrument would not make it a mortgage or incum- brance in legal effect, if it were not so before, nor give it a greater effect, as to third persons than it had between the parties. The rec- ord of such an instrument might be an intimation that advances and indorsements were contemplated as probable, and that they might, therefore, have been already made; and for this reason might, to this extent properly put a purchaser or incumbrancer upon inquiry. But, unless it is to have a greater effect than the record of other mort- gages, it could be notice only of such facts as might have been ascer- tained by inspection of the instrument and papers referred to, and by inquiry ; in other words, by a knowledge of the rights of the par- ties in respect to the land at the time notice became material, which, for the purposes of this case, as already explained, we shall assume to be from the time of Howard’s purchase down to the time when he recorded his deed. The result must, therefore, be the same here as if there had been no record. Had Howard made the most dili- gent inquiry in connection with the inspection of the papers, what facts could he have ascertained? Nothing material to the rights of the parties or to his own rights beyond the facts already stated— nothing which, in any manner, interfered with the mortgagor’s ab- solute right of sale. He would have learned, in fact, that the instru- ment recorded as a mortgage was not, in legal effect, a mortgage, nor upon any principle of justice or equity an incumbrance upon the land; that either party had a perfect right to refuse to give that future assent or to enter into that future contract or arrangement, by which alone it could acquire validity or force. He had, there- fore, a just right to conclude that the record of his deed would be fair notice to the persons mentioned as mortgagees, as the instru- ment could only become a mortgage subsequent to that time, and then only by reason of some future debt or liability which it required THE DEBT. 123 the further assent and agreement of the parties to create. He had a right to conclude that, upon every sound principle, Ladue and Eldred would, as prudent men, be as likely, and ought to be as much bound, to look to the record before making any such advances, or indors- . ing paper for the mortgagor, as if a new mortgage for the purpose were to be taken at the time, since they had the same option to make the advances or not, as any new mortgagee would have had and ought, therefore, to be governed by the same prudential considera- tions. And they must be presumed to have known that John Ladue, until such advances or indorsements were made by them, had full power to sell the land free from any incumbrance of the mortgage instrument, which had not as yet become a mortgage. But it is urged on the part of the complainant, that it was the duty of Howard, on making the purchase, to give actual notice of the fact to the mortgagees, so that they might not afterwards be led to incur further liabilities on the faith of the mortgage. In England, where there is no general registry law by which the record of deeds and mortgages is made notice to all the world, and the state of the title can not therefore be always ascertained in this way as with us, and where parties, therefore, can only rely upon actual notice, there may be good reason for requiring actual notice in such a case. But upon no principle which I have been able to comprehend, do I think such actual notice should be required in a case like the present. Nor have I been able to see any just or substantial reason why the record of Howard’s deed (which was long before this mortgage in- strument took effect as an incumbrance, and therefore prior in fact and law) should not be deemed notice to the mortgagees in the same manner, and to the same extent, as if their mortgage had not been executed or recorded until the time when it, became effectual as a mortgage by their indorsements. Within the very spirit and pur- pose of the registry law, it seems to me, the record of the deed must be held notice in the one case as well as in the other. The opposite view, it seems to me, rests upon the erroneous idea that the recording of a mortgage adds something to its validity as between the parties, and that, even as between them, an instrument may be made a mort- gage by recording it, which would not have that operation without the record. This certainly is not the effect of our registry laws. If Howard could not rely upon the record of his deed for giving notice to these mortgagees, as to future advances or indorsements, without which their mortgage instrument could never become effectual, even as between the parties, then it is difficult to see why he should be al- lowed to rely upon it as against any person who he might know had contemplated purchasing or taking a mortgage upon the property, and whose efforts or conversations had gone so far as to render it probable to the mind of such person that his preliminary negotiations or conversations might, at some future period, have resulted in a pur- 124 ELEMENTS OF THE MORTGAGE. chase or a mortgage; though at the time of the record of Howard’s deed they had not resulted in any binding contract whatever, and both parties were at liberty to disregard them, without any breach of faith. As to all such persons, it has, I think, been generally con- ceded that the record of a deed is sufficient notice. In Craig y, Tappan (2 Sandf. Ch. 78), a case cited by complainant’s counsel, it was held that notice that a mortgage was about to be made, is not enough to bind a party with notice of the mortgage. And see Cush- ing v. Hurd, 4 Pick. 253; Warden v. Adams, 15 Mass. 232. I have thus far endeavored to show that upon principles resulting from the nature of a mortgage, as recognized here, this mortgage should be considered, in fact and in legal effect, subsequent to the deed, and that the registry of the deed should, therefore, be consid- ered notice to the mortgagees. The authorities upon this question are not so numerous as one would be led to expect; but the few which are to be found are conflicting. I shall first notice those which are claimed to be opposed to the conclusion at which I have arrived. The English authorities upon this question I consider of very little, if any, weight, for the reason already stated, and for the further reason that, for several purposes a mortgage is there still held to be a conveyance of the estate upon condition, and the mort- gagee as having the legal title—a doctrine upon which the right of tacking (never recognized in this state) to some extent depends; the legal title coupled with an equity being held to prevail over an equity: 4 Kent’s Com., 117; Coote on Mortg., 410, et seq.; Opinion of Lord Cranworth in Hopkinson v. Ralt, 7 Jurist, N. S., 1209. The latter remark applies also with equal force to the decisions cited from Kentucky: Nelson’s Heirs v. Boyce, 7 J. J. Marshall, 401, goes upon the express ground that the mortgage conveys the legal title, and that the mortgagee, therefore, is not bound to notice the record of a mortgage subsequently made by the mortgagor, who has only the equity of redemption. It cites Bank, etc., v. Vance, 4 Littell, 173, as supporting the doctrine of tacking upon this ground. Nelson v. Boyce also assigns, as another reason, why the record should not be notice, a provision of their statute allowing sixty days in which to record a mortgage, and says, an examination of the record by the first mortgagee might therefore be of no use. Now, ‘it is clear that neither of these reasons for refusing to the record the effect of notice exists here. Of the case of Burdett v. Clay, 8 B. Monroe, 287 (be- sides the fact that the mortgagee there holds the legal estate), it may further be noticed that, though the previously recorded mort- gage was in part to secure future liabilities, yet all the liabilities were incurred before the subsequent mortgage. There are some few cases in this country, decided mainly, if not solely, upon the author- ity of Gordon v. Graham (7 Viner’s Abr., p. 52, 2 Eq. Cases Abridged, 598), which can have little influence here, not only for THE DEBT. 125 the reason above stated, but because the case itself is no longer law even in England. This case decided that a mortgagee to secure money lent, and future advances (which he was not bound to make), was entitled to preference over a subsequent mortgagee, even for advances made after notice of the second mortgage. But so far as relates to advances made after such notice, this case was expressly overruled by the house of lords in Hopkinson v. Ralt, 7 Jurist, N. S., 1209; Law Time, N. S., 90. Most of the cases cited by complainant’s counsel against the proposition I have endeavored to establish, have no bearing upon the particular question we are now discussing. * * * % * * * Having examined the cases relied upon by the complainant’s coun- sel, as tending to controvert the conclusions at which I have arrived, I will now refer to those of an opposite tendency, some of which ex- pressly hold the record to be notice of the intervening conveyance or incumbrance. In Collins v. Carlisle, 13 Ill. 254, there was a mortgage to secure future advances, and a contract subsequent in date and time of rec- ord for the sale of the land by the mortgagor, both recorded. It was held, the mortgage was valid, for those advances only which were made prior to the recording of the contract. The principle is not discussed, but it seems to be taken for granted that the record of the contract was notice as to advances afterward made. In Kramer v. Farmers and Mechanics’ Bank, 15 Ohio, 253, it was held that a mortgage to indemnify against indorsements to be made for the mortgagor is valid and constitutes a lien, which takes prece-' dence of the lien of a judgment rendered after such indorsements have been made. But, it is said, the lien of a judgment would prob- ably be preferred to the lien of the mortgage for advances made subsequent to the recovery of the judgment. The liability of the mortgagee had attached before the subsequent judgment, and, there- fore, the point was not involved. But in the subsequent case of Spader v. Lawler, 17 Ohio, 371, which was also the case of a mort- gage to secure future advances, it was held, that the mortgage must be postponed to a mortgage subsequently recorded, but before the future advances were made, thus directly holding the record notice as to advances thereafter made under the first recorded mortgage; in other words, treating the first as a subsequent mortgage in refer- ence to advances made after the record of the second. It is true that one of the grounds upon which the decision seems to be placed, is that the record of the mortgage (for the advances) ought to give notice of the amount of the incumbrance. The first case, so far as I have been able to discover, which fully meets and discusses the question upon principle, is that of Terhoven v. Kerns, 2 Barr, 96. It was the case of a judgment to secure fu- 126 ELEMENTS OF THE MORTGAGE. ture advances, which were optional; and it was held that such judg- ment, as to advances made after the rendition of a subsequent judg- ment was not a lien as against the latter. The judgments are treated by the court as standing upon the same grounds as mortgages, and the question is discussed generally. It is held that a mortgage to secure future advances, which are optional, does not take effect be- tween the parties as a mortgage or incumbrance until some advance has been made—that, if not made until after another mortgage or incumbrance has been recorded, it is, in fact, as to such after ad- vances, a stibsequent and not a prior incumbrance; and that the record of the subsequently recorded mortgage is notice as to such after advances, as much as if the mortgage first recorded had not been executed until after such advances were made. The doctrines of this case were fully as strongly re-affirmed in Bank of Mont- gomery’s Appeal, 36 Penn., 170. (See, also, Parmenter v. Gillespie, 9 Barr, 86, and note “‘a,” as to distinction between cases when the mortgagee is bound to make the advances, and when they’ are op- tional.) The doctrine of these cases is pronounced reasonable by Sanford, judge, delivering the opinion of the court in Boswell v. Goodwin, 31 Conn., 74, and he pointedly asks why such mortgage should not be treated “‘in all respects as if executed at the time when the advances are made.” But one of the judges dissented as to this point, and the case was decided upon other grounds. Judge Redfield, late chief justice of Vermont, ably discusses this question in a note to the case of Boswell v. Goodwin, Amer. Law Reg., vol. 12, p. 92, arriving substantially at the same conclusion as that at which I have arrived. And Mr. Washburn (in 1 Wash. on Real Property, p. 542), says it seems now to be the general rule. The counsel for the complainant have strongly urged the incon- venience which must result, especially to banks and bankers (who are accustomed to take such mortgages), by requiring an examina- tion of the record every time they are called upon to make such ad- vances under such a mortgage. Like Judge Redfield (in the note above cited), I have not “been able to comprehend” this hardship. It is, at most, but the same inconvenience to which all other parties are compelled to submit when they lend money on the security of real estate—the trouble of looking to the value of the security. But, in truth, the inconvenience is very slight. Under any rule of deci- sion they would be compelled to look to the record title when the mortgage is originally taken. At the next advance they have only to look back to this period, and for any future advance only back to the last; which would generally be but the work of a few minutes, and much less inconvenience than they have to submit to in their ordinary daily business in making inquiries as to the responsibility, the signatures and identity of the parties to commercial paper. But if there be any hardship, it is one which they can readily overcome, THE DEBT. 127 by agreeing to make the advances; in other words, by entering into some contract, for the performance of which, by the other party, the mortgage may operate as a security. They can hardly be heard to complain of it as a hardship that the courts refuse to give them the benefits of a contract which, from prudential or other considerations, they were unwilling to make, and did not make until after the rights of other parties have intervened. Courts can give effect only to the contracts the parties have made, and from the time they took effect. The decree must be reversed, and the bill dismissed; and the ap- pellants must recover their costs in both courts.35 Martin, Ch. J., and Cooley, J., concurred. Campbell, J., did not sit in this case. BRINKMEYER v. BROWNELLER. SUPREME Court oF INpDIANA, 1876. 55 Ind. 487. Worvden, C.J.: * * * On December 29th, 1868, Emanuel Gray- ville, Frederick Browneller and Anton Helbling, who then owned the property as partners, executed a mortgage on certain real and per- sonal property, to the appellant, Brinkmeyer. The condition of the mortgage is as follows, the mortgagors being named as the parties of the first part, and Brinkmeyer as the party of the second part, viz.: “The conditions of this mortgage are such, that whereas the said party of the second part is bound and liable, as the endorser and surety of the said Anton Helbling, on a certain promissory note exe- cuted by Helbling, on the 15th day of September, 1866, due twelve months after date, and made payable to the order of Maria Brink- meyer, for the sum of twenty-four hundred dollars, ($2,400) with ten per cent. interest from date thereof; and whereas the party of the second part is also endorser and surety for the said Anton Helb- ling, on a certain note, executed to Archer & Co., of the city of Evansville, which note will mature on the 2d day of January, 1869, for the sum of seven hundred and twenty dollars ($720); and whereas the firm of A. Helbling & Co., composed of the said Anton Helbling, F. Browneller and E. K. Grayville, desire the said party of the second part to endorse and become liable upon their paper, notes, bills and acceptances to bank, and individuals, to an amount not to exceed eight thousand dollars ($8,000) ; and whereas the said Anton Helbling desires the said party of the second part to endorse and become liable upon his paper, notes, bills and acceptances to banks and individuals, for an amount not to exceed four thousand dollars 35 See also Nicklin v. Betts Spring Co., 11 Ore. 406. 128 ELEMENTS OF THE MORTGAGE. ($4,000) ; and the said party of the second part having agreed to become the endorser for said A. Helbling & Co., and the said Anton Helbling, upon their paper, notes, bills and acceptances, for sums of money not to exceed the amounts aforesaid; and whereas it may be necessary for the said party of the second part to become the en- dorser and surety of the aforesaid parties of the first part, in the re- newal of their paper, notes, bills and acceptances aforesaid : “Now, the purpose of this mortgage is to secure, save harmless and indemnify the said Brinkmeyer, the party of the second part, against all loss and damage, as the surety and endorser of said An- ton Helbling, upon the note of Maria Brinkmeyer, for twenty-four hundred dollars, as aforesaid; and, also, to secure, save harmless and indemnify the said Brinkmeyer, the party of the second part, against all loss and damage as endorser and surety upon the paper, notes, bills and acceptances of the said A. Helbling & Co., and upon all renewals of any such notes, bills and acceptances, to either banks or individuals, to an amount not to exceed eight thousand dollars, as aforesaid; and, also, to secure, save harmless and indemnify the said party of the second part against all loss or damage, as the en- dorser and surety upon notes, bills and acceptances of the said Anton Helbling, and all renewals of the same to banks or individu- als, to an amount not to exceed four thousand dollars, as aforesaid. And for the better securing of the party of the second part, against all loss, the said parties of the first part bind themselves to keep all the property herein specified, which may be liable to be destroyed by fire, fully insured in good and solvent insurance companies, and this is made an express condition of this mortgage; and it is further agreed, that said parties of the first part have possession of all said property, and continue to carry on the foundry business, in manu- facturing and selling; and, on the happening of any one of the fol- lowing contingencies, the said Brinkmeyer, the party of the second part, may, at his option, institute legal proceedings, to foreclose this mortgage,—or, without legal proceedings, may enter in and take possession of so much of said mortgaged personal property as he may consider necessary to indemnify and save himself harmless, as endorser and surety upon the notes, bills and acceptances of either the said A. Helbling & Co., or the said Anton Helbling, or both, which the said party of the second part has, or may hereafter, be- come liable for; that is to say, in case any of the notes, bills or ac- ceptances on which the said party of the second part is now, or may hereafter become liable, are not paid or renewed at maturity, or, in case the said parties of the first part shall fail to keep said property insured as aforesaid, then a right of action, or a right to take pos- session, immediately shall accrue to the said party of the second part. Now, it is further agreed that, in the event of a foreclosure of this THE DEBT. 129 mortgage, the said parties of the first part shall. pay all costs and expenses of such foreclosure.” Afterwards, Helbling conveyed his interest in the mortgaged premises, to Grayville and Browneller, of which Brinkmeyer had ‘notice. After this, Brinkmeyer, in pursuance of the original agree- ment, and upon the demand of Helbling, endorsed for the latter to the amount of four thousand dollars, the most of which he has been compelled to pay, and the residue of which is still outstanding. The question arising is, whether Brinkmeyer has a lien upon the mortgaged premises, by virtue of the mortgage, as an indemnity against loss and liability incurred by endorsing for Helbling, after the latter had transferred his interest in the mortgaged premises to Grayville and Browneller. We shall not enter upon any lengthy discussion of the general doc- trine applicable to mortgages given to secure future advances. . The following propositions, however, we think, are settled by the au- thorities : First. Where the mortgagee has bound himself to make advances or incur liabilities, such advances, when made, shall relate back, and the mortgage will be a valid lien for advances made or liabilities incurred, against subsequent purchasers or encumbrancers with no- tice, actual or constructive, of the mortgage. Second. Where there is no obligation on the mortgagee, and such advances or liabilities are merely optional with him, and he has actual notice of a subsequent encumbrance or conveyance of the mortgaged premises, before making advances or incurring liabili- ties, his lien is not good, as against the subsequent purchaser or en- cumbrancer. See 11 Am. Law Reg., N. S., 273, and authorities there cited. The case of Ladue v. The Detroit &c. R. R. Co., 13 Mich. 380, is an exhaustive one, in which the authorities are extensively examined, both by the counsel and the court. Chancellor Kent (4 Kent Com. 175) says: “So, a mortgage or judgment may be taken, and held as a secur- ity for future advances and responsibilities to the extent of it, when this is a constituent part of the original agreement; and the future advances will be covered by the lien, in preference to the claim under a junior intervening incumbrance, with notice of the agreement.” But the appellees insist that there was no valid consideration for Brinkmeyer’s agreement to endorse for Helbling, and that it was en- tirely optional with him to do so or not, and, therefore, that the case falls within the second proposition above stated. The case must turn upon this question. We think, however, there was an ample and valid consideration for Brinkmeyer’s promise, appearing on the face of the transaction, 9 130 ELEMENTS OF THE MORTGAGE. which was the indemnity he acquired by the mortgage, against his liability on the note to Maria Brinkmeyer and the note to Archer & Co. Brinkmeyer, by his promise to endorse, in the future, for the firm of A. Helbling & Co., and for A. Helbling, as stipulated for, obtained an indemnity against an existing liability, which he did not otherwise possess. By the mortgage, he obtained, not only “security for the future,” but, “indemnity for the past.” Without the mort- gage, if Brinkmeyer, had been compelled to pay the notes to Maria Brinkmeyer and Archer & Co., he could only have looked to Helb- ling for repayment; but, by the mortgage, he obtained a lien, as an indemnity, upon the property mortgaged, belonging to the entire firm. The security which he obtained in respect to his previous lia- bility was an ample consideration for his agreement to endorse in the future for both the firm and for Helbling. We have considered the case as if the firm had conveyed the prop- erty to a third person, having notice, actual or constructive, of the mortgage, before Brinkmeyer had endorsed for Helbling. We need not, therefore, determine whether Grayville and Browneller occupy the same position in respect to the property, that a third person would, if he had bought it from the firm, with notice of the mort- gage. They occupy no better position, to say the least. In respect to notice, they, having with Helbling made the mortgage, must be taken to have had notice of it, as well as of its terms and contents. We are of opinion, on the case made, that the appellant has a lien on the property, as against the appellees, by virtue of the mortgage, as an indemnity or security for whatever he may have paid, or for whatever he may be liable, on his endorsements for Helbling, as set up in the answer, and that the court erred in sustaining the demurrer to, the answer. The judgment below is reversed, with costs, and the cause re- manded for further proceedings in accordance with this opinion. Petition for a rehearing overruled at the May term, 1877.36 EpirorraL Note.—OBLicATIONS OTHER THAN FOR PAYMENT OF Money. “It is not every conveyance of land upon a condition which 36 This case was again before the Supreme Court in 57 Ind. 435, where Howk, J., says: “Under our construction of the appellant’s mortgage, in the case of Brinkmeyer v. Browneller, supra, and we still adhere to that construction, the appellant was bound, and could be compelled to endorse for, or become the surety of, the appellee Anton Helbling, ‘for an amount not to exceed four thousand dollars.’ The fact that judgments had been rendered against said Anton Helbling would not absolve the appellant from this obligation; and, therefore, his knowledge of such fact, before he made advancements to, or incurred liabilities for, said Anton Helbling, could not and would not, under the law, affect his rights under his mort- gage. See also, Rowan v. Sharp’s Rifle Co., 29 Conn, 282; Wilson v. Rus- sell, 13 Md. 494. THE DEBT. 131 is in equity regarded as a mortgage. Early definitions of mortgages are found, where no other conditional conveyances are regarded as mortgages, but such as are made for the security of a loan of money. At another date we find the equitable doctrines as to mortgages ex- tended to all cases where the conveyance is a security for any debt; and the most modern notion is to apply the same doctrines to cases generally, where conditional deeds are made as a security for the performance of a contract. “But upon consideration it will be seen that this principle, though generally true, can have no application to any other contracts than such as by their non-performance create a debt, or a demand in na- ture of a debt, against the delinquent party. Wherever the condi- tion, when broken, gives rise to no claim for damages whatever, or to a claim for unliquidated damages, the deed is not to be regarded as a mortgage in equity, but as a conditional deed at common law. It has the incidents of a mortgage only to a limited extent, and the party, if relieved by a court of equity from the forfeiture resulting from the non-performance of the condition, will not be relieved as in cases of a mortgage. It is not, however, intended to say that the same principle of justice which has led courts of equity to establish the system of relief from forfeitures in the case of mortgages, will not entitle a party to analogous relief in cases where the design of the parties is to make a conveyance by way of security, * * *” Bell, J., in Bethlehem v. Annis, 40 N. H. 34, 39. NECESSITY OF CONSIDERATION. A mortgage executed and delivered as a gift is enforcible as between the parties. Bucklin v. Bucklin, 1 Abb. App. Dec. (N. Y.) 242; Brooks v. Dalrymple, 12 Allen (Mass.) 102; Campbell v. Tompkins, 32 N. J. Eg. 170; Brigham v. Brown, 44 Mich. 59. In the case first cited, Denio, J., says: “The plaintiff brings her suit in equity, not for the purpose of being aided in establishing her mortgage under the notion of remedying a de- fective conveyance, or obtaining a specific performance, but to fore- close and extinguish the defendants’ equity of redemption, which a court of law is not competent to deal with. She does not come to establish a voluntary equitable agreement, but to enforce a legal title under an executed conveyance, and to cut off an equity attached to that legal title and vested in the defendants.” Of course, if the mortgage was not intended as a gift, want of consideration or failure of consideration raises a different question. A mortgage executed to secure a pre-existing indebtedness is en- forcible against the mortgagor and all who acquire the property from him subsequent to the mortgage and is not impeachable as a fraud upon creditors. But such a mortgage does not constitute the mort- gagee a bona fide purchaser unless there is a new consideration such as the surrender of other securities or extension of time. Gafford 132 ELEMENTS OF THE MORTGAGE. v. Stearns, 51 Ala. 434; Withers v. Little, 56 Cal. 370; Busenbark vy, Ramey, 53 Ind. 499; Gilchrist v. Gough, 63 Ind. 576; Boxheimer v. Gunn, 24 Mich. 372; De Mey v. Defer, 103 Mich. 239; Schumpert v. Dillard, 55 Miss. 348; Mingus v. Condit, 23 N. J. Eq. 313; De- lancey v. Stearns, 66 N. Y. 157. Contra, Haynes v. Eberhardt, 37 Kans. 308; Brem v. Lockhart, 93 N. C. 191. See also Manning y. McClure, 36 Ill. 490. See also Jones, §§ 460, 461. Such a mort- gage is also liable to attack as a preference under the Bankruptcy Act. ILLEGALITY OF CoNSIDERATION. If the mortgage secures a debt the consideration for which is illegal, it is usually held that neither party can maintain any action thereon, neither the mortgagee to foreclose or to obtain possession, nor the mortgagor to redeem or have the instrument cancelled. W— v. B—, 32 Beav. 574; Gilbert v. Holmes, 64 Ill. 548; Hyatt v. James, 2 Bush (Ky.) 463; Atwood v. Fisk, 101 Mass. 363; McQuade v. Rosecrans, 36 Ohio St. 442; Pearce v. Wilson, 111 Pa. St. 14. It has, however, been held that in spite of illegality the mortgagee can maintain ejectment upon the executed conveyance. Raguet v. Roll, 7 Ohio R. (part 2) 70. This holding obviously leads to injustice unless the mortgagor is per- mitted to redeem and, accordingly, in Cowles v. Raguet, 14 Ohio 38, another case growing out of the same mortgage, it was said that this was permissible. The result was, of course, to make the mort- gage substantially enforcible. The effect of usury is always prescribed by the statute defining usury. CHAPTER III. INCIDENTS OF THE MORTGAGE RELATION. SEcTION 1.—POoOSSESSION. ROCKWELL v. BRADLEY. SUPREME Court oF Connecticut, 1816. 2 Conn. 1. Swirt, C. J.: The question is, whether an action of disseisin can be maintained, by the mortgagee, against the mortgagor, who con- tinued in possession, without notice to quit. The mortgagee, on the execution of the deed, is vested with the fee of the land, and is entitled to the immediate possession, though the law day has not elapsed. It is, however, the understanding of the parties, that the mortgagor shall retain the possession. The principle contended for, on the part of the defendant, is, that the mortgagor continues in possession by the license, consent, and agreement of the mortgagee; that the possession is lawful; and that he can not become a disseisor, unless a surrender of possession be demanded, or a notice to quit be given. Of course, to maintain this action, we must treat as a disseisor a man who has lawful posses- sion; which is repugnant to acknowledged principles. To decide this question, we must consider the nature of the right of a mortgagor in possession. He has been likened to a tenant at will; but the resemblance is very remote; for, it is agreed, he would not be entitled to emblements,1 or accountable for rent.2 The truth is, such an estate is of a peculiar nature, precisely resembling no other. Lord Mansfield says, in Keech v. Hall, Dougl. 22, he is a tenant at will in the strictest sense. Though the inference from the fact that the mortgagor is left in possession, is an agreement that he shall continue it, yet this is under this condition, that he is so entirely subject to the will of the mortgagee, that he (the mort- gagee) may consider his possession to be lawful, or treat him as a disseisor, without notice to quit. This results from the nature of an estate in mortgage, where the object is to give the mortgagee an ab- 1 Gilman v. Wills, 66 Maine 273. 2 See Morse v. Merritt, 110 Mass. 458. 133 134 THE MORTGAGE RELATION. solute power over the pledge to enable him to secure or enforce the payment of the debt.’ Accord: Trumbull, Edmund, Smith and Brainard, JJ. Contra: Baldwin, Hosner and Gould, JJ. [Maintaining that no- tice to quit was necessary. | No action of ejectment shall hereafter be maintained by a mort- gagee, or his assigns or representatives, for the recovery of the pos- session of the mortgaged premises. 2 Revised Statutes of New York (1828), p. 312, § 57. Unless a mortgage specially provide, that the mortgagee shall have possession of the mortgaged premises, he shall not be entitled to the same. 2 Revised Statutes of Indiana (1852), p. 239, § 1.4 PHYFE v. RILEY. SupreME Court oF New York, 1836. 4 15 Wend. (N. Y.) 248. [This was an action of ejectment. The plaintiff claimed title through one Joseph Burke. The third point of defense was that the 3 Accord: Carrofl v. Ballance, 26 Ill. 9; Pettengill v. Evans, 5 N. H. 54. That the mortgagee may enter without legal proceedings, being lia- ble, however, for any breach of the peace in so doing. Lackey v. Hol- brook, 11 Metc. (Mass.) 458; Brown v. Cram, 1 N. Hi 169; Tryon v. Munson, 77 Pa. St. 250. In a few states it is held that the mortgagee can recover possession after default, but not before. Hill v. Robertson, 24 Miss. 368; Bailey v. Winn, 101 Mo. 649; Sanderson v. Price, 21 N. J. L. 637, note; Martin v. Alter, 42 Ohio St. 94. When the mortgagee is at law entitled to possession, equity will not enjoin him from proceeding to enforce that right—Schwartz v. Sears, Walk. Ch. (Mich.) 170. A stipulation reserving to the mortgagor the right of possession until default is in common use. As to its effect, see Gooding v. Shea, post. For cases of implied conditions to the same effect see, McMillan v. Otis, 74 Ala. 560; Flagg v. Flagg, 11 Pick. (Mass.) 475. 4 One of the foregoing statutes or a similar one is in force in almost every lien state. _In several states this statute is the basis of the lien theory. Thus in Michigan the Supreme Court originally held the title theory (Stevens v. Brown, Walk. Ch. (Mich.) 41) but upon the enactment of a statute in 1843, similar to that of New York, supra, the court construed it broadly as changing the substantive nature of the mortgage. Crippen v. Morri- son, 13 Mich. 23. See also Cullen v. Minnesota Loan & Trust Co., 60 Minn. 6. POSSESSION. 135 defendant was assignee of a mortgagee executed by the said Joseph Burke and was therefore a mortgagee in DOSSessIOn, ] By the Court, Savacz, C. J.: * * Previous to the adoption of the fevised statutes, it was well set- tled that a mortgagee in possession of the mortgaged premises might protect his possession by force of his mortgage. 10 Johns. R. 480. 7 Cowen, 13. The revised statutes have not altered the law in this respect, unless it is by way of inference from the provision that no action of ejectment shall hereafter be maintained by a mortgagee, or his assigns or representatives, for the recovery of the possession of the mortgaged premises. 2 R. S. 312, Par. 57. The cases deciding that a mortgagee might protect his possession by means of his mort- gage, do not give as a reason for that decision that the mortgagee might recover possession in an action of ejectment; nor do the re- vised statutes necessarily alter the law as to the interest vested in the parties to the mortgage; they merely affect the remedy. Formerly, a mortgagee after forfeiture might pursue several remedies at the same time, and by so doing subject the mortgagor to unnecessary costs. The legislature may have intended merely to prevent oppres- sion; they certainly did not intend to give an exposition of the rights of the mortgagor and mortgagee any farther than as to the par- ticular remedy. Much of the difficulty in establishing an uniform rule in relation to mortgages grows out of the fact, that a mortgage has been differently considered in courts of equity and courts of law. In the former it is merely a security for money, in the latter it has been understood sometimes as a conveyance uport condition. In courts of law, in this state particularly, the mortgagor is consid- ered the true owner against all the world except the mortgagee; and even the mortgagee has been considered merely an encumbrancer until forfeiture of the condition by non-payment of the money. Then and not till then is he considered as having an interest in the land; then, formerly, he might claim the possession by an action of eject- ment, and upon the trial prove the condition broken, and thus show a complete title. Now, by the revised statutes, the mortgagee must complete his title by other proceedings before he brings his suit ; but if the mortgagee, after forfeiture, obtains possession in some legal mode other than by an action, why should the mortgagor or those claiming under him recover the possession from the mortgagee without paying the money secured by it? He is still considered as having the legal estate after condition broken ;> having that estate and being in possession, what reason can be given why he should be turned out of possession? Is it that he may be put to the trouble and expense of foreclosing his mortgage, and then bringing his eject- ment? Such, surely, can not be the policy of the law; on the con- trary, litigation and expense to parties will be saved by permitting 5 Compare Runyon v. Messereau, supra. 136 THE MORTGAGE RELATION. the mortgagee to retain possession, until the mortgagor or those claiming under him shall institute proceedings in a court of equity for the purpose of redemption. It has been decided that the estate of the mortgagor, before foreclosure, is a legal estate which may be sold on execution. Waters v. Stewart, 1 Caines’ C. in Err. 66, 70, In Jackson v. Willard, 4 Johns. R. 41, it was decided that the inter- est of a mortgagee, after forfeiture and before foreclosure, can not ‘ be sold on execution while the mortgagor is in possession. Kent, Ch. Justice, says, “Until foreclosure, or at least until possession taken, the mortgage remains in the light of a chose in action.” “When the mortgagee has taken possession of the land, the rents and profits may, perhaps, then become the subject of computation and sale.” It can not be denied that the mortgagee has an interest in the mortgaged premises, and that interest after forfeiture is a legal interest ; it is indeed inchoate until foreclosure, but it has here- tofore been considered sufficient to protect him in the possession of the mortgaged premises when legally obtained. Being unable to see in the revised statutes anything which changes this rule of law, I am unwilling to depart from previous adjudications, unless I can perceive a clear intention of the legislature to change the rule. On the whole case, therefore, it seems to me that the defendant is en- titled to judgment.® WALTERS v. CHANCE. SUPREME Court oF Kansas, 1906. 73 Kans. 680. [Ejectment. Answer, and demurrer thereto sustained.] GREENE, J.: The material allegations of this answer were that on April 1, 1886, William T. Tartar, being the owner of the land in controversy, executed a mortgage thereon for $250, payable to Lew E. Darrow, due April 1, 1891; that the defendant was the owner of that mortgage ; that it had not been paid; that on May 3, 1886, Tar- tar and wife conveyed the land to Alexander McCollum by war- ranty deed, and on September 3, 1887, McCollum conveyed the land by warranty deed to William Chance, who by a condition in the deed assumed and agreed to pay the mortgage; that on April 1, 1891, William Chance secured an extension of five years from that date for its payment; that for a long time prior to February 11, 1901, William Chance and his heirs had abandoned the land; that on the date last named the land was unoccupied; and that on that date de- 6 Compare the remarks of Comstock, J., in Kortwright v. Cady, supra. POSSESSION. 137 fendant went into possession thereof under his mortgage, and has continued in the exclusive occupancy thereof ever since, claiming to be a mortgagee in possession. * * * * * * * The defendants in error contend that before the holder of a mort- gage can invoke the defense of a “mortgagee in possession,” in an action of ejectment, he must show that he took possession under his mortgage with the consent of the owner of the land. They also con- tend that the answer shows that no such consent was obtained; that, therefore, the entrv was unlawful; and that an equitable defense can not be predicated upon an unlawful act. The decisions of this court, where the defense of a mortgagee in possession has been made, do not sustain the contention that the possession must have been acquired with the consent of the owner. In Kelso v. Norton, 65 Kan. 778, the mortgagee got possession under a void foreclosure sale, and it was held that he was a mortgagee in possession.7 The facts in the case of Stouffer v. Harlan, 68 Kan. 135, were substan- tially the same, and it was again held that the mortgagee was entitled to the rights of a mortgagee in possession. In Rogers v. Benton, 39 Minn. 39, it was said that where the mortgaged land had been abandoned and the mortgagee had gone peaceably and quietly into possession, the owner could not maintain ejectment until he paid the mortgage lien, and that abandonment is an implied assent that the mortgagee may take possession under his mortgage. In Cooke v. Cooper et al., 18 Ore. 142, it was said: “Tf he (the mortgagee) can make a peaceable entry upon the mortgaged premises after condition broken, he may do so, and may maintain such possession against the mortgagor and every person claiming under him subsequent to the mortgage, subject to be de- feated only by the payment of his debt.” (Page 148.) Whether the holder ofa mortgage who is in possession is entitled to make the defense of a “mortgagee in possession,” after condition broken, depends upon the equities of each case. No general rule applicable alike to all cases can be stated, except where the mort- gagee enters tnder an express agreement with the owner. Of course, if he obtain possession by force, intimidation, deceit or fraud,8 a court of equity will not permit him to profit thereby. But where, 7 Accord: Miner v. Beekman, 50 N. Y. 337; Cook v. Cooper, 18 Ore. 142; Tallman v. Ely, 6 Wis. 244, If the purchaser is a third person, the invalid foreclosure has the ef- fect of an equitable assignment of the mortgage and if the purchaser takes possession peaceably he has the rights of a mortgagee in posses- sion. Townshend v. Thompson, 139 N. Y. 152. 8 Under the lien theory if the mortgagor’s tenant without the mort- gagor’s consent surrenders possession to the mortgagee, the latter can not claim the rights of a mortgagee lawfully in possession. Russell v. Ely, 2 Black. (U: S.) 575. Compare Kimball v. Lockwood, 6 R. I. 138. 138 THE MORTGAGE RELATION. after condition broken, the land is unoccupied, and he enters peace- ably, a court of equity will not eject him at the suit of the owner until his lien upon the land shall have been satisfied. Such a rule does equity between the parties, and deprives the owner of the land of no rights. Mr. Justice Mason, speaking for the court in Stouffer v. Harlan, 68 Kan. 135, said: “The expression frequently used, that the entry must be lawful, we interpret to mean not that it must have been effected under a formal right capable of enforcement by legal proceedings, but that it must not be through any unlawful or wrongful act, upon which the mortgagee would be estopped to found a right. (Page 145.) If, after condition broken, the premises are unoccupied, the mort- gagee may, if he can do so peaceably, enter into possession under his mortgage ; and he can not be ejected therefrom by the owner un- til his mortgage lien has been fully satisfied. The land in question had been sold and deeded for the taxes of 1893. The owners had paid no subsequent taxes. No interest had been paid on the mott- gage debt after 1895. In February, 1901, the land was unoccupied . and “abandoned,” as stated by defendant in his answer. The mort- gagee went quietly and: peaceably into possession, under his mort. gage, and continued therein without objection until this action was commenced September, 1903. The facts pleaded are ample to sus- tain the defense of a mortgagee in possession. It was error there- fore to sustain the demurrer. The judgment is reversed, and the cause remanded, with instruc- tions to overrule the demurrer. All the Justices concurring. Porter, J., not sitting. NEWTON v. McKAY. SupREME Court or Micuican, 1874. 30 Mich. 380. CaMPBEELL, J.: This was ejectment brought by Newton, as owner of the equity of redemption of lands, against: McKay, who holds as assignee of a mortgage not in a shape to be foreclosed by advertise- ment, but which had been proceeded on by statutory foreclosure. The facts appear substantially as follows: Newton holds by deed from the estate of one Belote, given by his administrator in August, 1869, under a probate decree enforcing a contract made by Belote for the sale of the land in 1868. McKay holds by assignment a mortgage made by Belote in 1866, irregualarly foreclosed in 1869, and by a deed from Belote’s administrator, given in June, 1871. For POSSESSION. 139 some unexplained reason McKay went into possession in the summer of 1871. The court below sustained the legality of his possession as a mortgagee. The first question to be considered is the character of this entry. It is claimed to have been with the mortgagor’s consent. But when the entry was made, and when the deed was given by Belote’s ad- ministrator to McKay, all the right of the estate had been divested by the previous conveyance under the probate decree. Thereafter Belote’s estate had no further concern with the land, and permission from the administrator was no better than if Belote had never owned it. The question then arises, whether. a mortgagee who goes into possession without the permission of the mortgagor, has a right to hold possession against him. It is claimed that such possession, peaceably obtained, may be upheld. It was held in Mundy v. Monroe, I Mich. 68, that if the statute of 1843, forbidding ejectment suits by mortgagees before foreclos- ure, applied to existing mortgages, it was invalid, because impairing the obligation of contracts. In other words, it was held that this law was inconsistent with a contract which authorized the mortgagee to take possession, as he always could at common law. The court, in further declaring the object of the act to be to take away the right of possession from the mortgagee, merely expressed the same idea. It would be absurd to hold there could be a right of possession which could not lawfully be enforced. This holding was in no sense obiter dictum, but was the very thing decided. In all the decisions and rulings made by this court since, this idea has been adhered to, and the right of possession has been denied. In Crippen v. Morrison, 13 Mich. 23, and Hogsett v. Ellis, 17 Mich. 351, the questions involved bore directly on the existence of any right of possession. Where the mortgagee has no authority not derived from the mortgage itself, there is no middle ground between a right to sue for possession and no possessory right. The form of the mortgage remains as before. The right of possession, if it exists at all, exists because the legal title passes, and can be enforced by legal remedies. There can be no such things in existence at the sare time as a mort- gagor’s right to hold possession and a mortgagee’s right to hold it. One must be entitled, to the exclusion of the other. If a mortgagor puts a mortgagee in possession, or gives him per- mission to enter, there may arise an inference that the license is given with a view of making the possession subservient to the pur- poses of the mortgage; and there may be convincing reasons for re- garding such a possession as not subject to disturbance by the mort- gagor without redemption. That question is not now before us. But whatever authority exists in such a case originates in the license and not in the mortgage, and forms no part of the original contract. 140 THE MORTGAGE RELATION. When the law of 1843 was passed, the common-law doctrine of mortgages had become so far modified by the rules of equity that the last innovation was almost a corollary of former ones. Where a mortgagee’s estate had been moulded into a mere security for a per- sonal claim, and the estate in land passed by a parol transfer, and became personalty, the remedy by ejectment became incongruous, It must in many cases be brought in the name of a party having no interest of his own, or by one who traced his title without conform- ing to the rules of the statute of frauds, which requires estates to be transferred more formally. Where the estate in fee was regarded as belonging to the mortgagee, the possession belonged with it, When the fee was no longer regarded as passing, the possessory right became anomalous. It was an incident which had become severed from its principal, and which led to serious complications in settling the equities of foreclosure and redemption. The act of 1843 was the last thing needed to harmonize the law, and to place mort- gages in fact, as they had long been in theory, in the condition of mere securities and chattel interests. We are aware that in some states the courts have given a similar statute a construction which is absolutely literal, and maintains the right of possession, while forbidding its legal enforcement. We-can not regard this as in harmony with the general rules of law. If the mortgagee in possession can insist on retaining it, his right must de- pend upon his contract, and, as already suggested, should be capable of enforcement. There can be no interest in lands which can not be enforced somewhere. And we can not imagine that the legislature would have taken pains to introduce, as a new and radical change, a measure that could at any time be rendered nugatory by an entry without force. The decision in Mundy v. Monroe is not only to be respected as a precedent, but is in our view in full accordance with the purposes of the statute. We think the court erred in rendering judgment for defendant on the finding. The judgment must be reversed, and judgment entered for plain- tiff, that he recover possession, with costs of both courts, and that the record be remanded, that defendant may have the benefit of any statutory application for a new trial to which he may become en- titled. The other Justices concurred.® CAMPBELL, J., in HAZELTINE v. GRANGER, 44 Mich. 503 (1880). The statute (denying ejectment to the mortgagee) does not say 9 See also, Johnson v. Sherman, 15 Cal. 287; Lewis v. Hamilton, 26 Colo. 263; Rogers v. Benton, 39 Minn. 39; Russell v. Akeley Lumber Co,, 45 Minn. 376. See also, 8 Col. L. Rev. 486. In Byers v. Byers, 65 Mich. 598, Campbell, J., says: “If the mort- gagor or owner of the fee chooses to put him in, the tenancy is at least POSSESSION. 141 that no ejectment shall lie unless there is an agreement to that ef- fect, but that it shall not lie at all. Every mortgage made in com- mon law form contains words whereby, if applied as they read, pos- session would belong to the mortgagee and his title would become absolute by default. The whole aim of equity was to arrest this forfeiture and not to allow the language of a mortgage to have any force against the equity of redemption. The statute is a further step in the same direction for the protection of mortgagors against agree- ments which, as literally drawn and as theretofore expounded, were deemed dangerous, and against public policy. The language of this mortgage expressly granting rents and profits on default is no stronger than the previous words of grant, and is really narrowed. It was no doubt intended to go further and to evade the statute. If it had contained an agreement that ejectment should lie, it could not very well be enforced against the clause of the statute prohibit- ing it. It can have no greater force in enlarging the jurisdiction of equity to appoint receivers, which we held in Wagar v. Stone, had been abolished.1° as good as a tenancy at will, and can not be destroyed without notice.” In California it seems settled that under such circumstances the mort- gagee may retain possession until he is paid. Spect v. Spect, 88 Cal. 437. 10 Cf. Michigan Trust Co. v. Lansing Lumber Co., 103 Mich. 392; Guy v. Ide, 6 Cal. 99; American Investment Co. v. Farrar, 87 Iowa 437; Seck- ler v. Delfs, 25 Kans. 159, “Our statute declares that ‘a mortgage of real property is not to be deemed a conveyance, so as to enable the owner of the mortgage to re- cover possession of the real property without a foreclosure.’ Gen. Stat. 1878, chap. 75, § 29. In numerous decisions of this court, this statute has been recognized as changing the common-law relations and rights of mortgagors and mortgagees. The mortgagee is no longer entitled to the possession of the mortgaged premises before foreclosure by reason of his having any title or estate in the land. The mortgagor, having the legal title, may without doubt remain in possession until his title is di- vested, unless, in the application of the established principles of equity, and consistently with the legal title remaining in the mortgagor, the court shall find it necessary to lay its hand upon the property for the protec- tion of the equitable rights of the mortgagee. The exercise of this power by courts of equity in the past was not based upon the ground that the legal title had passed from the mortgagor to the mortgagee, but upon the equitable rights of the mortgagee to have his security preserved so that it should be adequate for the satisfaction of the mortgage debt. Indeed, this power was exercised in favor of those who had no legal title, as in the case of junior mortgagees, and of securities given by the deposit of title-deeds. Berney v. Sewell, 1 Jac. & W. 647; Bryan v. Cormick, 1 Cox 422; Meaden v. Sealey, 6 Hare 620; Holmes v. Bell, 2 Beav. 298; High, Rec., §§ 640, 658, 682; Adams, Eq. 125. The jurisdiction of equity in the appointment of receivers, long exercised upon grounds peculiar to courts of equity, is not to be deemed to have been taken away by the statute un- less that is its necessary effect, or at least its obvious purpose. Such is not the obvious purpose or necessary effect of this statute.” Dickinson, J., in Lowell v. Doe, 44 Minn. 144, 146. ** * “We are aware that the Supreme Court of California, in the case 142 THE MORTGAGE RELATION. AvsertT, C. J., in Fetrno v. NEwcoms LumBer Co., 64 Neb. 335 (1902). The only statutory regulation on the subject in this state is that to be found in section 55, chapter 73, Compiled Statutes, which is as follows: “In the absence of stipulations to the contrary, the mortgagor of real estate retains the legal title and right of pos- session thereof.” This provision leaves it competent for the parties to a mortgage to stipulate for the investiture of the mortgagee with the legal title and right of possession, which carries with it the right to the rents and profits. Epitor1aL Nore—RIGHTS OF THE MorTGAGEE AGAINST A TENANT OF THE MorTGAGor. If the mortgagee has the right to recover the possession from the mortgagor, he has the same right as against a tenant of the mort- gagor holding under a lease executed subsequent to the execution of the mortgage, though the mortgagor was in possession when he made the lease. Keech v. Hall, 1 Doug. 21; American Freehold Land Mortgage Co. v. Turner, 95 Ala. 272; Russum v. Wanser, 53 Md. 92. But, as against a tenant whose lease antedates the mort- gage, he stands in the position of an assignee of the reversion and can not evict the tenant. American Mortgage Co. v. Turner, supra. On the other hand, in the latter case, the mortgagee, being an as- signee of the reversion, can compel the lessee to pay to him the rent accruing since the date of the mortgage, which is due at the time of the mortgagee’s demand and has not been already paid to the mort- gagor, and all rent thereafter becoming due, unless, perhaps, it has been paid to the mortgagor in advance before the mortgagee’s de- of Guy v. Ide, 6 Cal. 99, held that, under a statute precisely like ours, it was not a proper practice to appoint receivers pending a foreclosure suit. “The learned judge who rendered the opinion in that case says: ‘Our statute forbids a mortgagee from recovering the mortgaged estate, and confines his remedy to a foreclosure. The same reason does not, there- fore, exist, as by the English rule for appointing a receiver to collect the rents and profits pending the litigation.’ This reasoning is, to our minds, incomprehensible. The argument is, ‘Our law, having forbid the mort- gagee to bring ejectment for the property mortgaged, it therefore be- comes the duty of equity courts to deny him all security to be derived from the rents and profits, and all opportunity of protecting the property during litigation.’ If it be taken for granted that it was the object of our legislature, in framing this part of the practice act, to discourage mort- gages, and to render such securities uncertain and comparatively value- less, then we could understand this reasoning. But if the intention was merely to simplify proceedings in courts of justice and prevent multi- plicity of suits, then we can ndt understand or appreciate the force of this argument. “The legislature having forbid the mortgagee pursuing the common- law remedy of ejectment, would, it appears to us, be rather a reason for a more liberal exercise of the chancellor’s powers to protect the security he has for his debt.” Batty, J., in Hyman v. Kelly, 1 Nevada 179. POSSESSION. 143 mand. Tiffany, Real Property, §521; Moss v. Gallimore, 1 Doug. 279; King v. Housatonic R. Co., 45 Conn. 226; Teal v. Walker, 111 U.S. 242; De Nichols v. Saunders, L. R. 5 C. P. 589; Stone v. Pat- terson, 19 Pick. (Mass.) 476. But, where the mortgage precedes the lease, the mortgage can not be called an assignment of the reversion and consequently, there being no privity of estate or contract between them, the mortgagee can not compel the lessee to pay rent to him. Teal v. Walker, 111 U. S. 242: Kimball v. Lockwood, 6 R. I. 138. Such a lessee may, however, in order to avoid eviction, ut supra, attorn to the mortgagee and such attornment is a defense to the mortgagor’s claim for rent subsequently accruing. Kimball v. Lockwood, supra; Jones v. Clark, 20 Johns. (N. Y.) 51. As to whether such attornment creates a new tenancy between the lessee and the mortgagee for the unexpired term of the old lease, see Gartside v. Outlay, 58 Ill. 210. As long as the mortgagor is permitted to remain in possession, he receives the rents and profits of the land as owner. Accordingly he can not be made to account to the mortgagee for rent received by him from a tenant of the mortgaged land. Teal v. Walker, supra. It has even been so held as to rent which, by reason of notice to the tenant, was payable to the mortgagee. Ex parte Wilson, 2 Ves. & B. 252. In such a case the mortgagee’s remedy is against the tenant, whose obligation to the mortgagee is not discharged by payment to the mortgagor. Watford v. Oates, 57 Ala. 290. If the mortgagee has no right to recover possession from the mortgagor, he, of course, has no such right against any tenant of the mortgagor, nor can he compel the lessee to pay rent to him, whether the lease was prior or subsequent to the mortgage. Teal v. Walker, supra; Hogsett v. Ellis, 17 Mich. 351. Nor is an attornment of the tenant to the mortgagee valid. Hogsett v. Ellis, supra; Mills v. Heaton, 52 Iowa 215; Russell v. Ely, 2 Black (U. S.) 575. After foreclosure, however, the position of the purchaser with reference to a tenant of the mortgagor would seem to be substantially the same as that of a mortgagee who is entitled to possession as against the mortgagor, ut supra; Simers v. Saltus, 3 Denio (N. Y.) 214; Bat- terman v. Albright, 122 N. Y. 484. In those states where there is a statutory right of redemption after foreclosure sale, it is usually held that the purchaser acquires no title and no right of possession, until the expiration of the period allowed for such redemption. See Jones Mortgages, § 1661. But see Jones v. Thomas, 8 Blackf. (Ind.) 428. The mortgagee in possession is held to an accounting un- der rules so strict as to make the possession a doubtful advantage. See post, Chap. VIII. 144 THE MORTGAGE RELATION. Section 2.—THE Morrcacee’s LecaL REMEDIES For Injury 19 THE MorTGAGED PREMISES. GOODING v. SHEA. SUPREME Court oF MassAcHusetts, 1869. 103 Mass. 360. Tort. The first count in the declaration alleged that the defendant forcibly entered the plaintiff’s close, being the dwelling house num- bered 8 on Brookline Street in Boston, tore out, took and carried away certain fixtures in said dwelling-house, and converted them to his own use. The second count alleged that Hiram Curtis was the owner of said dwelling-house, “subject to two mortgages, one of $5,000 and the other of $1,000, and interest on the same, and the said Curtis conveyed the same to the plaintiff, subject to said mortgages, to secure the payment of $3,000 and interest, before that time loaned and advanced to said Curtis by the plaintiff, and the defendant aft- erwards forcibly entered said dwelling-house and tore out, took and carried away” certain fixtures “in said dwelling-house and converted the same to his own use, by means whereof the plaintiff’s said se- curity for his said loan was greatly lessened and destroyed.” The third and fourth counts were like the first and second, except that “dwelling-house numbered 9” was substituted for dwelling-house numbered 8.” Writ dated August 27, 1868. At the trial in the superior court, before Morton, J., without a jury, the following facts appeared: Curtis, being owner of both said houses, on September 16, 1867, mortgaged them to the Me- chanics’ Savings Bank of Lowell, each by a separate deed, and each to secure the payment of $5000 in six months from date; on Febru- ary 7, 1868, he mortgaged them to Mary A. Lewis, each by-a sepa- rate deed, and each to secure the payment of $1000 in four months from date; and on April 18, 1868, he mortgaged them to the plain- tiff, each by a separate deed, and each to secure the payment of $3000. Each of these six mortgages contained a provision that un- til breach of condition the mortgagee should have no right to take possession. On June 20, 1868, the defendant entered the premises and tore away and removed water pipes and other fixtures attached to the realty; at which time the premises were in the possession of the mortgagor, and there had been no breach of the condition in the mortgages to the plaintiff. On July 11, 1868, the plaintiff took an assignment from Mary A. Lewis of the two mortgages to her; on July 30, 1868, entered to foreclose; and on August 28, 1868, sold the houses under powers of sale contained in the said two mortgages, bought them in himself for $2,000 each, and had subsequently con- MORTGAGEE’S REMEDIES FOR INJURY. 145 veyed one of them for $9,400 by a warranty deed, and still held the other, which was of equal value. Since the alleged trespass, Curtis had been adjudged a bankrupt, and his assignee had brought suit against the defendant for the same trespass. The defendant contended that, on these. facts, the plaintiff could not maintain this action, and, even if he could, still if, on the evidence, the houses were of sufficient value over and above all prior incum- brances to pay the plaintiff his whole debt, he could recover in this suit only nominal damages, or only such sum as he had, by reason of the trespass, lost on his security. But the judge ruled that the plain- tiff might recover the full amount of the damages to the estate by the alleged trespass; and found for the plaintiff for the full amount of all damages caused by the trespass. The defendant alleged exceptions. We ts, J.—There are two counts in the declaration relating to each lot of land and dwelling-house. The plaintiff is third mort- gagee of each parcel, by separate mortgages, containing a clause against taking possession until breach. There had been no breach at the time of the alleged tort. The first count, relating to each parcel, is in the nature of trespass quare clausum fregit, and can not be maintained because of the want of possession or right of possession at the time of the alleged tres- pass. Page v. Robinson, 10 Cush. 99; Woodman v. Francis, 14 Allen 198. The second count in each case sets forth the actual condition of the title, and alleges that the defendant “forcibly entered said dwell- ing-house” and removed certain fixtures, “by means whereof the plaintiff’s said security for his said loan was greatly lessened and destroyed.” We do not think this count sets forth the entry as a violation of the plaintiff’s possession, or possessory right ; but only as the means by which an injury was caused to his mortgage security. No question is raised here in regard to the liability of the defen- dant to some one for the fixtures so removed. The points of the de- fence are, that the mortgagee in possession can alone recover; or, if either mortgagee may do so, it must-be the first mortgagee only. The mortgagor might undoubtedly maintain an action of trespass ; and damages for the unlawful removal of fixtures would be recover- able in such action by way of aggravation. Earle v. Hall, 2 Met. 353. For the removal of crops, or other property connected with the land, which the mortgagor himself might have removed, his right of recovery would be exclusive. Woodward v. Pickett, 8 Gray 617. But fixtures he could not himself remove, against the right of the mortgagee, nor permit to be removed; nor can he have any right to withhold the compensation or damages for them from the mortgagee, in whom the legal title is. The mortgagee may re- cover their value against the mortgagor or any other party who may 10 : 146 THE MORTGAGE RELATION. be responsible for their removal. Cole v. Stewart, 11 Cush. 181, Such right to recover depends upon the title, and not upon posses- sion, or the right of present possession, of the land. The right of present possession only affects the form of action in such case, Although the mortgagor in possession may recover, in an action of trespass, for the value of fixtures removed by a stranger to the title, his right to their value is subordinate to that of a mortgagee, and therefore can not be set up by the defendant to defeat a recovery for the same by such mortgagee. The mortgagor’s right of action, based upon his possession, does not depend upon, nor necessarily in- clude, the right to recover for the aggravation by removal of fixtures, Phelps v. Morse, 9 Gray 207. The right to recover the value of the fixtures is separable from that to recover for “breach of the close.” Bickford v. Barnard, 8 Allen 314. It is incidental only to the action of trespass. But, as the injury affects the estate, it may be sued for directly by any one in whom the legal interest is vested. A second or third mortgagee, though not in possession, has a sufficient interest in the estate to maintain an action for such an injury. Although it is true that a stranger may thus be liable to either of the several mortgagees, as well as to the mortgagor, it does not follow that he is liable to all successively. The superior right is in the party having superiority of title. But the defendant can resist neither, by merely showing that another may also sue, or has sued. If he would defeat the claim of either, he must show that another, having a superior right, has appropriated the avails of the claim to himself. The de- mand is not personal to either mortgagee, but arises out of and per- tains to the estate; and, when recovered, applies in payment, pro tanto, of the mortgage debt, and thus ultimately for the benefit of the mortgagor, if he redeem. It differs in this respect from the claim for insurance in King v. State Insurance Co., 7 Cush. 1, cited by the defendant. The defendant has the same means of protection against four judgments that any one has who is liable, for the same cause, to either of several parties having different or successive in- terests in the subject matter. Due satisfaction will discharge all the claims, if made to a party having the prior right. But neither can be defeated without some appropriation of the claim to the use of him who holds a prior right. Thus it is no defence to this suit, that the mortgagor has also a right of action; nor even that he has brought such an action; because the right of the plaintiff is superior to that of the mortgagor. A superior right in Mary A. Lewis will not avail, as the plaintiff has since become the owner of that title. Nor is the existence of a superior right in the savings bank, as first mortgagee, a defence. The defendant shows no satisfaction of that claim, no demand made upon him by the savings bank, and no authority or right from the bank to resist the claim of the plaintiff here, in behalf of or for the benefit of the first mortgagee. MORTGAGEE’S REMEDIES FOR INJURY. 147 It is not contended that the plaintiff’s mortgage has been satis- fied and discharged by the proceeds of the sale under the power of sale in the Lewis mortgage. The correctness or fairness of these proceedings, and the responsibility of the plaintiff for the full value of the property, or the amount realized upon the second sale, may be open to the representatives of the mortgagor in a suit therefor ; but this defendant is not in such privity as to be entitled to inquire into the relations or the state of the account, so far as it depends on equitable considerations, between the mortgagor and mortgagee. The right of the plaintiff to recover in this action does not depend upon the sufficiency or insufficiency of his security. Until his whole debt is paid, he can not be deprived of any substantial part of his entire security without full redress therefor. Upon the facts re- ported, we are satisfied that the ruling of the judge who heard the case, allowing the plaintiff the full amount of the damages to the es- tate caused by removal of fixtures, was correct. Exceptions overruled.11 SEARLE v. SAWYER. SupPREME Court oF Massacuusetts, 1879. 127 Mass. 491. Morton, J.—This is an action of tort for the conversion of a quantity of wood and timber. It appeared at the trial that one Warren, being the owner of a lot of wood-land, mortgaged it to the plaintiff’s testator ; and that, after the condition of the mortgage was broken, but before the mortgagee had taken possession, Warren cut the wood and timber in question and sold it to the defendant. The presiding justice of the Superior Court ruled that, “if the defendant bought of the mortgagor wood and timber cut from the mortgaged premises, and exercised such acts of ownership over the same as would amount to a conversion, then he would be liable to the mortgagee for the value of the same, without any previous demand, and although he bought the same in good faith and without any notice or knowledge of any'claim upon the same.” To this ruling the defendant excepted. Upon the question whether, if a mortgagor commits waste by removing buildings, wood, timber, fixtures or other parts of the realty, the mortgagee out of possession can follow the property after 11 Compare Sanders v. Reed, supra. In King v. Bangs, 120 Mass. 514, it was held that the trespasser might show “in mitigation of damages at least, ” that after the trespass and before the action was brought the ee had exercised a power of sale, realizing enough to satisfy is debt. 148 THE MORTGAGE RELATION. it has been severed, and recover it or its value, there have been con- flicting decisions in different jurisdictions. In New York and Con- necticut, it has been held that a mortgagee out of possession can not maintain an action at law for waste committee by the mortgagor; and that he has no property in wood or timber cut and removed, so as to enable him to maintain trover for its conversion. Peterson v. Clark, 15 Johns. 205; Cooper v. Davis, 15 Conn. 556. On the other hand, it has been held in Maine, New Hampshire, Vermont and Rhode Island, that timber, if wrongfully cut and removed by the mortgagor, remains the property of the mortgagee out of posses- sion, and he may recover its value of the mortgagor or a purchaser from him. Gore v. Jenness,!2 19 Maine 53; Frothingham v. Mc- Kusick,13 24 Maine 403; Smith v. Moore,!4 11 N. H. 55; Langdon v. Paul,15 22 Vt. 205; Waterman v. Matteson,?® 4 R. I. 539. We are not aware that this precise question has been adjudicated in this state, but the previous decisions of this court, in regard to the rights of mortgagees and the nature of their interest in the mortgaged estate, are such as to lead to the conclusion that a mort- gagee out of possession is entitled to timber, fixtures and other parts of the realty wrongfully served, and may recover them, or their value, if a conversion is proved. In Fay v. Brewer, 3 Pick. 203, it was held that a mortgagee in possession, but before foreclosure, could maintain an action on the case in the nature of waste against a tenant for life, for cutting down trees on the mortgaged land be- fore he took possession, and the court in the opinion comment on the case of Peterson v. Clark, 15 Johns. 205, as not being of authority here, “since the law of mortgage in New York is so different from our own.” In Page v. Robinson,!7 10 Cush. 99, it was held that a mortgagee, after condition broken, though not in actual possession, could main- tain trespass against the mortgagor, or one acting under his author- ity, for cutting and carrying away timber-trees from the mortgaged premises, without license express or implied, from the mortgagee. In Cole v. Stewart, 11 Cush. 181, it was held that an action at law would lie by a mortgagee not in possession against one who, under authority from the mortgagor, removed a building from the mortgaged land. In Butler v. Page, 7 Met. 40, a second mortgagee sold to the de- fendant a building standing on the mortgaged land, who took tt down and removed the materials. It was held that the administrator 12 Assumpsit against purchaser for proceeds of his resale. 13 Trover and trespass de bonis against purchaser. 14 Trespass de bonis by purchaser against mortgagee who seized the lumber manufactured from the timber. 15 Case for waste and trover against mortgagor. 16 Replevin against mortgagor. 17 Trespass quare clausum. MORTGAGEE’S REMEDIES FOR INJURY. 149 of the mortgagor could not maintain trover for the materials, as the fee of the mortgaged premises was in the mortgagees, and the removal of the building vested no property in the materials in the mortgagor’s representative. In Wilmarth v. Bancroft, 10 Allen 348, a house standing on mort- gaged land was partially destroyed by fire. The mortgagor sold to the defendant such materials as were saved, and brought this action to recover the price agreed to be paid. It was held that the fact that the mortgagee had claimed the agreed price, and forbidden the defendant to pay it to the mortgagor, was a good defense. The opinion is put upon the ground that the partial burning of the house, and the consequent severance of the unburnt materials, “did not terminate or affect the mortgagee’s interest in the fixtures.” So it has been held in several cases that a mortgagee out of posses- sion may maintain an action at law against the mortgagor or a stranger for removing fixtures and thus impairing the security. Gooding v. Shea, 103 Mass. 360; Byrom v. Chapin, 113 Mass. 308; King v. Bangs, 120 Mass. 514. The fair result of these authorities is that, under our law, a mort- gagee, is so far the owner in fee of the mortgaged estate, that, if any part of it is wrongfully severed and converted into personalty by the mortgagor, his interest is not divested, but he remains the owner of the personalty, and may follow it and recover it or its value of any one who has converted it to his own use. Stanley v. Gaylord. 1 Cush. 536; Riley v. Boston Water Power Co., 11 Cush. 11. But the severance must be wrongful, and, where it is made by the mortgagor or one acting under his authority, whether it is wrongful or not will depend upon the question whether a license to do the act has been expressly given, or is fairly to be implied from the relations of the parties. The true rule is as stated in Smith v. Moore, 11 N. H. 55, and approved in Page v. Robinson, 10 Cush. 99, that acts of the mortgagor in cutting wood and timber, or otherwise severing parts of the realty, are not wrongful when from the cir- cumstances of the case the assent of the mortgagee may be reason- ably presumed. The relation between the mortgagor and mort- gageé is a very peculiar one. The mortgagee takes an estate in fee, but the sole purpose of the mortgage is to secure his debt. Usually in this state the mortgage contains a provision that the mortgagor may retain possession until condition is broken. The object of this is that the mortgagor may have the use and enjoyment of his prop- erty, and it implies a license to use it in the same manner as such property is ordinarily used, and as will not unreasonably impair the adequacy of the security. If a mortgage be of a dwelling-house, the mortgagor may do many acts, such as acts of repair or alteration, which may involve the removal of parts of the realty, which would not be wrongful because within the license implied from the relations 150 THE MORTGAGE RELATION. of the parties. If a farmer mortgages the whole or a part of his farm, with a clause permitting him to retain possession, as was prob- ably the case at bar, it is within the contemplation of the parties that he is to carry on his farm in the usual manner, and a license to do so is implied. In such case, it is clear that he is entitled to take the annual crops, and wood for fuel. Woodward v. Pickett, 8 Gray 617. And we do not think that the implied license is necessarily limited to the annual crops, but that it extends to any acts of carrying on the farm which are usual and proper in the course of good hus- bandry. If, in carrying on similar farms, it is usual and is good husbandry to cut and carry to market wood and timber to a limited extent, a license to do this might be implied from the relation of the parties. The bill of exceptions furnishes us with so meagre and imperfect a history of the case, that we are unable to say how far these con- siderations are applicable in the case at bar. But the ruling of the presiding justice seems to have been general, that the defendant would be liable if the wood and timber were cut from the mort- gaged premises, and to have excluded the question whether, under ;the circumstances of the case, the assent of the mortgagee thereto could fairly be presumed by. the jury. . We are of opinion that this question should be submitted to the jury, and, therefore, that a new trial must be ordered. Exceptions sustained.18 CLARK v. REYBURN. SUPREME Court oF Kansas, 1863. 1 Kans. 281. By the court, Cops, C. J—The defendant in error brought his ‘action in the district court against the plaintiffs in error to recover a dwelling house as personal property; alleging in the petition that che is the owner thereof and the defendant detains the same, and recovered judgment. The undisputed facts of the case are these: One Brown and his wife mortgaged a parcel of land to Amos Rees, and the plaintiffs below afterwards became the owners of the mortgage by assignment, and after the making of the mortgage, said Brown placed a house on the land, and after the money secured by the mortgage became due, and before foreclosure, still being in possession, he and his wife sold the house to one Mrs. Fritzlin, who sold it to the defendants below, and removed and delivered it 18 Compare Hoskin v. Woodward, 45 Pa. St. 42. MORTGAGEE’S REMEDIES FOR INJURY. 151 to them off the mortgaged premises. They held possession under her title, and the mortgage had not been paid nor foreclosed when the action was commenced. The judgment must be founded on the hypothesis that the plaintiff below, by virtue of his mortgage, was the owner of the freehold of which the house in question was a part, and that the removal of the house converted it to a chattel without divesting his title. Is that hypothesis correct? It has long been settled, both in this country and in England, that the mortgagor, both before and after breach of the condition of the mortgagee, is, in equity, the owner of the estate, and the mort- gage a mere security for a debt. (See Kent’s Com., Vol. 4, p. 158, et seq.) The rule at law has been the subject of much judicial discussion and conflict of opinion. But it is believed to be the settled modern doctrine that the mortgagor in possession is, at law, both before and after breach of the condition of the mortgage, the legal owner, as to all persons except the mortgagee and those claiming under him. And in states where the common law on the subject has not been changed by statute, the mortgagee, for the purpose of protecting and enforcing the lien against the mortgagor, has the remedies of an owner, he may enter into and hold possession and take the rents and profits in payment of his mortgage debt, and may have his ac- tion of ejectment to recover such possession, and hence is some- times called the owner. But except as to such remedies, and as to all persons except the mortgagee, the mortgagor in possession is to be regarded and treated as the owner of the estate, subject to a mere lien or charge. (4 Kent’s Com., p. 160; Perkins v. Dibble, 10 Ohio 438; Rallston v. Hughes, 13 Ill. 568; Howard v. Robinson, 5 Cush. 123; Norwich v. Hubbard, 22 Conn. 587; Astor v. Hoyt, 5 Wend. 615.) And in this state the legislature has not enlarged, but still further restricted the rights of the mortgagee, by providing that “in absence of stipulations to the contrary, the mortgagor of real estate may re- tain the right of possession thereof.” Com. Laws, p. 355, par. 12.) According to the principles above laid down, it is manifest that the allegation of the petition below, that the plaintiff is the owner of the house, was entirely unsupported by the facts appearing on the trial. Nor is this objection to the judgment technical. If such an action can be maintained, a mortgagee may recover from the purchasers all the timber, stone or other property severed from the realty and sold by the mortgagor, though its value may exceed the mortgage debt an hundred fold, and however ample the security may remain; although it is quite clear on principle and authority that the purchaser of property so removed by the mort- gagor, can not be liable in an action for the waste beyond the actual 152 THE MORTGAGE RELATION. loss the mortgagee thereby sustains. (Van Pelt v. McGraw, 4N. Y, 110; Gardner v. Heartt, 3 Denio 232; Lane v. Hitchcock, 14 Johns, 213, 15 Johns, 205.) The other points made in the case need not be examined. The judgment of the district court must be reversed, and the cause remanded to the court below, with directions to render judgment for the plaintiffs in error for their costs in that court.19 VAN PELT v. McGRAW. Court oF APPEALS OF NEw York, 1850. 4.N. Y. 110. . Van Pelt sued Southworth and McGraw in the court of common pleas of Tompkins county, and declared in case for wrongfully and fraudulently removing rails, timber, &c., from certain lands on which the plaintiff held a mortgage, thereby injuring his security, &c. It was proved on the trial that in May, 1840, Almeron Baily and Wil- liam E. Baily, being the owners of 119 acres of land in Dryden, Tompkins county, executed a bond and mortgage covering the same to Harvey A. Rice, to secure the payment of $500, one half payable in May, 1841, and one half in May, 1842. In August, 1842, Rice sold and assigned the bond and mortgage to the plaintiff, who insti- tuted a foreclosure suit thereon, and obtained the usual decree for the sale of the premises in August, 1844. The amount then due on the mortgage including the costs of the foreclosure suit, was nearly $900. The mortgagors were insolvent, and the premises were inadequate security for this sum. On the sale under the decree, which took place in October, 1844, the premises produced only the sum of $575. Shortly before the sale and while the advertisement was running, the defendant McGraw, who had become the owner of the equity of redemption by conveyance from the mortgagors, avowing that he would “strip the land,” proceeded to draw off rails, and to cut down and draw off valuable timber, &c. The premises were thereby con- siderably lessened in value. These acts were done by McGraw, and by Southworth aiding and assisting him, with full knowledge of the plaintiff's mortgage, and of the insolvency of the mortgagors. The defendants’ counsel requested the court to charge the jury that McGraw, having the fee of the land, and being in possession, had a right to take off the fences and timber, and that these acts be- ing lawful could not be deemed to have been done wrongfully or fraudulently. The court charged that the acts were lawful if they 19 Compare Sands ei Pfeiffer, 10 Cal 258; Berthold v. Holman, 12 Minn. 335; Stout v. Keyes, 2 Doug. (Mich.) 184. MORTGAGEE’S REMEDIES FOR INJURY. 153 did not prejudice the plaintiff’s rights or impair his security, but if the defendants had impaired that security with a knowledge of the lien, then their acts were wrongful and fraudulent. The defendants’ counsel also requested the court to charge, that inasmuch as the plaintiff had alledged in his declaration that the defendants did the acts fraudulently and with a design to injure the plaintiff, he was bound to prove those allegations by other evidence than the mere removal of the rails and timber for their own emolument. The court refused so to charge. To the charge as delivered and to the refusal to charge as requested, the defendants excepted. The jury found a verdict of $150 in favor of the plaintiff. The judgment entered thereon was affirmed in the Supreme Court on error brought. The defendants appealed to this court. Pratt, J—There is no doubt but that an action on the case will lie for an injury of the character complained of in this case. It forms no objection to this a¢tion that the circumstances of the case are novel, and that no case precisely similar in all respects has pre- viously arisen. The action is based upon very general principles, and is designed to afford relief in all cases where one man is injured by the wrongful act of another, where no other remedy is provided. This injury may result from some breach of positive law, or some violation of a right or duty growing out of the relations existing between the parties. (1 Cow. Treat. 3.) The defendant McGraw, in this case, came into the possession of the land subject to the mortgage. The rights of the holder of the mortgage were therefore paramount to his rights, and any at- tempt on his part to impair the mortgage as a security, was a viola- tion of the plaintiff’s rights. But the case is not new in its circum- stances. The case of Gates v. Joice, 11 John. 136, was precisely like the case at bar in principle. That action was brought by the assignee of a judgment against a person for taking down and removing a building from the land upon which the judgment was a lien. The plaintiff’s security was thereby impaired. The court in that case sustained the action. The decision in that case was referred to and approved in Lane v. Hitchcock, (14 John. 213), and in Gardner v. Heartt, (3 Denio. 234). Nor is there any thing in the case of Peterson v. Clark, (15 John. 205), which conflicts with the principle of these cases. That was an action by a mortgagee in the usual form of an action for waste. The declaration alleged seisin in the plaintiff, upon which the defendant took issue. There was no allega- tion that the mortgagor was insolvent, or the judgment as a security impaired. The only issue to be passed upon, was that in relation to the seisin. It is quite clear that upon such an issue the mortgagee must fail. Now this action is not based upon the assumption that the plaintiff’s land has been injured, but that his mortgage as a se- 154 THE MORTGAGE RELATION. curity has been impaired. His damages, therefore, would be limited to the amount of injury to the mortgage, however great the injury to the land might be. It could, therefore, be of no consequence whether the injury occurred before or after forfeiture of the mort- gage. The action is clearly maintainable. It only remains, therefore, to be considered whether there was any error in the charge of the court. In order to come to a correct con- clusion upon this point, it becomes necessary to examine the excep- tions to the charge in connection with the undisputed testimony in the cause, and the propositions upon which the court were required to charge. It had been proved that the defendants knew of the mortgage, that the mortgagors were insolvent, and that the property had been advertised for sale by virtue of the mortgage. They were forbidden to remove the fences and.timber, for the reason that the security would thereby be impaired. It was also proved that the value of the mortgage had been impaired by such removal. Under this state of facts the defendants’ counsel asked the court to charge the jury, that McGraw having the fee of the land, and being in pos- session, had a right to take off the fences and timber; that the acts being lawful, could not be deemed to have been done wrongfully or fraudulently. The court charged that the acts were lawful if they did not prejudice the plaintiff’s rights or impair his security, but that if they had impaired the security, knowing the plaintiff’s lien, they were liable. As an answer to the propositions of the defendants’ counsel, the charge was correct. Acts may be harmless in them- selves, so long as they injure no one, but the consequences of acts often give character to the acts themselves. It is upon this distinc- tion that the maxim is based, sic utere tuo est alienum. non laedas. As I have before observed, the lien of the plaintiff upon the land was paramount to any interest which the defendants possessed therein, and any wilful injury of that lien by them was a violation of the plaintiff’s rights, for which an action would lie. The defendants’ counsel also asked the court to charge that the plaintiff having alleged in his declaration that the defendants did the acts fraudulently and with design to injure the plaintiff, he was bound to prove the allegations by evidence other than the mere act of removing the timber for the emolument of the defendants. The court refused so to charge, to which there was an exception. This proposition is somewhat obscure, but I understand it to mean that the plaintiff should prove that the primary motive of the defendants was to cheat the plaintiff. If the defendants knew that by taking off the timber the value of the plaintiff’s mortgage as a security would be impaired, they would be legally chargeable with a design to effect that object, although their leading motive may have been their own gain. A man must be deemed to design the necessary consequences of his acts. If, therefore, fe does a wrongful act, knowing that his MORTGAGEE’S REMEDIES FOR INJURY. 155 neighbor will be thereby injured, he is liable. It is upon this prin- ciple that persons are often chargeable with the intent to defraud creditors, or to commit any other fraud. The immediate motive is oftentimes self-interest, but if the necessary consequence is a fraud upon his neighbor, the actor is legally chargeable with a design to effect that result. Upon the whole, therefore, although the charge is not quite so explicit as it should be, yet taken in connection with the propositions presented to the court, I think it was substantially cor- rect. The judgment of the Supreme Court should be affirmed. Judgment affirmed.?° TOMLINSON v. THOMPSON. SuPREME Court oF Kansas, 1882. 27 Kans.. 70. The opinion of the court was delivered by Horton, C. J—This action was tried by the court below without the intervention of a jury, upon the following agreed statement of facts: “1, That Mary A. Tinney and Truelove Tinney, on the first day of July, 1878, made and delivered to Howard M. Holden, their promissory note for $1,932, secured by a mortgage on the south half of section two, township seven, range two, east, in Clay county, Kansas, as stated in this petition; that said mortgage was duly recorded in the office of the register of deeds, Clay county, Kansas, on the 18th of July, 1878; and that thereafter, said note and mort- gage were duly indorsed, signed, and delivered to said plaintiff, A. A. Tomlinson. “2, That on the 20th day of March, 1879, the said A. A. Tomlin- son commenced a suit in the district court of Clay county, Kansas, against the said Mary A. Tinney and Truelove Tinney on the said note and mortgage, and on the 9th of May, 1879, recovered a judg- ment in said court against the said Mary A. and Truelove Tinney, on said note for $1,981.30 with interest from date of judgment, at 10 per cent. per annum, and costs of suit, amounting to $48.05 and also a decree foreclosing said mortgage, and an order to sell the above-decribed lands and tenements to satisfy said judgment and costs, and execution for any balance. “3. That pursuant to said judgment and decree, and on an order of sale issued by the clerk of said district court, the sheriff of said Clay county, after causing said lands to be duly appraised and adver- tised, on the 7th of July, 1879, said sheriff publicly offered said 20 Compare. Taylor v. McConnell, 53 .Mich. 587; Corbin v. Reed, 43 Towa 459, 156 THE MORTGAGE RELATION. lands and tenements for sale to the highest bidder, according to law, and at said last-named date sold the same to A. A. Tomlinson, plain- tiff, for the sum of $1,400, that sum being the highest bid offered, and over two-thirds of the appraised valuation, which sale was after- ward, September 17, 1879, duly confirmed by said district court of Clay county, and said sheriff ordered to make and deliver to said Tomlinson, the purchaser, a deed therefor, which deed was there- after so made and delivered. ; “4. That after the payment of costs in said foreclosure suit, and application of proceeds on the said judgment, there still remained due said plaintiff on said judgment the sum of $732.35, which has not been paid by said Mary A. Tinney, Truelove Tinney, or any one for them; that after the sale of said lands and tenements aforesaid, the said A. A. Tomlinson caused an execution to issue against the said Mary A. and Truelove Tinney, directed to the sheriff of said Clay county, for the balance due on said judgment, which execu- tion was returned by the sheriff, ‘no goods, chattels, lands or tene- ments’ upon which a levy could be made; that said Mary A. Tinney and Truelove Tinney are now, and have been since redition of said judgment, insolvent, and not possessed of any property out of which the balance of said judgment could be made. “5. In the month of April, 1879, the house situated on the mort- gaged premises was sold by the said Mary A. and Truelove Tinney to one C. W. Lindner, and while being moved off the mortgaged land, and when on the land of the said defendant, D. W. Thompson, adjoining the mortgaged lands of said Tinney, was purchased from said Lindner by the said defendant Thompson, in said month of April, 1879. “6. At the time of said purchases, both Lindner and Thompson had actual knowledge of the mortgage lien aforementioned on said lands and tenements, and that said house was removed off said mortgaged premises. “7, Both Lindner and Thompson paid full value for said house. “8. Said house, at the time it was moved ‘off said mortgaged lands, was worth $400.” The district court rendered judgment for the defendant for costs, and the plaintiff brings the case here. We think that the judgment must be affirmed, because the action of the plaintiff is not maintainable. It appears from the record, that while Thompson had actual knowledge of the mortgage lien of the plaintiff on the lands of the Tinneys, he did not purchase the house in controversy until it had been removed from the lands, and that he paid full value therefore. The judgment in the foreclosure action was not recovered until after the purchase; and at the time of the purchase it does not appear that Thompson had any knowledge of the insolvency of the Tinneys, or that plaintiff would be defeated in MORTGAGEE’S REMEDIES FOR INJURY. 157 the recovery of all his claim by the removal of the house. It does not appear that Thompson acted fraudulently, or that he intended to injure the plaintiff or anyone else. We do not see that he was guilty of either moral or legal fraud, and therefore the case of Yates v. Joyce, 11 Johns. 136, is not applicable. While the decisions in Clark y. Reyburn, 1 Kansas 281, and Vanderslice v. Knapp, 20 Kans. 647, are based upon facts somewhat different from those disclosed in the record, the principles therein declared virtually control this case. We have examined Van Pelt v. McGraw, 4 N. Y. 110, and all the other cases cited by counsel for plaintiff, and notwithstanding the views therein expressed, we think the rule here adopted the proper one. In Cooper v. Davis, 15 Conn. 556, it was held that where A executed to B a mortgage of certain real estate upon which there was a grist mill, and B obtained against A a decree of foreclosure and a judg- ment in ejectment for the possession, but before the expiration of the time limited for redemption, and before B had taken possession under the judgment or otherwise, A severed the stones from the mill and sold them to C, and B afterward having found them, took pos- session of them as his own property, that C was entitled to recover in an action of trover against B for the mill-stones. See also Buck- out v. Swift, 27 Cal. 433; King v. Smith, 2 Hare 239; Pierce v. Goddard, 22 Pick. 559; Citizens’ Bank v. Knapp, 22 La. An. 117; Challis v. Stearns, 22 N. H. 312. In Vanderslice v. Knapp, supra, Mr. Justice Valentine, speaking for the court, says: “A mortgagor of real estate has the right to possession of the mortgaged property, and the right to sever and remove the timber, wood, sand, earth, stone, or anything else, therefrom, and sell the same, unless it unreasonably impairs the mortgage security; and when it impairs the mortgage security, the remedy of the mortgagee is not at law, but in equity; not in replevin, to recover the property severed from the realty, but generally by injunction to restrain the commission of waste upon the realty.” The judgment of the district court will be affirmed. ; VALENTINE, J., concurring.?! 21 Compare, Gardner v. Heartt, 3 Denio (N. Y.) 232; Wilson v. Malt- by, 59 N. Y. 126; Webber v. Ramsey, 100 Mich. 58. On the right of the mortgagee to, enjoin waste, see post, Chap. VIII. on ins right of the mortgagee to foreclose on severed property, see post, ap. IX. CHAPTER IV. DISCHARGE OF MORTGAGES. Section 1—PAYMENT AND TENDER. LitTLeEToN, TENuRES, § 332. * * * And it seemeth that the cause why it is called mortgage is, for that it is doubtful whether the feoffor will pay at the day limited such sum or not: and if he doth not pay, then the land which is put in pledge upon condition for the payment of the money, is taken from him forever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the tenant. § 335. And be it remembered that in such case, where such tender of the money is made, (at the day appointed) and the feoffee refuse to receive it, by which the feoffor or his heirs enter, &c., then the feoffee hath no remedy by the common law to have his money, be- cause it shall be counted his own folly that he refused the money, when a lawful tender of it was made unto him. GROVER v. FLYE. SUPREME Court or Massacuusetts, 1863. 5 Allen (Mass.) 543. «Writ of entry. The demandants claimed title under the levy of an execution by selling the equity of redemption of the premises. At the trial in the superior court, before Lord, J., it appeared that at the time the levy was made the premises appeared on record to be subject to a mortgage to the Blackstone Loan and Fund Associa- ' tion, to secure certain sums of money a portion of which was not then due; that full payment of said sums had been made and a dis- charge of the mortgage and release of the premises by the said as- sociation executed before the levy, but the discharge and release were not recorded until afterwards; and that neither the judgment credi- tor nor the officer had actual or constructive notice of such discharge until the record thereof. The judge ruled that it was immaterial, for the purposes of this action, whether the mortgage upon the premises 158 PAYMENT AND TENDER. 159 had been discharged, unless the creditor or officer had actual or con- structive notice thereof before the seizure of the land on the execu- tion, and that a sale of the equity without such notice was regular and proper. : The jury returned a verdict for the demandants, and the tenants alleged exceptions. BicELow, C. J.—It is admitted that the sums due on the mortgage to the Loan Fund Association were paid before the sale of the right in equity to redeem was made by the officer ; and that these payments were made at or before the times when the several instalments be- came due according to the stipulation set forth in the condition of the mortgage and the bond which accompanied it and formed part of the transaction. By such payment, on familiar principles, the condition was saved and the mortgagor, the tenant, was in of his old estate. No conveyance or discharge of the mortgage was necessary to revest the estate in the mortgagor, or to defeat the title of the mortgagee. Merrill v. Chase, 3 Allen 339, and cases cited. Joslyn v. Wyman, ante, 62. The argument, therefore, of the de- mandants, founded on the necessity of recording a release or dis- charge of a mortgage in order to defeat a title acquired by a judg- ment creditor by a sale or execution of a right in equity made after such release or discharge but without actual notice thereof, falls to the ground. The act of payment in the country ante vel apud diem saves the forfeiture of an estate held by a conveyance defeasible on a condition subsequent. No record of such an act is necessary to make the estate a fee simple estate in the grantor or mortgagor, as against all persons claiming by a subsequently acquired title. The release of the Loan Fund Association to the mortgagor was a useless and superfluous act, which added nothing to the strength of the title which he had acquired by a performance of the condition of the mortgage before a breach. It follows, that the title of the demandants under the sale of the right in equity to redeem the estate is invalid. The premises being unincumbered and held by the judgment debtor as an estate in fee at the time of the service of the execution, could be legally levied on only by an appraisement, and set off in the mode prescribed by law. Forster v. Mellen, 10 Mass. 421; Freeman v. McGaw, 15 Pick. 82; Perry v. Hayward, 12 Cush. 344. Exceptions sustained.? 1 See also, Schearff v. Dodge, 33 Ark. 340. 160 DISCHARGE OF MORTGAGES. WATSON v. WYMAN. SuPREME Court or MassAcHwsetts, 1894. 161 Mass. 96. Hotes, J.—This is a bill in equity for the cancellation of a mort- gage, but containing an offer to pay any sum that may be found due upon it. The defendant Davis took an indorsement of the note and an assignment of the mortgage for value before maturity, and with- out notice. Before he did so the mortgagor had given the mortgagee a second mortgage for a sum including that due on the first mort- gage and in satisfaction of it, but had left the first mortgage in the mortgagee’s hands. On the same day the plaintiff bought the second mortgage. Payment of the mortgage note on the day when it falls due is performance of the promise, and very possibly would discharge the note even as against one who took it for value and without notice later on the same day. But payment before the day, or a satisfac- tion like that in the present case, is a defence which binds only the party receiving payment and those who stand in his shoes. Bur- bridge v. Manners, 3 Camp. 193, 194; Morley v. Culverwell, 7 M. & W. 174, 181, 182; Kernohan vy. Durham, 48 Ohio St. 1, 7; Head v. Cole, 53 Ark. 523, 524; Palmer v. Marshall, 60 Ill. 289, 293. See Wheeler v. Guild, 20 Pick. 545, 552, 553, 555. It commonly is assumed that the mortgage follows the note, and that if the holder can recover on the note he may avail himself of the mortgage. Taylor v. Page, 6 Allen 86; Carpenter v. Longan, 16 Wall. 271; Jones, Mort. (4th ed.) pars. 834-840. We are of opinion that this is the law where the note has been paid in full in advance. As is pointed out in Morley v. Culverwell, wbi supra, payment before the day is not performance of the contract, and it follows, notwith- standing the language often used, that in a strict sense it does not satisfy the condition of the mortgage. If we are right in our con- cession as to the effect of a payment on the day, we have here tech- nical reason for the different effect of an earlier payment. The note still stands unperformed, and therefore secured, subject only to a personal defence, as it is happily called by Mr. Ames. 2 Ames, Bills . & Notes, 811. But the very meaning of a personal defence is, that it does not accompany the note into all hands, but only into those which are in no better position than the person against whom it has accrued. Like fraud or duress by threats, it leaves the legal trans- action still in full force, and only furnishes a reason why a particular person should not be allowed to insist upon it. It “all proceeds upon an argumentum ad hominem. It is saying you have the title, but PAYMENT AND TENDER¢ 161 you shall not be heard in a court of justice to enforce it against good faith and conscience.” Eyre, C. J., in Collins v.. Martin, 1 B. & P. 648, 651, cited by Shaw, C. J., in Wheeler v. Guild, 20 Pick. 545, 551. Another argument drawn from the registry laws deserves con- sideration. A mortgage can not be extinguished more effectually than by a release. Yet we presume that it hardly would be argued that an unrecorded release would be valid as against a purchaser of the mortgage before maturity and without notice. As was said in a case which settled the law for Massachusetts, “a prior un- recorded deed has no effect except as between the parties to it, and others having notice of it. It is the policy of our laws that a pur- chaser of land, by examining the registry of deeds, may ascertain the title of his grantor. If there is no recorded deed, he has the right to assume that the record title is the true title. The law has established the rule, for the protection of creditors and purchasers, that an unrecorded deed, if unknown to them, is as to them a mere nullity.’ Dow v. Whitney, 147 Mass. 1,6. It might be thought that the same considerations apply to a quasi discharge by payment of the whole amount in advance. The mortgagor may have an entry made on the margin of the record of the mortgage. Pub. Sts. c. 120, pars. 24,25. When no such entry is made, and the registry contains no notice of payment of any kind, it would seem that one to whom the mortgagee produces the note not yet due and the mortgage for sale has the same right to assume that the record title is the lease. If the note were overdue, that would be notice, or would put the purchaser in the position of one having actual notice, and therefore in that case the registry laws would not help him. In Grover v. Flye, 5 Allen 543, the demandant claimed title under a sale of an equity of redemption on execution. In fact, the mort- gage had been paid in full before it was due, but the record did not disclose the payment, and neither the officer nor the demandant had notice of it. The court held that the rule was the same that it would have been between the original parties. In such a case the pur- chaser, of course, does not claim as indorsee or holder of the mort- gage note. We accept the authority of the decision so far as it goes. But if it is not to be distinguished satisfactorily from one like the present, so far as the argument from the registry laws is concerned, it Has no bearing on the considerations first stated, and those are sufficient to dispose of the case. It follows that the decree sustaining the mortgage in the hands of the defendant Davis, and limiting the plaintiff to a right to redeem, was correct. Decree affirmed. 11 162 DISCHARGE OF MORTGAGES. BROWN v. COLE. Court oF CHANCERY OF ENGLAND, 1845. 14 Simons 427. Bill to redeem a mortgage for a term of years, made on the Ist of April, 1844. The proviso for redemption stipulated that the mortgagee should reassign the mortgaged premises, on being repaid the money lent, on the 1st of April, 1845, with interest in the meantime, by quarterly payments. The mortgagor, having had an advantageous offer, for the pur- chase of the premises shortly after the mortgage was made, tendered to the mortgagee the amount of the principal, and of the interest up to the 1st of April, 1845, together with a reassignment of the mort- gaged premises; but the mortgagee would neither accept the money nor execute the deed ; in consequence of which the bill was filed. The defendant demurred to the bill for want of equity. The vice-chancellor allowed the demurrer, on the ground that it was contrary to the practice of the court to decree the redemption of a mortgage before the day appointed for that purpose had arrived.? STEWART v. CROSBY. SuPREME Court oF Marne, 1863. 50 Maine 130. Davis, J.—The defendant, having claims against one Charles Hanson, commenced suits thereon, and caused his right of redeeming certain real estate, previously mortgaged by him, to be attached, Sep- tember 15, 1848. Judgments were recovered February 17, 1854; executions were issued March 17, and Hanson’s right of redemp- tion seized thereon the same day ; and, on April 22, of the same year, the officer duly sold to the defendant all of Hanson’s right to redeem, which he had at the time of the attachment. October 23, 1854, the defendant sold to the plaintiff, by a quit- claim deed, “all the right, title, and interest acquired by him by vit- tue of his deed” given to him by the sheriff upon the sale referred to. The plaintiff, upon inquiry, afterwards ascertained that Hanson, after the attachment, and before the seizure of his right of redemp- tion upon the executions, had fully paid the mortgage debt. But the 2 Compare, Bowen vy. Julius, 141 ‘Ind. 310. PAYMENT AND TENDER. 163 mortgage had not been discharged, either by an entry upon the record, or in any other manner. The plaintiff claims that such payment was itself a discharge of the mortgage, so that Hanson’s title was no longer a right of re- demption, which could be sold by the sheriff, but a fee, upon which the execution should have been extended. And he has brought this suit to recover back the purchase-money, on account of the failure of title. The defendant does not concede that the plaintiff would be en- titled to recover, if there was a failure of title, as he has alleged, as he gave a mere release, with no covenants of title. But he con- tends that the mortgage was not discharged by payment, merely; and that, if the mortgage debt had been paid, it was a benefit, and not an injury, to the plaintiff. In the case of Martin v. Mowlin, 2 Burrow 978, Lord Mansfield is reported to have said, “A mortgage is a charge upon the land, and whatever would give the money will carry the land along with it, to every purpose. The estate in the land is the same thing as the money due upon it. It will be liable to debts. It will go to execu- tors. The assignment of the debt, or the forgiving it, will draw the land after it, as a consequence, though the debt were forgiven only by parol,” &c. The case under consideration was a suit at law; and the con- founding of principles of law with those which prevail in equity, only, is probably due to the reporter, whose language it is. For he admits, in publishing his notes of cases, that he did not always take down the restrictions with which a proposition was qualified, “to guard against its being understood universally, or in too large a sense.” 1 Burr. 9. It is worthy of notice that in that case, as generally in English mortgages, the condition was, that, upon performance, the mort- gagee should reconvey the premises :—and not, as in this country, that the deed should be void. It would seem therefore to be certain that payment on the law day would not have revested the title in the mortgagor, without such reconveyance. Harrison v. Owen, 1 Atk. 520; 2 Cruise, (London ed.,) 110. Upon mortgages to be void upon performance, such as are usually given in the United States, it is everywhere conceded that payment before condition broken will di- vest the mortgagee of his title, without reconveyance, or other dis- charge. 1 Washburne on Real Prop., 543; Whitcomb v. Simpson, 39 Maine 21; Holman v. Bailey, 3 Met. 55. In this country there has been a constant tendency to apply the views attributed to Lord Mansfield indiscriminately, at equity, and in law. Sustained by such jurists as Chancellor Kent, Judge Story and Mr. Greenleaf, it is not strange that the weight of authority should turn in that direction. But in Maine, Massachusetts, Con- 164 DISCHARGE OF MORTGAGES. necticut and in several other states, the old doctrines of the common law still prevail. Though in equity the mortgage is an incident, and the debt the principal thing, at law the mortgage is a conveyance of the title, to be defeated upon a condition subsequent. Unless thus defeated, the legal title is in the mortgagee. He may assign the debt without the mortgage, in which case he holds the mortgage in trust for such assignee. Or, he may assign the mortgage without the debt, or, the mortgage to one, and the debt to another, the owner of the mortgage always holding in trust for the owner of the debt. So that the assignment of the debt operates as the equitable, but not as the legal assignment of the mortgage. And payment of the debt, after condition broken, does not divest the mortgagee of his legal title; but the mortgagor must resort to equity for a release, or a recon- veyance. These principles, though extensively denied in this coun- try, are sustained by so many decisions in the states before referred to, that it is unnecessary to cite them. 1 Washburne 553; 1 Hilliard on Mort., 476. : Mr. Greenleaf collects the authorities, in the first volume of his edition of Cruise, and in support of the opposite doctrine suggests that the acceptance of payment, after condition broken, is a waiver of the condition, and has the same effect as a performance of it. 1 Greenl. Cruise 595. But this is more specious than sound. A waiver of the condition may operate to confer the same rights as a performance of it. This is the case in regard to bonds for the conveyance of real estate. But it does not follow that such a waiver can operate, by our laws, to convey or release a legal title to real estate. It can not do so, in the case of a mortgage, any more than of a bond. So that this theory, like all others in support of the doc- trine, rests upon a denial that the mortgagee has the legal title, until after foreclosure. But another answer to it is, that such an acceptance of payment is not a waiver. A waiver is a voluntary relinquishment of some right. But the mortgagee relinquishes nothing in such a case. The mort- gagor pays it as a matter of right; and it is not at the option of the mortgagee whether it shall be paid or not, until the right of re demption expieres. A receipt of payment after that would bea waiver of the forfeiture; but before forfeiture, the mortgagor, by payment, acquires a right to a release, or a reconveyance, not on the ground of waiver, but of contract, and of law. But though it is well settled in this state, that upon payment after condition broken, the legal estate remains in the mortgagee, unti it is released, so that the mortgagor can not maintain a writ of entry against him; it is equally well settled that, in such case, the mort gagee, not being in possession, can not maintain such an action against the mortgagor. Hadlock v. Bulfinch, 31 Maine 247; Wik liams v. Thurlow, 31 Maine 392. The reason assigned for this is, PAYMENT AND TENDER. 165 that by our statutes, in all actions upon mortgages, there must be a conditional judgment; and, if the debt has been paid, so that there can not be such judgment, the demandant can not recover at all. Wade v. Howard, 11 Pick. 289; Webb v. Flanders, 32 Maine 175; Gray v. Jenks, 3 Mason 520. Where there is no provision of statute to prevent, as in an action of forcible entry and detainer, it has been held that a suit for possession may be maintained by the mortgagee, after payment. Howard v. Howard, 3 Met. 548, 557. The mortgagee, after such payment, holds but a naked trust, with- out any interest. As in other like cases of holding in trust, he can derive no benefit from it, and can convey no title except as subject to it. And the estate can not be taken for his-debts, though it can be taken for the debts of the cestui que trust. As the mortgagee’s title in such case is of no value, there can be no motive for trans- ferring it to a third party; and therefore it is seldom done in this country. That it may be done, would seem to admit of no doubt. Dudley v. Cadwell, 19 Conn. 218. Such a deed, says Wilde, J., in Wade v. Howard, before cited, conveys “the legal estate, or a satis- fied mortgage; such an estate as is frequently purchased in England, to be tacked to a subsequent mortgage.” Numerous cases of this kind may be found cited in the English editions of Cruise, vol. 2, c. 5, which Mr. Greenleaf has omitted, because the doctrine of tacking mortgages does not prevail in the United States. There is no difficulty in applying these principles to the case at bar. When the executions against Hanson were issued, he had paid the mortgage debt, but the mortgage itself had not been discharged. If the payment had been before the condition had been broken, that would have revested the estate without any discharge; and there would have been nothing to seize on the exception. Grover vy. Flye, 5 Allen 543. But payment after breach of the condition had no such effect. His interest in the premises was clearly liable to be seized on the executions; and the only question is, how should the levies have been made ;—by a sale? or by an extent? If, at the time of seizure upon the executions, there had been not only a payment of the mortgage debt, but a release of the mortgage, recorded in the registry of deeds, then there could have been no sale of an equity of redemption, though the mortgage was in force at the time of the attachment upon the writs. Foster v. Mellen, 10 Mass. 421. In Pillsbury v. Smyth, 25 Maine 427, the report of the case does not show whether the discharge of the mortgage had been re- corded. And we need not determine whether, if there is a release, but not on record, the officer may not proceed as if none had been made. For in this case no release had been made, either upon the record, or otherwise. By the R. S., c. 90, sec. 14, “when the amount due on a mortgage has been paid to the mortgagee, or person claiming under him, by 166 DISCHARGE OF MORTGAGES. the mortgagor, or the person claiming under him, within three years” from proceedings for a foreclosure, “he may have a bill in equity for the redemption of the mortgaged premises, and compel the mortgagee, or person claiming under him, to release to him all his right and title therein.” And, by c. 76, sec. 29, “rights of re- deeming real estate mortgaged, may be taken on execution and sold.” It was just such a right of redeeming a paid mortgage which Hanson owned, when it was seized on the executions. The same title passed by the sale that would have passed by an extent. The defendant ' therefore conveyed a good title to the plaintiff ; and the latter, having suffered no loss, is not entitled to recover. Whether, if therey had been no right of redemption in existence when the plaintiff purchased of the defendant, he could recover back the consideration paid, on the ground of a mutual mistake of fact, isa question which becomes immaterial. See the case of Earle v. DeWitt, with the able dissenting opinion of Merrick, J., 6 Allen 520. Exceptions sustained.* Verdict set aside. [Walton, Dickerson, Barrows and Danforth, JJ., concurred. Appleton, C. J., and Cutting, J., concurred in sustaining the ex- ceptions on the ground that “the law seems to be well settled in this state, that a mere failure of title furnishes no ground for recovering back money paid as the consideration of a quit-claim deed.] EpitoriaL Note. Since, in some states, payment of a mort- gage after forfeiture does not discharge it at law, and since, even where payment discharges the mortgage at law, such discharge rests upon matter in pais, leaving the mortgage an encumbrance of record, it is important to consider how the title can be cleared. Normally, the mortgagee is willing to accept payment and execute any dis- charge that may be demanded; otherwise resort may be had to a suit in equity to redeem. In either case a formal discharge is to be obtained from him, voluntarily or under decree of court, and the question remains what form such discharge should take. A deed of conveyance, by release, quit claim or otherwise, so executed as to be entitled to record, is sufficient everywhere. In those states where payment discharges the mortgage at law, a written 8 Accord: Phelps v. Sage, 2 Day (Conn.) 151; Holman v. Bailey, 3 Metc. (Mass.) 55 (semble); Contra, Griffin v. Lovell, 42 Miss. 402 (statute); McNair v. Picotte, 33 Mo. 57; Swett v. Horn, 1 N. H. 332. And see Shields v. Lozear, 34 N. J. L. 496. See also, Ladue v. D. & M. R. Co., ante. ; Compare, Crain v. McGoon, 86 Ill. 431; Maynard v. Hunt, 5 Pick. (Mass.) 240; Rowell v. Mitchell, 68 Maine 21. PAYMENT AND TENDER. 167 acknowledgement of satisfaction, if entitled to record, would be sufficient. In many of our states the statutes expressly provide for the recording of such an instrument, and in others it might, if at- tested and acknowledged, be entitled to record as an “instrument affecting the title to real property.” Such an instrument would, of course, be but imperfectly effective in those states where payment does not discharge the mortgage at law, unless by statute it is given the effect of a discharge. In many of our states the statutes provide for the discharge of mortgages by an entry of satisfaction in the margin of the record of the mortgage. See further, Jones, §§ 992- 1037. In many of the states a penalty is provided for refusal to discharge a mortgage which has been Satisfied. If the mortgage has been assigned without a recorded assignment, or, if, for any reason, the owner of the mortgage is not the record owner, a discharge should, of course, be obtained from the record owner, or, by recorded assignment, the record title to the mortgage should be perfected in the person who does execute the discharge. KORTRIGHT v. CADY. CourT oF APPEALS OF NEw York, 1860. 21 N. Y. 343. Appeal from the Supreme Court. Action to foreclose a mortgage. The defendant Cady was a subsequent grantee of the equity of re- demption. He averred in his answer, and proved on the trial, that, after the money secured by the mortgage had become due and the stipulated day for payment had passed, he tendered to the plaintiff the amount due for principal and interest. The plaintiff refused to receive it unless Cady would also pay certain taxes upon the mortgaged premises, which the plaintiff had discharged. It was held that Cady was, for reasons unnecessary to be stated, under no obligation to pay the taxes, and the case stood upon the naked tender. Cady did not, in his answer, allege a readiness still to pay the mortgage debt, or that it was paid into court, nor did he offer to bring it into court; and it did not appear, from the finding of facts or otherwise, that he in any way kept the tender good. The plaintiff had the usual judgment of foreclosure, and for a sale of the mort- gaged premises. Upon appeal by the defendant Cady, this judg- ment was affirmed at general term in the first district; whereupon he appealed to this court. Davies, J. [After examining the early English authorities] _ The only question presented for our consideration in this case is, whether a tender of the sum due on a mortgage, after the day ap- 168 DISCHARGE OF MORTGAGES. pointed by it for its payment, extinguishes the lien of the mortgage on the land covered by it. We have seen that by the common law such tender and refusal upon the law day extinguishes the lien of the mortgage, though the debt remains. In this state, the law is well settled that a mortgage is a mere security or pledge of the land cov- ered by it for the money borrowed or owing, and referred to in it, and that the mortgagor remains the owner of the estate mortgaged, and may maintain trespass as against even the mortgagee. (Runyan v. Mersereau, 11 John., 534.) The debt, in the eye of the law, thus becomes the principal, and the landed security merely appurtenant and secondary; and the rights of the parties must be governed by these principles of law applicable to analogous cases. Acceptance of payment of the amount due on a mortgage, at any time before foreclosure, has always been held to discharge the incumbrance on the land; as acceptance of the amount for which personal property was held discharged it from the pledge. Tender and refusal are equivalent to performance. (Kemble v. Wallis, -10 Wend., 374.) This is to be taken with the reservation already stated, that the debt or duty remained, and that the rejected tender, at or after the stipu- lated time of payment or performance, has the effect only to dis- charge the party thus making it from all the contingent, consequen- tial or accessory responsibilities and incidents of his contract, but without releasing his prior debt. Coit v. Houston, 3 John. Ca., 243.) In Hunter v. LeConte (6 Cow., 728), the Supreme Court held that a tender of rent takes away the right to distrain till a subsequent demand and refusal; but it does not take away the right to sue for the rent as fora debt. It only saves the interest and costs. And that a tender of rent makes a distress wrongful, though the tender be not made till after the rent day. It will readily be perceived that the principle of this case bears directly upon the question now under consideration ; and it is not perceived, if it be sound, why a tender and refusal of the amount due on a mortgage does not extinguish its lien, equally with a tender of rent and refusal, which, as we have seen, extinguishes the right of distress. But a still closer analogy to the present question is presented by the law of tender, as to the lien on goods pledged. Lord Ch. J. Holt, in his opinion in the celebrated case of Coggs v. Bernard (2 Lord Ray., 909), speaking of the fourth class of bailments, says: “If the money for which the goods’are pawned be tendered to the pawnee before they are lost, then the pawnee shall he answerable for them, because the pawnee, by detain- ing them after the tender of the money, is a wrongdoer, and it is a wrongful detainer of the goods, and the special property of the . pawnee is determined.” So also Comyn: “By tender of the money, the property in the goods is determined, and the pledge ought to be returned. But if the pawnee refuse to restore the pledge upon tet- der, trover lies against him.” (Comyn’s Dig., tit. Mortg., A, and PAYMENT AND TENDER. 169 cases there cited.) Holding, as we do, therefore, in this State, that the land mortgaged is but a security for the debt due to the mort- gagee, in other words, a pledge to him to secure its payment, it is difficult to see why the principles enunciated and well settled in ref- erence to the pledge of personal property do not apply, and why a tender and refusal at any time of the full amount of the debt due does not extinguish the lien of the mortgagee, or pledgee, in the one case as it clearly does in the other. But I think we are not left at liberty to settle this case on principle, but are to regard it as au- thoritatively disposed of by the courts of this State. [His honor here reviewed the decisions in New York.] We are bound, therefore, I think, to regard this as the settled law in this State, and are not at liberty to return to the old rule of the common law, which has been shown to be wholly inapplicable to the light in which mortgages are regarded in this State. It is not perceived how the mortgagee is to be embarrassed, or his security impaired, by the adoption of this rule, as seems to be supposed by the Chancellor in Edwards v. Farmers’ Loan Company (26 Wend., 552). If the mortgagor does not tender the full amount due, the lien of the mortgage is not extinguished. The mortgagee runs no rise in accepting the tender. If it is the full amount due, his mortgage lien is extinguished and his debt is paid. This is all he has a right to demand or expect, and all he can in any contingency obtain. His acceptance of the money tendered, if inadequate and less than the amount actually due, only extinguishes the lien pro tanto, and the mortgage remains intact for the residue. A much greater hardship might be imposed, and serious injury be produced, by holding that the mortgagor can not extinguish the lien of the mort- gage by a tender of the full amount due. It has never occurred to any judge to argue that a pawnee was in great peril, and in danger of losing the benefit of his pawn, by the enforcement of the well settled rule, that a tender of the amount of the loan and interest, and refusal, extinguished the lien on the. pawn. Littleton well says, that it shall be accounted a man’s own folly that he refused the money when a lawful tender of it was made to him. The only effect upon the rights of the mortgagee is, that the land or thing pledged is re- leased from the lien, but the debt remaineth. The only remaining question to be considered is, whether the ten- der in this case was well made, it not being followed with the allega- tion of touts temps prist, and the money not having been brought into court. It will be seen, by reference to the authorities, that these are not required when the tender has only the effect of extinguishing the lien, and does not operate to discharge the debt or sum owing. In the latter case, the averment of touts tempt prist, followed up by bringing the money into court, is essential to a good plea of tender. (Hume v. Peploe, 8 East., 168; Giles v. Hartis, 1 Lord Ray., 254.) 170 DISCHARGE OF MORTGAGES. But if a man make a bond for the payment of a loan of money, and afterwards make a defeasance for the payment of a lesser sum at a day, if the obligor tender the lesser sum at the day, and the obligee refuse it, he shall never have any remedy by law to recover it, be- cause it is no parcel of the sum contained in the obligation. And in this case, in pleading of the tender and refusal, the party shall not be driven to plead that he is yet ready to pay the same, or to render it in court. (Co. Lit., note to sec. 335.) The same principle was held by the Supreme Court of this State in Hunter v. LeConte (6 Cow., 728), and cases there cited. The judgment appealed from should be reversed, and a new trial ordered, with costs to abide the event. [Comstock, Ch. J. delivered a concurring opinion quoted from ante, Chap. I.] Welles, J.: The only question involved in the case is, whether the tender made by the defendant Cady, under the circumstances, was effectual to extricate the premises in question from the lien created by the mortgage of Blunt to Miller. This tender was made after the day provided in the bond and mortgage for the payment of the money, which is called the law day. If the sum tendered was sufficient in amount, and was made to the proper person, the ques- tion is reduced to the single point whether the lien of a mortgage is, ipso facto, discharged by a tender of the amount due made after the law day; because, if it is, there is no necessity, in an answer setting it up, of the allegation of tout temps prist, or of any evi- dence to show that the tender has been kept good, neither of which is contained in the present case; but the defendant relies solely upon the fact of a tender and refusal as equivalent to payment, for the purpose of extinguishing the lien of the mortgage. [After examining the decisions in New York.] My own opinion is, after a careful examination of the cases, that the weight of au- thority is in favor of the rule as it existed at the common law. If that rule has not been abrogated or modified, all will admit that it is the plain duty of the courts to follow and enforce it. Clearly there is no stare decisis in our way. It is of importance that the rule be definitely settled, and its boundaries defined. Before we hold a rule different from what we find it settled by the common law, we should require evidence that the rule has been changed by competent authority, either expressly or by necessary implication. : This evidence, the advocates of the change of the rule claim, 1s found in the changed character of a mortgage upon land, in conse- quence of various legislative enactments. We are told that when the rule of the common law in question was adopted, a mortgage con- veyed a conditional estate in the premises, which entitled the mort- gagee to possession, and upon which he could maintain ejectment; and that a mortgage does not now pass any estate in the land, but PAYMENT AND TENDER. . 171 is merely the creation of a specific lien as security for the payment of a debt or the performance of a duty; and that the statute has taken away the right of the mortgagee to maintain ejectment. All this is true; and doubtless other shades of difference may be found between the legal effect of a mortgage at common law and as it now exists. But they will be found to relate to the remedy, or to consist in collateral or incidental ‘circumstances. Mortgages are substan- tially what they always were. The fact that they are not now re- garded as transferring the freehold, but are merely specific liens, is altogether theoretical and ideal, so far as respects the question under consideration. The great object of these instruments is the same now as it always was—that of security for the payment of money or the performance of a duty. A mortgagee in possession is now, as always heretofore, accountable for rents and profits, and he may still defend his possession with the mortgage the same as ever. I know of no difference between the right of the mortgagor, or the person owning the equity of redemption, to redeem the premises from the lien of the mortgage, as that right now exists, and as it ex- isted in the time of Coke or Littleton. That right is governed now by substantially the same rules as then. The rule contended for by the plaintiff is reasonable, convenient and just. In the first place, the parties to the mortgage have, by agreement, fixed upon the time of payment and if the mortgagor ful- fills his agreement by paying on the day appointed, or tendering payment on that day, the lien is discharged. The parties are then to be ready, the mortgagor to pay, and the mortgagee to receive. If the former performs his duty, or tenders performance, and the latter refuses, his lien is gone forever; he has no excuse for his folly, and is entitled to no consideration for the loss of his lien. On the law day, each party is presumed to know exactly what his duty is, and the amount the mortgagor is bound to pay and the mortgagee en- titled to receive. If the mortgagor allows the law day to pass without payment or tender, he then is a defaulter. If he can discharge the lien by a tender of payment the next day, there is no reason why he may not do the same by a tender after the lapse of one year or of ten years. Suppose the mortgagee goes into possession under the mortgage, by consent of the mortgagor, immediately upon default of payment, and the latter takes no steps towards payment for years after; what amount shall he tender when he gets ready for payment? what abatement from the principal and interest shall be made for mesne profits? Shall the defaulting mortgagor be permitted to select his own time, and then make a tender of such an amount as he shall deem proper, and the mortgagee be bound to accept it in full, at the peril of losing his lien forever? Suppose again the case of a defaulting mortgagor, who claims to 172 . DISCHARGE OF MORTGAGES. have made partial payments, or to be be entitled to a set-off, about which he and the mortgagee in good faith differ: according to the rule claimed by the defendant, he must accept in full the amount ten- dered at the peril of losing his lien, provided, upon a litigation, it shall be adjudged that the tender was sufficient in amount. It seems to me that the old rule is the only just and wholesome one that can be recognized. It is quite as favorable to the mortgagor as he can in reason ask. If he makes a sufficient tender after the day and before an action is brought to foreclose the mortgage, let him keep the tender good, and, when he is sued, let him set it up as a de- fense, bring the money into court and offer payment as in other cases, and the court will, in such a case, decree the mortgage satis- fied and discharged, and adjudge costs against the plaintiff. Or if for any reason the mortgagor, or the person whose duty or interest it may be to have the lien discharged, does not wish to wait the mortgagee’s time for foreclosing, let him make his tender and keep it good, and then bring his action to redeem, alleging the tender and offering to pay; and if, upon the trial, it is found that his tender was sufficient and the plaintiff was ready to pay, the court would give him all the relief which equity and justice required. In all these cases, the mortgagee would have the right to have the disputed questions adjudicated, without losing his lien for the amount in equity and justice due to him. The rule contended for by the defendant would, in many cases, operate as a bounty to negligent and defaulting debtors, and mort- gagees would, under its workings, be induced to purchase their peace at an unjust sacrifice of their rights. For the foregoing reasons, I am of the opinion that the rule of Littleton, as expounded by Coke, and as, all now admit, was the rule of the common law in relation to the effect of a tender after the law day, is still the law of this State; and as the tender in this case has not been kept good, and the defendant’s answer contains no offer of payment, and the facts found by the court before whom the cause was tried do not show that the tender has in any sense been kept good, or that the defendant was ready to pay, &c., I think that he can have no benefit by reason of it; and that the judgment should be affirmed, with costs. Judgment reversed.* 4 Accord: Caruthers v. Humphrey, 12 Mich. 270. But see, Renard v. Clink, 91 Mich. 1; Proctor v. Robinson, 35 Mich. 284. Compare, Himmelmann v. Fitzpatrick, 50 Cal. 650; Matthews v. Lindsay, 20 Fla. 962; Hudson Bros. Commission Co. v. Glencoe Sand &c. Co., 140 Mo. 103; Bailey v. Metcalf, 6 N. H. 156; Mankel v. Bels- camper, 84 Wis. 218. i Even in New York and Michigan, if the mortgagor seeks affirmative relief in equity to remove the cloud of the encumbrance from his title, he cannot rely upon a tender but must pay the debt. Tuthill v. Morris, 81 N. Y. 94; Cowles v. Marble, 37 Mich. 158. PAYMENT AND TENDER. 173 Jounson, J., in Matruews v. Arkin, 1 Comst. 595 (Court of Appeals of New York, 1848): It is a general and well established principle of equity, that a surety, or a party who stands in the situa- tion of a surety, is entitled to be subrogated to all-the rights and remedies of the creditor whose debt he is compelled to pay, as to any fund, lien, or equity which the creditor had against any other per- son or property, on account of such debt. The general doctrine, as a rule of equity, is not controverted on the part of the appellants, but is fully conceded. It is insisted, however, by their counsel, that the guarantor in this instance did not become such at the request of the debtor; that as to the debtor, he was a mere volunteer, having no remedy over agairist him, and never acquiring the character of a surety so as to be entitled to subrogation to the rights and remedies of the creditor. The objection seems somewhat narrow and technical when ad- dressed to a court of equity whose peculiar province is to mete out substantial justice where the more restricted powers of the common law fail in its administration. But it leads us to examine carefully into the grounds and principles upon which the right of subrogation rests. Does it rest upon the foundation of a contract binding in a court of law between the debtor and his surety? In other words; does it turn substantially upon the question whether or not the surety who has paid the debt to the creditor has a remedy over, on his con- tract, against the principal debtor for money paid in an action at law? or does it not rest rather upon the broader and deeper founda- tions of natural justice and moral obligation? Chancellor Kent says, in Hays v. Ward, (4 Johns. Ch. 130,) “This doctrine does not belong merely to the civil law system. It is equally a well settled principle in the English law that a surety will be entitled to every remedy which the principal debtor has, to enforce every security, and to stand in the place of the creditor, and have those securities trans- ferred to him, and to avail himself of those securities against the debtor. This right stands not upon contract, but upon the same principle of natural justice upon which one surety is entitled to con- tribution against another.” Lord Brougham, in Hodgson v. Shaw, (3 Mylne & Keene, 183,) said: “The rule here is undoubted, and is founded on the plainest principles of natural reason and justice, that the surety paying off a debt shall stand in the place of the creditor, and have all the rights which he has for the purpose of obtaining his reimbursement. It is scarcely possible to put this right of sub- stitution too high; and the right results more from equity than from contract or quasi contract unless in so far as the known equity may be supposed to be imported into any transaction, and so to raise a contract by implication.” Sir Samuel Romilly, in his argument in Craythorne v. Swinburne, (14 Ves. 159,) stated the rule to be, that “a surety will be entitled to every remedy which the creditor has a 174 DISCHARGE OF MORTGAGES. against the principal debtor to enforce every security by all means of payment, to stand in the place of the creditor not only through the medium of contract but even by means of securities entered into without the knowledge of the surety, having a right to have those securities transferred to him, though there was no stipulation for that, and to avail himself of all those securities against the debtor.” And this exposition of the rule was fully sanctioned by-Lord Eldon in giving judgment in that case. The equity is certainly as strong, and it seems to me somewhat stronger in favor of substitution, as against the creditor at least, than it is between sureties for contribution where one has paid the whole debt, and it has been likened to the case of contribution be- tween sureties. As between them the rule in equity is clear that the ground of relief does not stand upon any notion of mutual contract express or implied, but arises from principles of equity independent of contract. Story’s Eq., sec. 493, and notes, where the authorities are all collected. This is also substantially the rule in courts of law. (Norton v. Coons, 3 Denio, 130.) In that case the circumstances under. which the defendant became co-surety were such as to repel the presumption of any promise to make contribution. But the court held that his being a surety on the same contract without qualifica- tion in terms was sufficient to fix his obligation to contribute, and that for the purpose of giving the plaintiffs a remedy the court would presume a promise. A promise was therefore imputed where none confessedly existed, in order to provide a remedy for the party where there was no doubt as to the legal liability ; and the legal lia- bility in such cases springs from the equitable obligation; the law courts having borrowed their jurisdiction in these particular cases from the courts of equity. In the present case it seems to me, if it were necessary, a court of equity ought to imply a promise on the part of the creditor to subrogate the surety to all his rights and remedies, in case he resorted to the latter for payment of the debt upon his guarantee. The equitable obligation resting upon him to do so seems to me most manifest. [His honor then proceeded to show that, even if such a defense was open to the original debtor, it was not open to the defendant.] HEISLER vy. ALTMAN & CO. SUPREME Court oF Minnesota, 1894. 56 Minn. 454. Cottins, J.: Stated in chronological order, the controlling facts in this case are as follows: July 28, 1880, defendant corporation PAYMENT AND TENDER. 175 duly recovered, and caused to be docketed in the office of the clerk of the District Court for Blue Earth county, in this state, a judg- ment for the sum of $844.09 against one John C. Heisler and an- other. In March, 1886, said Heisler purchased, and there was duly conveyed to him by warranty deed, a farm in said county, consist- ing of one hundred and ten acres, subject to a mortgage for the sum of $900; and, for the vendor’s interest, Heisler agreed to pay the sum of $1,450, to be evidenced by two promissory notes,—one for $550, and the other for $900. The plaintiff in this action, at the re- quest of said Heisler, who was her son, signed his said note for $550, as a surety, and it was delivered to the vendor of the farm. Heisler also made and delivered to said vendor his note for $900, and, to se- cure the payment of both notes, executed and delivered a second mortgage on the farm, which was duly recorded. John C. Heisler neglected to pay the note for $550 when it matured, and, upon the commencement of legal proceedings against her to enforce its col- lection, the plaintiff paid the same. She then paid the note for $900 given to the vendor of the farm, and soon afterwards, December 7, 1887, said John C., his wife joining, executed and delivered a war- ranty deed, whereby they conveyed the farm to the plaintiff, subject to the mortgage first above mentioned. The deed to said John C. Heisler, and the deed from him and his wife to the plaintiff herein, were recorded simultaneously, on January 3, 1888. The court found that the deed last mentioned was accepted by plaintiff to secure and indemnify her for the amounts so paid by her on said notes, that the value of the farm had never exceeded $2,300, and that no part of the sums paid by plaintiff had been repaid to her. On January 21, 1888, the vendor mortgagee executed and delivered a satisfaction of his mortgage, which was duly recorded; the effect on the title, as shown by the record and docket entries, being to promote defend- ant’s judgment, and to make it a second instead of a third lien on the land. The only superior lien was that of the first mortgage, and, as will be seen, the plaintiff’s claim or interest in the farm was thus made of no practical value. At no time prior to this was the plaintiff informed of the existence of the judgment, nor had she caused any examination to be made in the clerk’s office as to judgments against her son. January 11, 1890, after this action had been commenced, and defendants had been informed of plaintiff’s equities, the farm was sold to one Lamb, by the proper sheriff, under and by virtue of an execution duly issued upon the judgment, and to satisfy the same. The sheriff’s certificate of sale was delivered to Lamb, but defend: ant was the real purchaser, and shortly afterwards the certificate was duly assigned to it. On these findings the court below ordered judg- ment canceling and annulling the satisfaction of the mortgage and the record of the same, and restoring and reinstating, of record and otherwise, the mortgage lien as of the date of the record, and as 176 DISCHARGE OF MORTGAGES. prior and paramount to the lien or claim of defendant by virtue of the judgment or sale on execution, or otherwise; further, that plaintiff was the equitable assignee and owner of said mortgage, and that as such she be subrogated to the rights of the original mortgagee. This appeal is from an order denying a new trial. The doctrine of subrogation has recently been considered by this court in two cases: Emmert v. Thompson, 49 Minn. 386, and Went- worth v. Tubbs, 53 Minn. 388. It was said in the first-mentioned case that this doctrine is enforced solely for the purpose of accom- plishing substantial justice, and, being administered upon equitable principles, it is only when an applicant has an equity to invoke, and when innocent persons will not be injured, that a court can inter- fere. That in this way a court, under a great variety of circum- stances, may relieve one who has acted under a justifiable or ex- cusable mistake of fact, is well settled, and that it is a common thing for courts of equity to relieve parties who by mistake have dis- charged mortgages of record, and to fully protect them from the consequences of their acts, where, as before stated, no injury to in- nocent parties will result. In the Wentworth Case it was said that the doctrine could only be applied in favor of one who has bought a debt, either expressly, or by paying it under circumstances which, render the payment equivalent to a purchase; and this is solely a question of intention, either expressed or presumed from the rela- tion of the party to the debt, or other circumstances under which pay- ment was made. These cases come very near sustaining the con- clusion reached by the court below. The findings are silent as to any express intention of the plaintiff when paying the $550 note. But she was a surety only, entitled, upon payment to the benefit of all securities held by the payee, and under these circumstances the payment was simply equivalent to a purchase. Because of the relations of the parties the presumption arises that plaintiff did not intend to extinguish the debt, or to re- lease the security. Being, by reason of the payment, entitled to the benefit of the mortgage, to the extent of her interest, but subject to the claim of the holder of the second note, the plaintiff was not an intermeddler or a volunteer, when, in order to fully protect and se- cure herself, she paid the note last mentioned. And under the cir- cumstances this payment must also be regarded equivalent to a pur- chase. That it was not intended by the parties to extinguish the claim or to release the security is evidenced by the fact that, imme- diately after this last-mentioned transaction, plaintiff received a deed of the premises from her son and his wife, which, as found by ihe court, was taken and received for her indemnification and as security. A party situated as was plaintiff, who has paid money due upon a mortgage, is entitled, for the purpose of effecting substantial jus- PAYMENT AND TENDER. 177 tice, to be substituted in place of the incumbrancer and to be treated as assignee of the mortgage, and is enabled to hold the same as as- signee, notwithstanding the mortgage itself has been canceled. ‘The true principle is that where money due upon a mortgage is paid, it shall operate as a discharge of the mortgage, or in the nature of an assignment of it, as may best serve the purposes of justice and the just intent of the parties. One who has paid money due upon a mortgage of lands to which he had a title that might have been defeated thereby has the right to hold the lands as if the mortgage subsisted, and had been assigned to him. The mortgage may, for his benefit, be considered as still subsisting, though formally discharged of record, in so far as he ought, in justice to hold the property. Sheldon, Subr., §§ 13, 14, and cases cited; Jones, Mortg., §§ 858, 859, 881, and cases. Upon the payment of the mortgage, plaintiff was entitled to all of the rights of the original mortgagee, and to an assignment of the mortgage. The same was discharged and satisfied in ignorance of the existence of the judgment lien. Having caused it to be satisfied and discharged in ignorance of the existence of the judgment lien, under circumstances authorizing an inference of a mistake of fact, equity will presume such mistake, and give the party who made it the benefit of the equitable right of subrogation. To do so in this case is to prevent manifest injustice and hardship, and no superior intervening equities are interfered with. See Barnes v. Mott, 64 N. Y. 397; Stanton v. Thompson, 49 N. H. 272. Of course, it has been observed that defendant obtained and dock- eted the judgment several years before its debtor purchased the real estate in question, and that the mortgage was a prior and paramoum lien up to the time of its satisfaction and discharge. Before the sale this action had been commenced, and thereby defendant had been informed of plaintiff’s equities. It purchased with full notice. It could not and did not acquire an intervening superior equity through the sheriff’s certificate. By subrogating the plaintiff to the rights of the mortgagee, it is not placed in a worse position than it held when the mortgage was alive. Order affirmed.® ARNOLD v. GREEN. Court or AppEALS’0F New York, 1889. 116 N. Y. 566. This was an action to compel the specific performance of a con- tract to convey land. 5 Compare, Ahern vy. Freeman, 46 Minn. 156. 12 178 DISCHARGE OF MORTGAGES. On the 11th of July, 1879, the defendant entered into an agree. ment with Isabelle K. Arnold, one of the plaintiffs, whereby he covenanted to convey to her one hundred and ninety acres of land, known as the Arnold homestead, in the town of Mt. Morris, Liy- ingstone county, “subject to all existing liens now on said property,” upon the payment by her of the sum of $1,400, with interest thereon payable semi-annually, together with interest on the incumbrances then existing on said farm and the taxes thereon, all of which she duly agreed to pay on her part. The liens existing on the premises at the date of said contract were (1), a mortgage dated April 17, 1877, given by Russell G. Arnold to William A. Wadsworth to se- cure the payment of $6,000, in three years with semi-annual interest, no part of which had been paid when this action was commenced, except the interest up to April 2, 1883; and (2), a decree in the Sur- rogate’s Court of said county for the payment of the debts of Ash- bel Arnold, deceased, a former owner of said land, amounting to the sum of $527.47 with interest from February 21, 1881. This de- cree was a charge upon the land subsequent to the Wadsworth mortgage, but prior to the interest of the defendant, who at the date of said contract was the owner of the equity of redemption. An appeal had been taken from said decree and was pending at the time of the trial. The plaintiff, Susie K. Arnold subsequently, by. assignment, acquired an interest in said land contract upon which there is still unpaid the whole of the principal, besides interest from May 10, 1883. The plaintiffs have been .in the possession of the premises since the date of the contract. On Saturday, December 9, 1883, the defendant demanded of the plaintiffs payment of the in- terest due on the contract, and was told that it would be paid by the middle of the following week. He gave them until the next Satur- day. They also informed him that they would get the money and pay him and that they should want a deed, to which he made no reply. On Monday, December eleventh, they told him that they would be ready at eleven o’clock to pay him and take a deed, and he said that he would be at home at that hour, but before it arrived he left Mt. Morris, where he resided, and went to the residence of said Wadsworth, at Geneseo, and proposed to pay said mortgage and take an assignment of it. Mr. Wadsworth refused to assign, whereupon the defendant paid him the amount of the mortgage, $6,231.50, and received a discharge of the same which he placed upon record. In the afternoon of the same day the plaintiffs offered to pay defendant the sum unpaid on the contract and requested him to give them a deed, but he refused. He, however, offered to sell the farm to the plaintiff, Isabelle, for the amount of the incumbrances thereon, pro- vided she would “pay up to six or seven thousand dollars,” and to give a deed and take a mortgage payable in six years. Said Wads- worth held the mortgage as an investment and had not called for the PAYMENT AND TENDER. 179 principal, and did not wish that it should be paid, but he had stated to the defendant that unless payments were promptly made he should proceed to collection. On several occasions the defendant had spoken to the agent of Mr. Wadsworth about unpaid interest, and had informed him that he wanted it kept up because he had some interest in it. On December 29, 1883, the plaintiffs made a formal tender and demand, but the defendant again refused and thereupon they brought this action to compel a specific performance. The defendant by his answer claimed that he was the equitable owner of the Wadsworth mortgage and asked that it be adjudged a valid and subsisting lien upon the premises. The trial court, after finding the facts substantially as stated, found as a conclusion of law that said facts constituted no defense or counter-claim to the plaintiffs’ cause of action, and ordered judg- ment for specific performance and for conveyance by the defendant, “subject to all liens existing upon said property on the eleventh of July, 1879, upon being paid the sum of $1,400, and interest thereon from May 10, 1883.” Judgment having been entered accordingly, the defendant appealed to the General Term, which modified the decree by inserting therein, after “July, 1879,” the following pro- vision: “And particularly to the lien of the Wadsworth mortgage so-called, being a mortgage to secure the payment of the sum of $6,000, and interest thereon from April 21, 1883; that said George A. Green be declared subrogated to the rights of the mortgagee in said mortgage at the time of its payment and discharge, with the right to enforce the payment of the principal and interest due and unpaid thereon; and that the discharge of said mortgage, made by Wadsworth, the mortgagee, and recorded in the office of the clerk of the county of Livingston, be by said clerk canceled of record; that the defendant, on the plaintiffs’ election at any time within three months after entering this judgment, or the final determination of any appeal taken in this action, on payment to him of the amount secured to him by said bond and mortgage as reinstated, be required to assign to such person or persons as the plaintiffs may direct all rights and interests taken by him under said Wadsworth bond and mortgage as reinstated, and that the plaintiffs have the same time in which to pay and satisfy said mortgage if they elect to pay the same.” VANN, J.: This appeal presents the single question whether, un- der all the circumstances of the case, the defendant should have been substituted in the place of Mr. Wadsworth as the owner of the mortgage in question. Did he by the fact of payment become the equitable assignee of the security and entitle to enforce it for his own reimbursement and the protection of his interest in the land? Under some circumstances the payment of a mortgage does not satisfy it or destroy its lien, because equity regards the person making the payment as the owner thereof for certain definite purposes and keep 180 DISCHARGE OF MORTGAGES. it alive and preserves its lien for his benefit and security. According to the well-established principles upon which the doctrine of equitable assignment by subrogation rests, if the person paying stands in such a relation to the premises that his interest, whether legal or equitable, can not otherwise be adequately protected, the transaction will be treated in equity as an assignment. (Sheldon on Subroga- tion, §§ 1, 3, 14, 16; 3 Pomeroy’s Equity Jur., § 1211; Jones on Mortgages, § 874.) The remedy of subrogation is no longer lim- ited to sureties and quasi sureties, but includes so wide a range of subjects that it has been called the “mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay it.” (Harris on Subrogation, § 1; Barnes v. Mott, 64 N. Y. 397, 401; Stevens v. Goodenough, 26 Vt. 676; Harusberger v. Yancey, 33 Gratt. 527; Smith v. Cosam, 42 Conn. 244.) While a mere volunteer, with no obligation to pay or interest to protect, is not entitled to its aid, it is frequently ap- plied in favor of a vendee of encumbered real estate, who, although not personally liable, has paid the debt of another which is a charge upon the land, and which, if not paid, might cause him to lose his interest therein. Under such circumstances the debt, although paid and satisfied in form, is regarded in equity as neither paid nor satisfied in fact, but by operation of law the former holder ceases to be the creditor, while the person paying takes his place as owner of the debt and security unimpaired. Where, within the limitations suggested, benefit may result to the person paying without injury to the person who should pay, equity casts the burden upon the latter, who ought in fairness to bear it, provided it will not work injustice or disturb the rights of other creditors of a common debtor. (Id; Johnson v. Zink, 51 N. Y. 333; Cole v. Malcolm, 66 id. 363; Twom- bly v. Cassidy, 82 id. 155; Gans v. Thieme, 93 Id. 225, 232; Averill v. Taylor, 8 id. 44, 51.) These principles, when applied to the facts of this case, sustain the judgment as modified by the General Term. The defendant was the purchaser of land subject to two incumbrances, the earlier of which was a mortgage for a large sum past due, and the other a decree in Surrogate’s Court, the subject of which was still in lit gation. He was the vendor of the same land, subject to the same in- cumbrances, but no part of the principal of the purchase-price had been paid, and interest thereon was past due and unpaid. The land itself was the primary fund for the payment of said incumbrances, neither of which was the personal debt of the defendant, but either of which, if enforced, would require him to raise the money and pay it, or else lose his interest in the premises. He held the legal title to the land as security for the payment of the purchase-price, and as trustee for the plaintiffs, the equitable owners. It did not appear that the land was adequate security for the amount there t i PAYMENT AND TENDER. 181 was against it, including the demand of the defendant. It is clear, therefore, that he was not a mere volunteer or stranger, because he has an actual interest to protect against two prior liens, either of which might be enforced at any time, involving trouble, expense and the possible loss of his claim. The danger of interference may have been remote, but there was nothing to protect him against a change of mind on the part of the holder of the mortgage or on the part of the plaintiffs. Freedom from interference depended upon moral assurance, not upon legal right. How can he be called a stranger to a debt whose land is the primary fund for the payment of such debt? A stranger or volunteer, as those terms are used with reference to the subject of subrogation, is one who, in no event re- sulting from the existing state of affairs, can become liable for the debt, and whose property is not charged with the payment thereof and can not be sold therefor. A payment made by one who was lia- ble to be compelled to make it, or lose his property, will not be re- garded as made by a stranger. Where the person paying has an interest to protect he is not a stranger. Even if he holds the title to land merely as security, still he has an interest that is insecure, in a legal sense, as long as the prior lien is past due and held by another. (Harris on Subrogation, §§ 795-798; Sheldon on Subrogation, §§ 245, 246; Jones on Mortgages, § 877.) It is insisted, however, that the payment made by the defendant was not a fair effort to protect his property, but that his method was underhanded and his object uncertain. This is doubtless true, and it gave the court jurisdiction to require the defendant to so handle his security as not to injure the plaintiffs, and to place them as nearly as possible in the same position as if he had not paid the mortgage. Owing to his misconduct he was properly compelled not only to defer the enforcement of his security until the plaintiffs had had a reasonable time to find another holder for the mortgage, but also to pay the entire costs of the litigation. The plaintiffs can not, with propriety, complain of the decree as modified, because they lose nothing by it. They are substantially situated as they were before the payment was made. They should not, therefore, be permitted to take advantage of the defendant by insisting that an effect be given to the payment which was not intended and which would be inequitable. They come into a court of equity seeking, among other things, relief from their own default in not paying the interest upon the law day. (Stevenson v. Maxwell, 2 N. Y. 40.) As they seek equity from the defendant, they must do equity toward him; and when they receive all that they contracted for, it would not be equi- table for them to avoid paying for it as they agreed. Equity will not permit them to receive the equivalent of $6,000 for nothing and at the same time to demand its aid for further relief against the person who parted with that sum for their benefit, even if his methods were 182 DISCHARGE OF MORTGAGES. indirect and his object questionable. On the other hand, it will give to each party his own; to the plaintiffs the land, and to the defend- ant the money and security, but, under the circumstances, will re- quire him to so use the latter as not to take any advantage of his vendees. ‘Tf the plaintiffs had made a tender before the defendant made the payment, or if they could not have been placed in the same situation, substantially, that they were in before the payment was made, dif- ferent questions would have arisen for consideration in relation to which we express no opinion. We think that the judgment should be affirmed, but, under the cir- cumstances, without costs. Judgment affirmed. GOODYEAR v. GOODYEAR. SupREME Court oF Iowa, 1887. 72 Iowa 329. Roturock, J.: The material facts in the case are as follows: On the 19th day of June, 1882, R. G. Barnes sold and conveyed the land in controversy to E. C. Goodyear. The consideration for the sale was $1,600. On this sum $250 was paid in cash, and the bal- ance was secured by a mortgage on the premises, executed by E. C. Goodyear. The deed and mortgage were filed for record and recorded. On the 7th day of October, 1882, the defendants Charles P. Kellogg & Co. obtained a judgment against said E. C. Goodyear and Henry Goodyear in the circuit court of Greene county for the sum of $1,760. This judgment was a lien on the land, but junior and inferior to the purchase-money mortgage. On the 17th day of November, 1882, E. C. Goodyear and her said husband conveyed the land to Martin Goodyear by a special warranty deed, and by the terms of the deed Martin Goodyear assumed the payment of the mortgage to Barnes, and agreed to pay the same when it became due. About January 16, 1884, Martin Goodyear paid the Barnes mortgage in full, and Barnes executed a release and satisfaction of the mortgage, which was filed for record and recorded on the 30th day of January, 1884. On the 26th day of December, 1884, Martin Goodyear conveyed the land by general warranty deed to Elizabeth Goodyear. Martin Goodyear is a son, and Elizabeth Goodyear a daughter, of E. C. and Henry Goodyear. Martin Goodyear and 6 Compare, Downer v. Fox, 20 Vt. 388; Flachs v. Kelly, 30 Il. 462; Weld v. Sabin, 20 N. H. 533; Aultman & Co. v. Seichting, 126 Ind. 137; Fiacre v. Chapman, 32 N. J. Eq. 463. PAYMENT AND TENDER. 183 Elizabeth Goodyear, at the time the respective conveyances of the land were made, had no actual knowledge of the judgment in favor of Kellogg & Co. The question in the case arising upon the foregoing facts is, has Elizabeth Goodyear, the present owner of the land, the right to in- terpose the mortgage as a lien superior to the judgment? It is claimed that she has such a right, because her grantor assumed and paid the mortgage as part of the purchase-price of the land, and that he was entitled to be subrogated to the rights of. Barnes, the mortgagee. We think this is a misconception of the law of subro- gation, and a mistake as to the relations of the parties to the mort- gage in question. Martin Goodyear and Elizabeth Goodyear were, at the time of their respective purchases of the land, charged with constructive notice of the judgment. This notice was as effectual, as to them, as actual notice would have been. They can assert no equity arising out of the fact that they had no actual knowledge of the existence of the judgment. If they could do so, constructive * notice would be of little avail, When Martin Goodyear took lis conveyance of the land, he agreed to pay the mortgage. He did uot become the surety of the mortgagor. He made the debt his own. In other words, he stepped into the shoes of the grantor. He actually paid the mortgage, and had it released and satisfied of record. In our opinion, neither he nor his grantee has any greater right to revive it and use it as a lien superior to the judgment than his grantor would have if he had paid it, and was still the owner of the land. The doctrine of once a mortgage always a mortgage has no appli- cation to the facts of this case. If Barnes had taken a conveyance of the land, and used his mortgage as payment in part of the pur- chase-money, it is well settled that he could have set up the mortgage as against the judgment. But that is altogether a different question from the mortgagor or his grantees attempting to do so. They have no right in equity, because, they do not succeed to any of the rights of the mortgagee by equitable assignment or otherwise. What the rights of Martin Goodyear would have been if he had taken an as- signment of the mortgage, we need not determine. His obligation was to pay it, and he performed that obligation, and the mortgage was satisfied. We think the decree of the district court must be reversed.7 7TAccord: Birke v. Abbott, 103 Ind. 1. 184 DISCHARGE OF MORTGAGES. WILKINS ET AL. v. GIBSON. SUPREME Court oF GeorciA, 1901. 113 Ga. 31. [On October 30, 1893, Mrs. Wilhelmina I. Steiner executed and delivered to John P. Gibson a security deed to a certain described tract of land, to secure a debt of $6,000 due the grantee, who gave to the grantor a bond conditioned to reconvey the property upon payment of the debt. This deed was duly recorded on November 28, 1893. The debt became due on account of the same not having been paid in accordance with the contract, and Gibson filed his peti- tion against R. C. Neely, administrator of the estate of Wilhelmina I. Steiner, who had died since the execution of the deed, to recover judgment on the notes which the deed was given to secure. Having recovered such a judgment, which was declared to be a special lien on the land, execution was issued thereon on May 28, 1896, and the same having been levied on the land described in the security deed, a claim was interposed to the property by Wilkins, Neely & Jones, Pending the trial of the claim case, on September 14, 1897, Gibson, the plaintiff in execution, filed an equitable petition against Wilkins, Neely & Jones, the claimants and R. C. Neely, as administrator of the estate of W. I. Steiner, deceased, alleging that on February 23, 1889, Wilhelmina I. Steiner executed and delivered to A. L. Rich-: ardson a security deed, conveying a certain described tract of land; that on November 19, 1890, W. I. Steiner executed to Wilkins, Neely & Jones a mortgage deed covering the property described in the deed to Richardson; that subsequently, the notes given by W. I. Steiner to A. L. Richardson having become due, she applied to Lawson & Scales, loan brokers, and engaged said firm to negotiate a new loan in order that she might pay up and discharge her in- debtedness to Richardson, who was urging a settlement of the same ; that application was made for a loan of $6,000, the same being sufficient to pay the debt due Richardson, which amount was ad- vanced by petitioner to W. I. Steiner; that of the sum of $6,000 loaned by petitioner to Mrs. Steiner in 1893, $5,598 was paid by petitioner to Richardson on the notes he held against Mrs. Steiner; that Richardson’s deed was canceled and satisfied on the record; that this payment was made at the request of Mrs. Steiner, and her pur- pose in procuring the loan was to pay the notes held by Richardson; that Wilkins, Neely & Jones did not furnish any credit to Mrs. Steiner by reason of the fact that the Richardson deed was cancelled of record; that their status as cred- itors was not changed by reason of the cancellation; that the debt for which they claim to hold the deed as security was contracted prior to the cancellation of the Richardson deed, for which reason , PAYMENT AND TENDER. 185 they have in law and equity no right.to the land as against peti- tioner’s judgment. Plaintiff prays, therefore, that the land be de- clared subject to his #. fa. for the amount he paid to Richardson, in the event it is not declared subject to the fi. fa. as it now stands, which plaintiff claims as his legal right. Defendants Wilkins, Neely and Jones demurred to the petition for want of equity. The demurrer was overruled, to which defend- ants excepted pendente lite. Subject to their demurrer defendants answered that they advanced various sums to Mrs. Steiner to be ap- plied upon the debt due Richardson, both before and after the date of their security executed on November 19, 1890, and they pray that they may be subrogated to the rights of Richardson to the ex- tent of the sums so advanced. The claim case and the equitable proceeding were by direction of the court consolidated and tried together. The trial resulted in a verdict for the plaintiff against the land for $5,598.00, with interest at 7 per cent. from October 30, 1893. Three questions were sub- mitted to the jury by the court: * * * (3) Whether Gibson was subrogated to the rights of Richardson, on the theory that he had paid the money with the understanding that he was to have a first lien on the property. The jury found in favor of Gibson on his claim of subrogation. The defendants’ motion for a new trial assigns error upon the admission of certain evidence, upon various specified portions of the charge, and upon the failure of the court to give in charge various requests. The motion was overruled, and they excepted, assigning as error the overruling of the motion and the rulings complained of in their exceptions pendente lite.] Cops, J. [After making a statement of facts which is condensed above. | The doctrine of subrogation has for a long time been applied by courts of equity. It was borrowed from the civil law, and was of two kinds: the legal subrogation, which took place as a matter of equity without any agreement to that effect made with the person paying the debt; and the “conventional subrogation,” which was applied where,an agreement was made with the person paying the debt that he would be subrogated to the rights and remedies of the original creditor. See Howe’s Studies in Civil Law, 155. Courts of equity in this country have applied the doctrine in favor of sure- ties who pay off the debts of their principals (24 Am. & Eng. Enc. L. (1st ed.) 194; Sheldon, Sub. (2d ed.), § 86; Harris, Sub., § 162) ; as well as in favor of any person having an interest in property upon which there is a lien, and who, to protect that interest, pays off such lien. 24 Am. & Eng. Enc. L. (1st ed.) 248; Sheldon, Sub. (2d ed.), § 3; Harris, Sub., § 795. The extent to which the doctrine of sub- rogation has been expressly recognized by the lawmaking power in this State may be seen by reference to the following sections of 186 DISCHARGE OF MORTGAGES. the Civil Code: 2986, 2995, 2996, 5433, 5471. The doctrine has also, from the very first, been applied in favor of a person who, though having no interest in the property necessary to be protected, yet pays off the lien upon an agreement that he is to be subrogated to the rights of. the lienholder. 24 Am. & Eng. Enc. L. (1st ed.) 290, and cases cited; Sheldon, Sub. (2d ed.), § 248. According to these au. thorities, this agreement may be made with the person paying the debt by either the creditor or the debtor. See also, in this connec- tion, Allen v. Caylor (Ala.), 24 So. 512. The doctrine has been recently applied by this court in such a case. Merchants Bank v. Tillman, 106 Ga. 55. It is, however, never applied for the benefit of a mere volunteer. ‘The doctrine of subrogation is not applied for the mere stranger or volunteer, who has paid the debt of another, without any assignment or agreement for subrogation, being under no legal obligation to make the payment, and not being compelled to do so for the preservation of any rights or property of his own.” Sheldon, Sub., § 240. ; In a case where a stranger pays off the debt of another which is secured by deed or mortgage, the parties have a right to agree that the prayer will have the same priority as the holder of the security, and be substituted for him. A court of equity will enforce this agreement as made, and give the second creditor just such security as he contracts for. If he is content to take an inferior lien and rely on that to enforce payment of his debt, the court will not, in the absence of an agreement for subrogation, come to his relief and subrogate him to the rights of the holder of the original security. Consequently, if the second creditor pays the debt without taking an assignment of the security, and without any agreement, either actual or implied, that the security is to be kept alive for his benefit, and takes a new security, it will be subject to any valid intervening liens which may have been created by the debtor on the property, notwithstanding the former might have paid the debt by request of the debtor and without any knowledge of the existence of the in- tervening liens. If in such a case the lender desires to be subrogated. to the rights of the original creditor, he must make a distinct agree- ment to that effect. The law will not imply an agreement from the bare fact that the money was paid by request of the debtor. When the first security is paid off its lien is discharged, and the equitable doctrine of subrogation can not be invoked to revive it in favor of a person who had no interest in paying the debt, and who did so without any agreement that he would be substituted for the original creditor. By operation of law, as soon as this lien is discharged, the lien next in dignity takes its place, and for equity to give an- other creditor priority over such a lienholder, when perhaps the debtor’s purpose in discharging the first lien was to give him the preference, would be manifestly unjust. In any case the burden ts PAYMENT AND TENDER. 187 on the person paying off the lien to show an agreement, or a state of facts from which an agreement would be implied, to substitute him for the original creditor. * * * But it must not be understood that an agreement for subrogation will never be implied. In fact, there are loose expressions in some of the cases to the effect that if the advance is made at the request of on who has an interest in the lien to be discharged, an agreement for subrogation will be implied. See 24 Am. & Eng. Enc. L. 295- 296. But in many of the cases where these expressions occur the facts showed an actual agreement, and those few which can be properly treated as deciding the question are out of harmony with the weight of authority. As an instance of the former class, see Sutton v. Sut- ton, 26 S. C. 33; Home Savings Bank v. Bierstadt, 168 Ill. 618. In Railroad Co. v. Wortendyke, 27 N. J. Eq. 658, certain persons, who had advanced money to pay off a debt contracted by the rail- road company for rolling-stock and locomotives, claimed to be sub- rogated to the rights of the vendors, to the extent of the advance- ments made. In dealing with this contention, Mr. Justice Green © said: “The case as here presented does not entitle the petitioners to a decree for subrogation. They do not, in their petition, claim to stand as guarantors on the contract, or that they were in any way held bound for its performance. They only allege that they made the advances with the understanding that they should be subrogated to the right of the owners of the rolling-stock, to the extent of such advancements. I have been unable to find, either in the petition or evidence, anything to show an agreement with the original debtor or creditor, that these parties should be entitled to subrogation or to stand in the place of the vendors of the stock. It is not sufficient that a person paying the debt of another should do so merely with the understanding on his part that he should be subrogated to the rights of the creditor. Conventional subrogation can only result from an express agreement either with the debtor or creditor.” Cit- ing Dixon, Sub. 1, 10, 167; Bouvier’s Law Dict., title Subrogation ; Sandford v. McLean, 3 Paige, 116; Shinn v. Budd, 1 McCarter, 234. In Watson v. Wilcox, 39 Wis. 643, it was held: One who, having no interest to protect, voluntarily loans money to a mort- gagor for the purpose of satisfying and cancelling the mortgage, taking a new mortgage for his own security, can not have the \former mortgage revived and himself subrogated to the rights of the mortgagee therein.” In Home Savings Bank v. Bierstadt, supra, notwithstanding it was ruled, as stated above, that one who advanced money at the request of the debtor was not to be regarded as a volunteer, it appeared that there was an express agreement that the lender was to have a first lien on the property; and it was said in the opinion that “It is the agreement that the security shall be kept alive for the benefit of the person making the payment which gives 188 DISCHARGE OF MORTGAGES. the right of subrogation, because it takes away the character of a mere volunteer. Here the agreement between the debtor and the appellee, who advanced the money, was to the effect that appellee was to advance sufficient money to discharge the seven Goudy deeds of trust, and should receive from the debtor, by way of security for the money so advanced, a first mortgage upon the seven lots. In equity, that was an agreement that the Goudy deeds of trust should become security for her loan. That was the substance of the trans- action, and equity will effectuate the real intention of the parties, where no injury is done to an innocent party, by applying the prin- ciple of conventional subrogation.” Probably, therefore, the lan- guage in another portion of the opinion with reference to money advanced by request is to be treated as qualified by the first part of the foregoing quotation. It was further ruled in that case, that even where the security paid off was cancelled, equity would keep it alive for the benefit of the person paying the debt, provided he was not guilty of gross negligence, and where justice requires it, The Supreme Court of Texas has held that while an agreement for subrogation was necessary, it was sufficiently shown by a recital in a deed to the lender that he retained a first lien on the property. Mustain v. Stokes, 38 S. W. 758. A case which, perhaps, leans too far the other way is that of Bohn Sash Co. v. Case, 60 N. W. 576. There it appeared that the lender, by express request and solicitation of the debtor, advanced him the money with which to pay off certain mortgages on his property, upon the assurance by the debtor that the lender was to have a first mortgage thereon. There were other liens outstanding at the time, junior to the mortgages, but the lender was assured that these liens had been provided for. As a matter of fact they had not; and the Supreme Court of Nebraska held that the lender was not sub- rogated to the rights of the mortgagees in the discharged mortgages. In Kocher v. Kocher (N. J.), 39 Atl. 536, it was held that, “Where a son loaned his father money with which to pay assessments which were a lien on a lot, he was not entitled to be subrogated to such lien.” In the opinion the vice-chancellor said: “The right of sub- rogation must either arise out of the circumstance that the party paying or asking subrogation was interested in the property, and entitled to pay the incumbrance in order to protect himself, or he must have made the payment at the request of either the debtor or the lienor, with the understanding that he should be subrogated.” In Whiteselle v. Loan Agency (Tex.), 27 S. W. 300, it was held, in effect, that subrogation arose in favor of a lender who advanced money to pay off a security under an agreement with the debtor that he was to have a first lien on the property pledged to secure the original debt. * * * * * * * PAYMENT AND TENDER. 189 It is true, as stated above, that some of the courts have extended the doctrine farther than those above referred to. It has been said that subrogation was a “benevolent” doctrine and equity would ap- ply it in any case in which justice required it; and under sanction of this elastic expression cases can be found where it was applied with- out the semblance of an agreement. We think the safer and better rule to be, and we therefore hold, that subrogation will arise only in those cases where the party claiming it, advanced the money to pay a debt which, in the event of default by the debtor, he would be bound to pay, or where he had some interest to protect, or where he advanced the money under an agreement, express or implied, made either with the debtor or creditor, that he would be subrogated to the rights and remedies of the creditor. See Aetna Insurance Co. yv. Middleport, 124 U. S. 534. * * * * * * * Some of the extracts from the judge’s charge were not in harmony with the rules above laid down, and consequently a reversal of the judgment refusing a new trial is necessary. As the case goes back for another hearing, it would not be profitable, if indeed it would be proper, to express any opinion on the evidence found in the present record, as facts may be adduced on another trial which will give the case an entirely different aspect. Nor is it necessary to set out at length the portions of the charge which contain erroneous statements of the law. They will sufficiently appear from an application to the charge of the principles above laid down. The judge instructed the jury, in effect, that if the plaintiff advanced the money to pay off the debt due Richardson, by request of Mrs. Steiner, and the money was used for that purpose, this, without more, would make a case for the application of the doctrine of conventional subrogation. In order to recover on this theory, the plaintiff must show a state of facts from which either an express agreement or one arising by necessary implication will appear to have been made between him and Mrs. Steiner, or Richardson, or their respective agents under authority from their principals, that the plaintiff was, so far as the dignity of his lien was concerned, to stand in the place of Richard- son. It also results from the above that the amendment offered by the plaintiff claiming subrogation was subject to the demurrer filed thereto, for the reason that it is nowhere alleged therein that the plaintiff had an agreement of any character with Mrs. Steiner, or Richardson, whereby he was to be substituted to the latter’s rights.8 2. The defendants, however, contend that even if the evidence justified a finding that an agreement was made between Mrs. Steiner and Gibson that he was to be subrogated to the rights of Richard- 8Compare, Receivers of New Jersey Midland R. Co. v. Wortendyke, 27 N. J. Eq. 658; Tradesmen’s Building Assn v. Thompson, 32 N. J. Eg. _133; Bigelow v. Scott, 135 Ala. 236; Wooster v. Cavender, 54 Ark. 153. 190 DISCHARGE OF MORTGAGES. son, it would be inequitable and unjust to apply the doctrine in favor of Gibson, because he was guilty of inexcusable negligence; and the court was requested to charge that Gibson would not be entitled to subrogation if he was guilty of “inexcusable negligence” in failing to know or to act on his knowledge of the deed to Wilkins, Neely & Jones. It is undoubtedly true that if, on account of the gross negli- gence of the lender, the rights of intervening lienholders are preju- diced, and they are placed in a worse position than they would have been had the debt not been paid, the lender will not be entitled to subrogation. When the defendants, the holders of the intervening liens, took their mortgages, the lien of Richardson was in existence and superior to theirs, and of this fact they had knowledge. To substitute Gibson for Richardson would apparently place them in no worse position than they were before. Wilkins, Neely & Jones claim, however, as will hereafter appear, that they will be substantially and seriously injured if Gibson is permitted to assert the lien of Rich- ardson against them. The fact that Gibson may have known of the existence of the mortgages of defendants, which were executed before the cancellation of the deed to Richardson, will not defeat his right to subrogation, provided, of course, he had an agreement for subrogation. If he had such an agreement, he simply stands in equity in the place of Richardson, so far as the dignity of his debt: is concerned. On account of this agreement equity simply assigns this security to him. See, in this connection, Home Savings Bank v. Bierstadt, 168 Ill. 618; Levy v. Martin, 48 Wis. 206-207; Ham- mond v. Barker, 61 N. H. 53; Campbell v. Trotter, 100 Ill. 281; Tryell v. Ward, 102 Ill. 29. In Bruse v. Nelson, 35 Iowa, 15, it was held that subrogation would arise provided the lender had no actual notice of the intervening lien, though it was of record. In Union Mortgage Co. v. Peters, 72 Miss. 1059, it was held that a second mortgagee, being placed in no worse position by the trans- action, can not complain of the subrogation of the lender to the rights of the first mortgagee. See, also, Draper v. Ashley, 104 Mich. 527. The point urged by the defendants against Gibson in this con- nection is, in its essence, that of equitable estoppel to claim subroga- tion, because the original lien was cancelled through the negligence. of Gibson in failing to take an assignment when the defendants’ liens were outstanding. ‘Equitable estoppel is the effect of the vol- untary conduct of a party, whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed, either of property, of contract, or of remedy, as against another person, who has in good faith relied upon such conduct to change his position for the worse, and who, on his part, acquires some corresponding right, either of property, of contract, or remedy.” 2 Pom. Eq. Jur., § 804. See, also, Whiteselle v. Tex. Loan Agency, 27 S. W. 309, 315, where estoppel was invoked and PAYMENT AND TENDER. 191 denied by the court in a case similar to the one now in hand. While Wilkins, Neely & Jones do not claim to have advanced any money relying upon the fact that the Richardson deed had been cancelled, nor that they have expressly released any security on this account, still they say that, treating the Richardson deed as having been can- celled, they did not press their claim against Mrs. Steiner with the same vigor that they would have done if they had known their claim was to be treated as inferior to Gibson’s, and that they would not have granted Mrs. Steiner the indulgences which they did grant if they had not felt confident of having a first lien on the property ; and that these facts would work an estoppel against Gibson to as- sert the right of subrogation. When a prior incumbrance has been cancelled of record, and, acting on the faith of this, an intervening incumbrancer has delayed in prosecuting his legal remedies or has granted indulgences the result of which is to make the exercise of the right operate to his serious disadvantage, while there may be no estoppel by reason of these facts against the right of a person advancing money to pay off the prior incumbrance to claim subroga- tion, still if he delays for an unreasonable length of time to claim the right and have the cancellation set aside, this will be a sufficient reason for a court of equity to refuse the right of subrogation.® 3. It appears from the record that Gibson, the plaintiff, did not advance the entire amount necessary to satisfy the debt due Rich- ardson, but that the defendants, Wilkins, Neely & Jones, paid a por- tion of the same. A portion of the aggregate amount paid by them was advanced after the date of their security deed of November 19, 1890, and a portion before, which they claim was paid at the instance and request of Mrs, Steiner. They claim, therefore, to be subro- gated to the rights of Richardson to the extent of the sum so ad- vanced. It is well settled that if a senior mortgage be paid off by a junior mortgagee, he will, if the payment was necessary for his protection be subrogated to the rights of the senior incumbrancer. In such a case, however, it must appear that the discharged mort- gage was due and was about to be enforced against the property, and that its enforcement would prejudice the claims of the junior lienholders. Sheldon, Sub. (2d ed.), §§ 12, 18; Harris, Sub., §§ 8, 94; 24 Am. & Eng. Enc. L. (1st ed.) 269 et seq. In order, how- ever, to entitle the junior mortgagee to subrogation, the general rule is that the whole debt must be paid and the senior creditor sat- ished. Equity will not generally permit a junior incumbrancer to interfere with a senior lien so long as the lien creditor remains un- satisfied. In Carter v. Neal, 24 Ga. 346, it was held: “To entitle one creditor to be subrogated to the rights of another creditor, the former must have satisfied the latter his demand so as to relieve him 9 Compare, Cobb v. Dyer, 69 Maine 494; Fort Dodge Bldg. & Loan Assn. v. Scott, 86 Iowa 431. 192 DISCHARGE OF MORTGAGES. from trouble, expense and risk.” See, also, 24 Am. & Eng. Ene, L. (1st ed.) 200, 255, (2) 273; Harris, Sub. §§ 28, 29; Sheldon, Sub,, § 70. It seems, however, that if the debt be actually discharged, the junior incumbrancer would be entitled to subrogation to the ex- tent of the amount he contributed, though the balance of the debt was paid by the debtor or by a third person. In Comins y. Culver, 35 N. J. Eq. 94, it appeared that a judgment was recovered against Hetfield & Culver. From this judgment an appeal was taken, and one Pottle became surety on the appeal bond. The judgment was affirmed. On it a portion of the debt was realized, and Pottle paid the balance. It was held that he was subrogated pro tanto to the right of the judgment creditor. See, also, Vert v. Voss, 74 Ind. 566. In Magee v. Leggett, 48 Miss. 139, 146, it was said: “We do not understand the rule as requiring that the ‘surety’ must make entire payment ; it is enough if the creditor has been fully paid, part by the principal debtor, and part by the surety. In such a case, sub- rogation will accrue pro tanto to the extent of his payment.” We see no good reason why the same rule would not be applicable in the case of a junior mortgagee who, together with the debtor, pays off a prior lien on the property. It results from this that if Wil- kins, Neely & Jones contributed a portion of the amount which went to discharge the debt due Richardson, and this amount was advanced for the purpose of protecting their security and rendering it more effectual, they would, after Richardson had ben paid in full, be subrogated equally with Gibson, if it develops that he is in fact en- titled to subrogation, to the extent of the amount so advanced; and in case the full amount of both claims is not realized upon an en- forcement of the Richardson security, the defendants would be en- titled to prorate the sum actually realized with the claim of Gibson.’ As to the sums advanced prior to the date of their security, they of course would have no claim for subrogation on the theory that they paid for their protection; but if they are entitled to subrogation at all as to these sums, it must be governed by the principles of con- ventional subrogation, above laid down.?° * * * * * * * Let the case be tried again in the light of the views above ex- pressed. Judgment reversed. All concurring. EDITORAL NOTE. CHANGES IN THE ForM oF THE DEBT. JUDGMENT ON THE DEBT. When the holder of a mortgage takes a new note or other evi- dence of indebtedness in place of that originally secured by the mort- 10 Compare, Cason y. Connor, 83 Tex. 26; Magilton v. Holbert, 32 Hun (N. Y.) 444. PAYMENT AND TENDER. 193 gage, the question arises whether the mortgage is discharged or stands as security for the new note, etc. The question is ultimately one of payment. Although, for most purposes, a negotiable instru- ment, and, for many purposes, a common-law specialty such as a bond, is regarded as an embodiment of the right of action represent- ed by it, not as mere evidence of an intangible right, yet, in this situation, it is said that equity, regarding the substance of things, considers the debt as the thing actually intended to be secured, and the note, etc., as mere evidence of the debt. Accordingly, it is us- ually held that the substitution of a new note is merely a change in the form or evidence of the debt, not a payment thereof, unless a contrary intention appears; Bonestell v. Bowie, 128 Cal. 511; Port v. Robbins, 35 Iowa 208; Flower v. Elwood, 66 Ill. 438; Lippold v. Held, 58 Mo. 213; Brinckerhoff v. Lansing, 4 Johns. Ch. 65; al- though in a few jurisdictions it is held that payment is presumed prima facie from the acceptance of a negotiable instrument. See Fowler v. Bush, 21 Pick. (Mass.) 230. Not only is there this dis- agreement as to the presumption which governs in the absence of evidence of intent, but the cases are not harmonious as to the evidentiary effect of various features of such transactions, such as a change in the parties to the note, in the amount payable, or in other terms thereof. See Jones, §§ 924-935. While the intention need not be expressed but may be inferred from all the circumstances of the case, an express agreement is of course controlling. It is therefore best to incorporate in a renewal note a recital to the effect that it is a renewal of the original note, describing it, and that the mortgage securing the latter is to stand as security for the renewal. Thus safeguarded, a renewal of the note, under the original mort- gage, is preferable to the taking of a new mortgage, as the latter course is likely to let in intervening encumbrances. Under such circumstances equity has sometimes kept alive the original mortgage, on principles analogous to those of subrogation, but such relief is by no means assured as against the intervening encumbrancer, and is impossible as against a subsequent purchaser under the intervening encumbrance who has no notice of the facts. New England Mort- gage Security Co. v. Hirsch, 96 Ala. 232; Dingman v. Randall, 13 Cal. 512; Walters v. Walters, 73 Ind. 425; Washington v. Slaughter, 54 Iowa 265; Holt v. Baker, 58 N. H. 276; Atkinson v. Plum, 50 W. Va. 104. If the debt is secured by negotiable paper and time is to be extended beyond the maturity thereof, the paper should, of course, be renewed to preserve the benefit of its peculiar salability, derived from the law merchant. See post, Chap. V. : A judgment at law upon the mortgage debt merges the debt but does not merge the security nor amount to a payment of the debt, but has the effect of a change in the form of the debt, leaving the . mortgage a security for the judgment. Priest v. Wheelock, 58 IIL. 13 194 DISCHARGE OF MORTGAGES. 114; Jewett v. Hamlin, 68 Maine 172; Torrey v. Cook, 116 Mass, 163. The same result was reached in Butler v. Miller, 1 N. Y. 496, where the judgment was taken by consent, upon the theory that it was a question whether the judgment was intended as a payment of the debt. Section 2.—MERGER. CAMPBELL v. CARTER. SupREME Court oF ILLinois, 1853. 14 Ill. 286. . Treat, C. J. The principal facts in this case are these. In April, 1841, Brush gave Farwell three promissory notes, amounting in the aggregate to $2,378.04; and he also executed a mortgage on lot forty-five in the town of Galena, to secure their payment. At the October term, 1842, of the Jo Davies circuit court, Farwell re- covered a judgment against Brush for $2,104.17, the amount then due upon the notes; and also a judgment of foreclosure in a pro- ceeding by scire facies upon the mortgage. An execution issued on the former judgment was returned “no property found,” in March, 1843; and a special execution, issued on the latter judgment, was returned, in February, 1843, “not satisfied,” by the order of the plaintiff. On the 18th of April, 1843, Brush and wife, by deed of general warranty, for the expressed consideration ‘of $2,150, con- veyed lot forty-five to Farwell in fee; and Farwell’s attorney made an entry in the judgment docket, opposite each of the judgments, in these words: ‘This judgment satisfied by sale of real estate to the plaintiff.’ On the 29th of June, 1846, Farwell and wife, by deed of quitclaim, conveyed lot forty-five to Carter. At the June term, 1842, of the Jo Davies circuit court, the State Bank of Illinois obtained a judgment against Brush, Hathaway, and Clark, for $436.42; and at the succeeding October term, it obtained a judgment against Brush and Miller, for $104.50. By virtue of an execution issued on the first of these judgments, lot forty-five was sold to Campbell, on the 16th of May, 1848, for the sum of $575.36; and it was sold to Campbell on the same day for one dollar, under the execution issued upon the last judgment. And on the 17th of August, 1849, Campbell received a sheriff’s deed for the lot. In November, 1848, Carter filed a bill in chancery against Camp- bell and others, praying that the mortgage might be decreed to stand as a subsisting security, to protect his title against the sale made under the judgments in favor of the bank. The bill alleged that Farwell knew nothing of the existence of those judgments when he MERGER. 195 accepted the deed from Brush. Campbell, in his answer, set up the purchase made by him at the sheriff’s sale, and claimed title to the lot under the same. The cause was submitted to the court on cer- tain documentary and record evidence, the substance of which has already been set forth, and the oral testimony of a witness, who stated that he was the attorney of Farwell in the original proceed- ings; that Farwell came to Galena in 1841, to obtain security for a debt he held against Brush, and Brush gave the notes and mort- gage offered in evidence on lot forty-five; the debt was over $2,000, and the notes and mortgages were placed in witness’s hands for col- lection in 1842; he instituted two suits, one in assumpsit, the other by scire facias, to foreclose the mortgage; judgments were recovered in both cases, on the same day, and for the same cause of action; executions were issued on those judgments, and a levy was made on the special fieri facias, and property advertised for sale; after the property was so advertised, Brush came to witness, and proposed to relinquish lot forty-five for the debt, to save expense, as it was all he had, giving as a reason it was all he had, and would save great expense and cost in selling ; witness accepted the proposition, as Mrs. Brush was not a party to the mortgage, and Brush proposed they should both join in the deed to Farwell, which witness drew, and they executed; the entry of satisfaction in the judgment docket was made by witness about the time the deed was made by Brush and wife; subsequently witness made this addition: ‘The defendant having transferred to the plaintiff the mortgaged premises;” the release of the mortgaged premises by Brush and wife was all the satisfaction had for the judgment, and there was no entry of satis- faction made on the margin of the record of mortgages; the addition on the judgment docket was made prior to the year 1848, before any proceedings were had; there was no release given to Brush; Brush gave a deed, which is in evidence, releasing his equity of redemption ; it was simply to take Brush’s equity of redemption that this deed was given; Brush held the property at the time of the execution of the deed by Brush and wife to Farwell, and then attorned to Farwell, and Farwell and his grantees and tenants have been in possession ever since; the lot was never sold on Farwell’s special feri facias on the scire facias judgment; all procedeings were suspended on Brush and wife making the deed to Farwell; witness thinks the satisfaction on the docket was entered about the time of making the deed by Brush and wife; the addition was made some considerable time afterwards; cannot say how long; witness made the addition because the manner of the entry was subject to some misconsrtuc- tion, and there had been some talk about it; witness thinks he has Brush’s notes yet, as it was his usual practice to keep them; it was understood when the deed was made by Brush and wife, that this was a satisfaction and discharge of his debt.” 196 DISCHARGE OF MORTGAGES. The court decreed that the mortgage should be held to exist and remain in full force, for the protection and security of the complain. ant’s title. Campbell prosecuted an appeal. At law, the mortgage was clearly extinguished. The mortgagee accepted an absolute deed of the estate, and entered satisfaction of the judgments obtained on the notes and mortgage. The debt was thus fully paid, and the security discharged of record. The question now is, can a court of equity still regard the mortgage as an unsat- isfied and subsisting incumbrance? The equitable doctrine on this subject is thus stated by Sir William Grant in Forbes v. Moffat, 18 Ves. 384: “It is very clear, that a person, becoming entitled to an estate, subject to a charge for his own benefit, may, if he chooses, at once take the estate, and keep up the charge. Upon this subject, a court of equity is not guided by the rules of law. It will sometimes hold a charge extinguished where it would subsist at law; and sometimes preserve it where at law it would be merged. The question is upon the intention, actual or presumed, of the person in whom the interests are united. In most instances, it is, with refer- ence to the party himself, of no sort of use to have a charge on his own estate; and, where that is the case, it will be held to sink, unless something shall have been done by him to keep it on foot.” Again: “Where no intention is expressed, or the party is incapable of ex- pressing any, I apprehend the court considers what is most advan- tageous for him.” It is said by the Chancellor, in Compton v. Oxen- den, 4 Brown’s C. C. 397: “Where there is a union of rights, neither of them can be executed at law; but this court will preserve them dis- tinct, if the intention to do so is either expressed or implied.” Chan- cellor Kent remarks, in James v. Johnson, 5 Johns. C. R. 417: “If a person takes the legal estate by mortgage, and then, by his own act, takes the equity of redemption, and vests it in himself, the estate is discharged from the incumbrance. It would be a bur- den to no purpose. This is the good sense and reason of the thing. Where debtor and creditor become the same person, there can be no right put into execution; it must, of course, be extinguished. This is the general rule, both at law and in equity; the merger 1s prevented, and the distinction of the estates preserved, in special cases only. It is where the intention of the party is distinctly de- clared at the time, or where something just and beneficial requires the charge to be preserved, in a case in which the party has not declared, or can not declare, his intention.” It is said, in Hatch v. Kimball, 16 Maine, 146: “It is, in each case, a question of intention, whether or not there is an extinguishment of the charge upon the estate. If, at the time the mortgage is taken in, the intention to extinguish tt appears, that is decisive. If it does not, equity presumes it to be out standing, or extinguished, as the interests of the party may require. The court say in Gibson vy. Crehore, 3 Pick. 475: “When the put- MERGER. 197 chaser of a right to redeem takes an assignment, this shall, or shall not, operate as an extinguishment of the mortgage, according as the interests of the party taking the assignment may be and accord- ing to the real intent of the parties.” The same doctrine is laid down in the cases of Helmbold v. Man, 4 Wharton, 410; Moore v. Harris- burg Bank, 8 Watts, 138; Gardner v. Astor, 3 Johns. C. R. 53; and Starr v. Ellis, 6 Johns. C. R. 393, Indeed, there seem to be no con- flict of opinion upon the subject. The conclusion from all the authorities clearly is, that if a party acquires an estate upon which he has an incumbrance, the incum- brance is, in equity, considered as subsisting, or extinguished, accord- ing to his intentions, expressed or implied. The intention is the con- trolling consideration, where it has been made known, or can be inferred from the acts and conduct of the party. And the court will look into all of the circumstances of the case, to ascertain his real intention. If it appears, that he intended to discharge the in- cumbrance, and rely exclusively upon his newly acquired title, the incumbrance is regarded as extinguished, and cannot afterwards be set up to strengthen and support that title. If no intention has been manifested, equity will consider the incumbrance as subsisting, or extinguished, as may be most conducive to the interests of the party. If no evidence of his intention appears, and it is a matter of indifference to him whether the incumbrance be kept alive or not, it is regarded as extinguished. Applying these principles, there can be but little difficulty in com- ing to a correct conclusion respecting this case. Farwell held notes against Brush, and a mortgage on the lot in question to secure their payment. He recovered judgments on both the notes and mort- gage, and was endeavoring to enforce satisfaction. Brush then proposed to make an absolute conveyance of the lot, with covenants of warranty and a release of dower, in satisfaction and discharge of the debt. The proposition was accepted, and the deed executed ; and thereupon Farwell entered satisfaction of the judgments. The transaction was not a mere release of the equity of redemption to the mortgage; not a mere giving up of the security in discharge of the debt. It was something more. In addition to the equity of redemption, Farwell obtained a relinquishment of the contingent right of dower, and the covenants of warranty of the mortgagor. There can be no doubt as to his real intentions in the matter. They were not left to inference or conjecture, but were manifested by the most unequivocal acts. He accepted the lot in full satisfaction of the indebtedness, and cancelled all existing evidence of that in- debtedness. He intended to discharge the incumbrance, and rely exclusively upon the title acquired by the deed. If he designed to keep the incumbrance on foot, why did he discharge of record the judgment rendered on the mortgage? The debt was fully paid and 198 DISCHARGE OF MORTGAGES. satisfied, and this discharge of the judgment shows, that he con- sidered the incumbrance as extinguished. It is not pretended that there was any mistake in the entry of satisfaction. The act was deliberately and intentionally done, and he, and those claiming under him, must abide the consequences resulting from it. It would be in clear violation of the real intention of the parties to resuscitate and set up the incumbrance. It may be that Farwell entered into the arrangement under the belief and expectation, that he would acquire an unincumbered title to the lot. But that would not change the legal aspect of the case, It would only show that the arrangement was improvidently made. A court of equity will not interfere to relieve a party from the effects of an injudicious bargain. The fact that Farwell had no actual knowledge of the bank judgments, forms no basis for equitable relief. He had constructive notice of their existence, and that bound him as effectually as would express notice. He must be deemed to have acted upon: full knowledge of those judgments. It was his own fault if he did not obtain the information before concluding the arrangement. He acted upon a misapprehension of his legal rights, and not upon a mistake of facts. The cases of Garwood v. Admin- istrators of Eldridge, 1 Green’s C. R. 145, and Banth v. Garmo, 1 Sanford’s C. R. 383, are decisive on this point. Not one of the numerous cases cited on the argument goes further than to hold, where the mere equity of redemption is released and the note is cancelled, that the mortgagee may still rely upon the mort- gage to protect his title. But this is a very different case. The debt and the security were both cancelled. The release of the equity of redemption was not the only consideration received by Farwell. Besides the equity of redemption, he obtained the covenants of war- ranty of the mortgage, and the relinquishment of a dower interest in the lot. Holman v. Bailey, 3 Met. 55, is an authority very much in point. In March, Temple gave Bailey a mortgage on real estate, to secure the payment of five promissory notes, for $100 each. In April, Temple made a mortgage of the same premises to Holman. In May, Bailey took from Temple an absolute deed of the mortgaged premises, with covenants of warranty, in satisfaction of the five notes, and of another note for $300; and he gave up the six notes; but the mortgage was not formaly discharged. Holman filed a bill in equity against Bailey, to redeem the estate from the first mortgage. The court dismissed the bill on the ground, that Bailey’s mortgage was extinguished. It said: ‘We think it very clear, that the notes then given, including the five secured by the mortgage, were in fact paid and discharged, by Temple, by the agreement in May. It was then agreed that the estate should be conveyed in fee, with war- ranty and without condition, in full satisfaction and discharge of those notes and the note for $300; and the estate was conveyed put- MERGER. 199 suant to the agreement, and the notes were given up and cancelled. These were then at an end; they were effectually paid and extin- guished.” Farwell having extinguished his incumbrance, the lien of the bank judgments attached upon the lot. He acquired the lot subject to these judgment liens, and could transfer no greater interest to Car- ter. The latter should have paid off the judgments, or redeemed from the sale to Campbell. These were the only modes of protect- ing his title. The decree is reversed, and the bill dismissed. Decree reversed.11 SILLIMAN v. GAMMAGE. SUPREME Court oF Texas, 1881. 55 Tex. 365. GouLp, Associate Justice. This action of trespass to try title was brought by Gammage to recover of Silliman seven hundred and seventy-nine and three-tenths acres of the John Parker headright survey. The facts stated are in the special findings of the district judge, to whom the case was submitted, and are substantially as follows: , On December 22, 1874, Ben Parker, being the owner of the land, mortgaged one thousand acres of the John Parker survey, including the land in the controversy, to secure his note for $500 to Silliman, due six months thereafter, drawing interest at the rate of five per cent. a month, the mortgage containing a power of sale, and being duly recorded. In July, 1876, one Longeton recovered a judgment 11 Accord as to statement of principles: Welsh v. Phillips, 54 Ala. 309; Davis v. Randall, 117 Cal. 12; Smith v. Ostermeyer, 68 Ind. 432; Beacham v. Gurney, 91 Iowa 621; Gardner v. Astor, 3 Johns. Ch. (N. Y.) 53; James v. Morey, 2 Cow. (N. Y.) 246; Wilcox v. Davis, 4 Minn. 197. “But it is said, that the mortgage was not a subsisting title at the time of the purchase of the estate by the plaintiff, because it was ex- tinguished by merger in the superior title acquired by John Harris under the deed of Aldrich; or because it had been previously satisfied. As to the merger, it is clear, that there can be no such operation, as the argument supposes. At law by the mortgage a conditional estate in fee simple passed to the mortgagee; and the only operation of the conveyance of Aldrich would be to extinguish the equity of redemption, and thus to remove the condition. If that conveyance was good, it had the effect, not to enlarge the estate but to extinguish a right. It was not the drowning a lesser in a greater estate, for the estate was already a fee simple; but it was an extinguishment of the condition or equity. If that conveyance was void or voidable, it left the mortgaged estate exactly where it found it.” Story, J., in Dexter v. Harris, 2 Mason (U. S.) 531. See also, Woodhull v. Reid, 16 N. J. L. 128. 200 DISCHARGE OF MORTGAGES. against Ben Parker, under which the land in controversy was sold as Parker’s property, and was bought by Gammage August 7, 1877, for $25. The additional findings are given in the language of the presiding judge: “On the 17th of June, 1879, within less than four years from the - time the note for $500 was due, hence before the same was barred by limitation, Ben Parker, the mortgagor, made a deed to Silliman, conveying to him the one thousand acres of the John Parker, Sr, headright, of which the land sued for is a part, and also two hun- dred and fifty acres of the Jesse Gibson league, situated in Anderson county. This deed conveys the land mentioned with general war- ranty of title, and the testimony shows that at the date of this deed the debt secured by the mortgage amounted to $1,845, and that the land conveyed one thousand acres of the Parker headright and two hundred and fifty acres of the Jesse Gibson survey, making twelve hundred and fifty acres, was worth at a fair value about $1,250; that the land was taken by Silliman in full payment of his mortgage and debt, to save expense in proceeding on the mortgage, or by suit in court, and that Parker was unable to pay more than the land con- veyed, and Silliman surrendered his note, mortgage and the balance of his indebtedness over and above the value of the land, to Parker at the time this deed was executed ; and this transaction was in good faith and for a fair price. That Gammage was not a patty to, or consulted about this transaction between Parker and Silliman, and Parker at the time had direct notice from Gammage of Gammage’s purchase and deed, but Silliman had no notice except the con- structive notice of the record of the deed. “Upon these facts the court finds the law to be, that the mortgage of defendant was merged in the deed from Parker, and that the plaintiff has the superior title, and renders judgment for the plain- tiff.” In his pleadings the defendant stated the facts, and claimed that under them he had the better title and right of possession, but, in the event the court held otherwise, claimed a mortgage lien for the note and interest, asked that “said lien be enforced, and that he have judgment for said sum of money against said Ben Parker, and said land be ordered to be sold, and that said Ben Parker be cited to appear in this case and answer, etc., and for all proper judgment.” As we have seen, the court disregarded this part of the answer, holding that the mortgage was merged in the deed, and thereupon gave judgment in favor of Gammage for the land sued for. Counsel for appellant insist that, under the facts, Silliman had the superior title. In this state the mortgagor is regarded as the real owner, and until foreclosure entitled to the possession of the mort- gaged premises. By the execution sale that ownership and right of MERGER. 201 possession vested in Gammage, subject to Silliman’s mortgage. Wright v. Henderson, 12 Tex., 43; Duty v. Graham, 12 Tex., 427; Mann v. Falcon, 25 Tex., 271; Buchanan v. Monroe, 22 Tex., 537. A foreclosure and sale, thereafter had, in a proceeding against Parker, without making Gammage a party, would have left Gam- mage’s title and right of possession unimpaired. Preston v. Breed- love, 45 Tex. 47; Morrow v. Morgan, 48 Tex. 304, and numerous subsequent cases. So, the voluntary deed by Parker to Silliman, made without Gam- mage’s assent, could not affect, his title or right of possession, what- ever may have been its effect as between the parties thereto. As against Sillliman, Gammage continued to hold the superior title and right of possession, but held subject to whatever rights as mortgagee yet remained to Silliman, if any. Strictly, the mortgage was not merged in the deed, as in case where a greater and less estate meet in the same person; for, by the execution sale and sheriff’s deed, Parker had been divested of his entire interest, and his deed to Silliman, although it might as against himself have the same effect as a foreclosure sale, conveyed no greater estate in which the mortgage could merge. But we under- stand the court to find substantially, that under the facts Silliman’s rights as creditor and mortgagee were totally satisfied, extinguished and lost; and it is not to be denied that numerous authorities, in cases strictly of merger, are supported on reasons which seem equal- ly applicable to cases where the debt and mortgage have been in any way extinguished. Those authorities hold that the intention of the parties is the controlling consideration; and in this case, because Silliman had accepted the deed in full satisfaction of his debt and had surrendered up the note and mortgage, would infer that he did not intend for any purpose to keep the mortgage alive. See Camp- bell v. Carter, 14 Ill, 286, citing and discussing numerous cases; amongst others, Forbes v. Moffatt, 18 Ves., 384; James v. Johnson, 5 Johns. Ch., 417; Hatch v. Kimball, 16 Me. 146; Gibson v. Crehore, 3 Pick., 475. See also 1 Powel on Mortgages. But there are other authorities supporting a different view of the law, one which we think more consistent with the principles of equity, and more in ac- cord with the course of decision in this state. In the case of Stan- ton v. Thompson, 49 N. H., 272, the authorities were largely dis- cussed, and the court say: “We think it may be deduced from the authorities quoted, that when the estates of the mortgagee and mortgagor are united in the former, he has in equity an election to keep the mortgage title on foot, and that whenever it is his interest, by reason of some interven- ing title or other cause, that the mortgage should be upheld as a source of'title, it will not at law be regarded as merged. This is based upon the presumption as matter of law, that the party must 202 DISCHARGE OF MORTGAGES. have intended to keep on foot his mortgage title, when it was es- sential to his security against an intervening title, or for other pur- poses of security; and it is no matter whether the parties, through ignorance of such intervening title or through inadvertence, actually discharged the mortgage and cancelled the note, and really. intended to extinguish them; still, on its being made to appear that such in- tervening title existed, the law would presume conclusively that the mortgagee could not have intended to postpone his mortgage to the subsequent title.’ In a recent treatise on mortgages the law is thus summed up: “It may therefore be deduced from the authorities, as a general rule, that when the mortgagee acquires the equity of re- demption, in whatever way, and whatever he does with his mortgage, he will be regarded as holding the legal and equitable titles separ- ately, if his interest requires this severance. The law presumes the intention to be in accordance with his real interest, whatever he may at the time have seemed to intend.” 1 Jones on Mortg., § 873. In the case of Monroe v. Buchanan, where there had been an in- valid trust sale, at which, however, the purchase money had been paid and the note delivered up, this court says: “The lot was still. chargeable with the debt; the lien upon it was not extinguished, and equity required, if necessary that justice might be done all par- ties, that the note although lost or destroyed, and the mortgage, should be recognized as a subsisting and valid charge upon the lot. It is a familiar maxim, that equity will hold that as having been.done which should have been done; and it is equally true, that, in proper cases for its application, the converse of this proposition is as well established, and will hold that which should not have been done as still unperformed.” 27 Tex., 246. A class of cases, involving the same principle, that, to prevent injustice, equity will keep alive a debt, mortgage’ or judgment, al- though in law it may have been satisfied and the parties at the time so intended, is where there have been sales under decrees fore- closing liens, without making a subsequent vendee or mortgagee a party. This court has uniformly intimated its opinion that the pur- _ chaser, though he be himself the mortgagee or lienholder, might still, in a proceeding with proper parties, have the premises resold, the first sale and the satisfaction of the debt thereby being set aside or disregarded; the object being that equity might still be done between all parties. Pitman v. Henry, 50 Tex., 364-5; Carter v. Attoway, 46 Tex., 111; Jemison v. Halbert, 47 Tex., 190. To the same effect are Besser v. Hawthorne (7 Oregon, 131), and Hollister v. Dillon, 7 Ohio St., 197. In the latter case the mortgagee had obtained judgment for his debt without subjecting the land, and at an execution sale under that judgment became himself the purchaser. In consequence of intervening rights, no title passed by this sale; but the court denied that such a sale could MERGER. 203 operate as a payment of the debt for the benefit of those who had purchased subject to the mortgage. It says: “Such a sale of mortgaged property to the mortgagee cannot operate to deprive him of rights existing anterior to and independent of the judgment. That if such a mistake does not on the one hand lay a foundation for equitable relief, it does not, on the other, give any advantage to the debtor, when set up as a defense in a suit brought upon the mort- gage, over which a court of equity has unquestioned jurisdiction.” The case of Jemison v. Halbert is one much in point, and fully supports the conclusion that the court erred in holding the mortgagee extinguished as to Gammage. See also Robinson v. McWhirter, 52 Tex., 201. In the present case Silliman acted in ignorance of the existence of Gammage’s title, and therefore labored under a mistake of fact, and notwithstanding he for some purposes had constructive notice, our opinion is that equity would give him relief. For the purpose of protecting Silliman against the intervening claim of Gammage, the court should have treated the mortgage as in force, except so far as the secured debt had been paid by the con- veyance of lands not embraced in the mortgage. This question is directly made in assignments of error, but can hardly be said to be distinctly presented in the briefs of counsel for appellant. We have regarded it, however, in view of its fundamental nature in reference to the rights of the parties, as sufficiently before us. It was unnec- sary to make Parker a party. Monroe v. Buchanan, supra. No judgment could be rendered against him. The judgment is reversed and the cause remanded.!? 12 See also, Brooks v. Rice, 56 Cal. 428; Hines v. Ward, 121 Cal. 115; Lowman v. Lowman, 118 Ill. 582; Farrand v. Long, 184 Ill. 100; Hanlon v. Doherty, 109 Ind. 37; Fort Scott Bldg. & Loan Assn. v. Palatine Ins. Co., 74 Kans. 272 (semble); Cooper v. Bigly, 13 Mich. 463; Cook v. Foster, 96 Mich. 610 (semble); Miller v. Finn, 1 Nebr. 254. “Tt is said that mergers are odious in equity, and shall not be al- lowed, where the estates may well stand together. Here, we think, that both in law and equity, the estates may both stand together. “In order to effect a merger at law, the right previously existing in an individual, and the right subsequently acquired, in order to coalesce and merge, must be precisely co-extensive, must be acquired and held in the same right, and there must be no right outstanding in a third person, to intervene between the right held and the right acquired. If any of these requisites are wanting, the two rights do not merge, but both may well stand together. But the case we are considering sup- poses that a third person has, by operation of law, by purchase or by attachment, acquired certain rights or claims to the equity of redemption, which do not extend to the mortgage. When, therefore, the equity of redemption by purchase, and the mortgage by assignment, vest in the same individual, they do not coalesce or merge, if there be in a third person a right of dower, a right acquired by purchase, or a real lien by 204 DISCHARGE OF MORTGAGES. CLAY v. BANKS. SupREME Court oF GeorciA, 1883. 71 Ga. 363. Hatt, J. This immense record, covering one hundred and forty- eight printed pages, and out of which issued three separate bills of exception, makes but one controlling question, viz: whether the purchaser of land incumbered with a mortgage, which he agrees to extinguish, in order that one which he executes in favor of the vendor to secure the remainder of the purchas money may have priority, can afterwards, instead of satisfying the first mortgage, take an assignment of it to himself, and by pledging it to a third person, who had no notice of the contract with the vendor, as se- curity for a loan, displace and postpone the lien of the last mort- gage, in violation of the contract; and whether this assignment is not an extinguishment in favor of the last mortgage. We are of opinion that this question must be answered in the affirmative; and further, that the question of notice, so far as respects of the vendor, under this view of the case, becomes immaterial, as to any claim set up by the present holder of the assigned mortgage, as against the junior mortgage. It is familiar learning that the assignee of a chose in action, other than promissory notes, bills of exchange, etc., takes it subject to the equities existing at the time of the transfer between the original parties, and to such as subsequently arise, unless notice be given to the party bound. Row vs. Dawson, Ryall vs. Rowles, 2 W. & T. Lead. Cases, 1531 et seq. Clay, the assignee of the older mortgage, already had the title to the land when he became the owner of the mortgage, the incumbrance was, eo instanti, merged in the title. As a general rule, a party cannot be said to hold a lien upon his own property. This is never allowed, except where equity intervenes and keeps the lien outstanding to protect the title, and thereby prevent a failure of justice. 94 U. S. R., 413. The pur- attachment, intervening between the mortgage and the equity.” Shaw, C. J., in Hunt v. Hunt, 14 Pick. (Mass.) 374. “The tenant, by virtue of his prior attachment, goes behind the deed, given by the mortgagor to the demandant (the mortgagee), and avoids it. He is remitted to the state of the title, at the time of the attachment. He can not be permitted to defeat the deed for one purpose, and to set it up for another.” Weston, J., in Crosby v. Chase, 17 Maine, 369. “Where a mortgagee becomes the owner of the legal title * * * if there are junior mortgages on the land, it will be necessary to keep the titles separate, so as to protect the mortgagee from such inferior liens. As between the mortgagor and mortgagee a merger would be proper, but not as between the holders of the different mortgage liens. Instances might be multiplied where merger would be unobjection- able as to some parties and injurious to others.” Graves, J., in Fort Scott Bldg. & Loan Assn. v. Palatine Ins. Co., 74 Kans. 272. Compare, Matzen v. Shaeffer, 65 Cal. 81. MERGER. Z 205 pose of this assignment accords with this principle. Clay took it that the lien of the mortgage which had been foreclosed by a decree might be kept “alive, for the protection or defence of any title ac- quired by him or his assigns to the lands covered by the same.” This plainly appears from the terms of the assignment. Dickson vs. Williams, 129 Mass., 182, is directly upon the question of merger, under circumstances similar to those made by this case. In Carlton vs. Jackson, 121 Mass. R, 592, 596, it was distinctly laid down, as a rule applicable to a transaction like this, “that when the money is paid by one whose duty it is, by contract or otherwise, to pay the mortgage, it is a release, though in form it purports to be an assign- ment. Brown vs. Lapham, 3 Cush., 551; Braman vs. Dowse, 12 Cush., 227. “The subsequent assignment of the mortgage” by the party whose duty it was to extinguish it, “could give no title” to the assignee, “as against the plaintiff.” The only difference between this case and ours is, that in that there was a written obligation in the deed conveying the premises, binding the grantee to extinguish the mortgage; in ours that obliga- tion rested in parol, and it is insisted here that the cases, as to notice, are, for this reason, clearly distinguishable. The record of the deed was notice binding upon subsequent assignee; in this case, there could be no such notice. Even if notice were necessary, in order to defeat a subsequent assignment and a sale made under a process that was extinguished, there are circumstances quite sufficient here to have put Mr. Mills, the ultimate assignee, upon inquiry and to affect his conscience with direct, which is more effectual for this purpose than constructive notice, implied from the record of an instrument. * * * * * * * Judgment reversed.18 HARTSHORNE v. HARTSHORNE. Court oF CHANCERY OF NEw Jersey, 1840. 2N. J. Eq. 349. The Chancellor (Pennincton). This is a bill for dower. The complainant alleges, that her husband was seized in fee of certain lands in the county of Monmouth, during their coverture, of which she claims to have set off one-third part for her dower. It is stated in the bill, that prior to the marriage, her husband gave a mortgage on the property whereof dower is claimed, for three thousand dol- 18 Compare Goodyear v. Goodyear, supra. See ‘also, McCabe v. Swap, 14 Allen (Mass.) 188; Hatch v. Palmer, 58 Maine 271; Burnham v. Dorr, 72 Maine 198; Kingsley v. Purdom, 53 Kans. 56; Probstfield v. Czizek, 37 Minn. 420. 206 DISCHARGE OF MORTGAGES. lars, on which payments had been made reducing it to eleven hun- dred dollars, and that such mortgage has been assigned to the de- fendant. The defendant purchased the equity of redemption at sher- iff’s sale, and afterwards procured the assignment of the aforesaid mortgage. The bill further states, that during marriage, the com- plainant and her husband also executed a mortgage on the property for two thousand two hundred dollars, which has been reduced by payments to six hundred dollars, and is held by John W. Holmes. Other mortgages are set out in the bill, but as they are said to be paid off and discharged it is not material to state them here. To this bill there is a demurrer for want of equity and for want of par- ties, which presents some questions important to be settled. The defendant is a purchaser of the equity of redemption in the premises whereof dower is demanded, and has by assignment be- come the owner of a mortgage made by the husband prior to his mar- riage with the complainant. On the one side, it is insisted, that by this assignment the mortgage became merged or extinguished when it came into the defendant’s hands; and on the other, that the de- fendant is a mortgagee in possession, and the complainant’s rights thereby barred. A purchaser of the equity of redemption at a sheriff’s sale, takes the property cum onere, and acquires no rights beyond what remain in the mortgagor after satisfying the incum- brance out of the land. If, by any device or circuity, such purchaser should procure the payment of the mortgage without a resort to the land, as by suit against the mortgagor or his representatives on the bond, manifest injustice would take place; for he would then-have the property clear of the very debt subject to which it was sold. By such a course a purchaser, for a nominal sum, might become pos- sessed of a valuable estate, and the mortgagor virtually twice dis- charge the same debt. This difficulty was presented to Chancellor Kent and fully settled by him, in the case of Tice v. Annin, 2 Johns. Ch. 125. The rule he established in that case was this: Ifa credi- tor other than the mortgagee sells the equity of redemption by an execution at law, the mortgage debt remains undisturbed, and the rights of the mortgagor over and above the mortgage in the prop- erty are rightly disposed of to satisfy his creditors. This case presents no embarrassment. But suppose, after the equity of redemption is thus sold subject to the incumbrance, the mortgagee should prosecute his bond at law, and undertake to sell other property than that contained in the mortgage. Then the chancellor held that a court of equity should either stay such pro- ceedings, or compel the creditor, upon payment, to assign over his debt and security to the debtor, to enable him to indemnify himself out of the mortgaged premises. But in the case referred to, there existed a still greater difficulty. The mortgagee sold the equity of MERGER. 207 redemption in the mortgaged premises for a part of the debt, and then put it out of his power to assign the securities to the mortgagor by actually assigning them over to the purchaser of the equity of redemption; and to prevent gross injustice, the chancellor, as the only altérnative, held the debt extinguished in the hands of the pur- chaser. All this proceeds on the idea that the land discharged of the incumbrance, and if he attempt to make the debt by buying up the bond and mortgage and recovering the amount unjustly out of the obligor, the debt shall in his hands be considered extinguished. In a case so circumstanced, this result seems unavoidable, to pre- vent the grossest injustice and wrong. But I do not understand this case as going the length of saying, that a purchaser of the equity of redemption can be compelled, in all cases, to pay off the antece- dent incumbrances farther than the land itself will discharge them. The purchaser placed himself in a peculiar position, and was attempt- ing thereby to do a wrong; and the chancellor, to avoid such wrong, held the debt cancelled in his hands. There are cases, I am aware, which look like holding the purchaser liable for the debt personally, but I cannot think that such is the true doctrine. It is not necessary for me to decide this question here, but I desire to state my convic- tion, that the purchaser is liable to the extent of the land purchased, and no further, and that he will at all times be discharged upon re- leasing the land. There is no privity between the mortgagee and the purchaser, and I cannot see upon what principle he can be reached, except it be through the land which he has purchased. I speak not now of a case where the purchaser enters into special obligation to pay antecedent incumbrances; all such cases will be governed by the terms and character of the contract; but of the ‘ordinary purchaser without special agreement, depending on the obligation which the law in such cases imposes. Indeed it is matter of doubt whether it is intended, from the cases, to go farther than the principle as I have stated. The doctrine proceeds upon the idea that a court of equity, independent of any express contract, will raise upon the conscience of the purchaser an obligation to indemnify the mortgagor against his liability on the mortgage; but to what extent? Certainly not beyond the land purchased. This subject will be found discussed Waring v. Ward, 7 Vesey. Jr. 337; Cumberland v. Coddington, 3 Johns. Ch. 261; Stevenson and Woodruff v. Black, Saxton, 342. It is every day’s practice to sell the equity of redemp- tion by an execution at law, sometimes at the suit of the mortgagee and sometimes of other creditors. If a purchaser could be called upon to discharge all incumbrances on his personal liability, it would greatly embarrass these sales, and effectually prevent their being made. But whether this view of the subject be correct or not, and recog- nizing the decision in 2 Johns. Chan. to which I have referred, in 208 DISCHARGE OF MORTGAGES. which the bond and mortgage assigned to the purchaser of the equity of redemption was held to be an extinguishment of the debt, still, as it affects the right of dower of the widow in the lands, a new and very different question is presented. It is agreed, that if the husband before marriage, or in conjunction with his wife after mar- riage (the deed being acknowledged by the wife, in due form of law), execute a mortgage, and it remains in the hands of the mort- gagee, the widow can only have her dower subject to such mortgage; and when this defendant purchased the equity of redemption, he purchased with the widow’s right discharged to that extent on the property. Had the mortgage remained as it then was, in the hands of the mortgagee, the widow’s dower would have been subject to it, and why should it be otherwise now that it is transferred to the purchaser? Had a foreclosure and sale taken place under the mort- gage, the widow would have been barred her rights, except as to the surplus beyond satisfying the mortgage. At her husband’s death the true claim this widow had was to one-third of the land after the mortgages were satisfied, and nothing more. In the case in 5 Johns. Chan. before cited, it was held that the widow was bound to contribute her ratable proportion towards a mortgage which she had executed with her husband, and which the heir had been obliged to pay off, before allowing her dower in the land. The chancellor in that case says, “To allow her the dower in the land without con- tribution, would be to give her the same right that she would have been entitled to if there had been no mortgage, or as if she had not duly joined in it. It would be to give her dower in the whole ab- solute interest and estate in the land, when she was entitled to dower only in a part of that interest and estate.” But the case of Russell v. Austin, in 1 Paige, 193, will be found similar to the one we are now considering. That was a purchase of the equity of redemption at a sheriff’s sale, and an assignment to the purchaser of a bond and mortgage made by the husband and wife. It was there argued, that the debt was extinguished and merged by the assignment; but the court held the widow entitled to her dower in the equity of redemption only, subject to the mortgage. In that case, as in this, the intention of the purchaser not to extin- guish the debt was manifest, for instead of cancelling the securities he had them assigned to him. From every view, therefore, which I have been able to give this case, I cannot think this widow entitled to anything more than her dower in the lands subject to the outstanding mortgages, in- cluding the one assigned to the defendant.14 She is entitled to her 14 See also, Watson v. Gardner, 119 Ill. 312; Simonton v. Gray, 34 Maine 50; Gibson v. Crehore, 3 Pick. (Mass.) 475; Snyder v. Snyder, 6 Mich. 470; Hinds v. Ballou, 44 N. H. 619; Everson v. McMullen, 113 N. Y. 293, In the last case the mortgage had been discharged but the payor was held entitled to subrogation. See also, Ryer v. Gass, 130 Mass. 227. MERGER. 209 dower in the lands in the possession of the defendant, (upon the case stated in the bill), upon keeping down one-third of the interest on the amount due on the property. * * ok 3K * 2k oe While, therefore, my opinion is with the defendant on the main qtiestion in the cause, yet, as his demurrer is to the whole bill, and the complainant is entitled to her dower in the equity of redemption, and as there is no defect of the parties, the demurrer must be over- ruled with costs. Demurrer overruled. “One who purchases property at an execution sale, is in the same po- sition in respect to previous encumbrances as one who takes a quitclaim deed, or one who takes a deed expressly subject to encumbrances which constitute a charge upon the land. Such persons do not become per- sonally liable to pay pre-existing encumbrances, but as in each case the purchaser is deemed to have deducted the amount of the prior encum- brances from the purchase price, the land in his hands becomes the pri- mary fund out of which the encumbrances are to be paid. When the purchaser pays them off, no matter by what method, they will be treated as extinguished, unless there is some equitable purpose to be subserved by keeping them alive. * * * “There could be no just: motive or equitable purpose which would authorize Grave to keep his own mortgage alive against his own land. * * * Hie knew when he purchased the land at the exceution sale that, under the law of 1875, he acquired a right, and could obtain title, as against the wife of the execution debtor to the undivided two-thirds of the land and no more. He was bound to know that as to the prior mortgages, executed by Mrs. Bunch and husband, for the latter’s debts, she occupied a relation analogous to that of a surety. The two-thirds as to her was, therefore, charged with the payment of the whole debt, provided the land was of sufficient value. * * * He was, in effect, the principal, because he was in possession of the fund out of which the debts were to be paid, and which it is admitted, was sufficient to pay the debts. In effect, he had in his hands the money with which to pay the encumbrances which rested upon the lands of both. When he paid them, he simply discharged his own primary obligation, out of a fund which he held for the benefit of himself and Mrs. Bunch.” Mitchell, J., in Bunch v. Grave, 111 Ind. 351. See also, Campbell v. Knights, 24 Maine 332; Byington v. Fountain, 61 Iowa 512. But see, Braden v. Graves, 85 Ind. 92. Compare Arnold v. Green, supra. It is commonly said that it is im- material whether, in such a case, the mortgage is discharged or as- signed, the idea being that, if the equities are not such as to warrant relief by way of subrogation in the case of a discharge, there will be a merger in the case of an assignment; and, conversely, if the equities are such as to prevent merger in the case of an assignment, relief may be had, in the case of a discharge, by way of subrogation. See, how- ever, Eaton v. Simonds, 14 Pick. (Mass.) 98, and Gibson v. Crehore, post. 14 210 DISCHARGE OF MORTGAGES. DICKASON v. WILLIAMS. SUPREME Court or MASSACHUSETTS, 1880. 129 Mass. 182. Contract upon a promissory note for $3,000, dated March 29, 1870, payable to the plaintiff or order five years after date, and signed by the defendant. Writ dated November 2, 1878. The answer admitted the making of the note, but averred that it was a mortgage note, and that the mortgage had merged. At the. trial in the Superior Court, before Wilkinson, J., the following facts appeared in evidence: The note sued on was secured by a mortgage deed, containing the usual power of sale, of land on Henchman Street, in Boston, de- livered by the defendant to the plaintiff on March 29, 1870. The defendant conveyed the land to John and Bridget Wills, by deed dated February 5, 1874, which contained these words: “And I do hereby for myself and my heirs, executors, and ad- ministrators covenant with the said grantees ‘and their heirs and assigns that I am lawfully seised in fee simple of the granted prem- ises ; that they are free from all incumbrances, excepting a mortgage thereof for $3,000, which, with the interest thereon, the grantee assumes and agrees to pay.” John and Bridget Wills conveyed the land to the plaintiff by a deed dated September 30, 1878, in which the consideration named was $3,500, and which contained these words: “The above conveyance is made subject to a mortgage of $3,000, which mortgage forms part of the above consideration.” After the date of the writ in this action, the plaintiff conveyed the land to Dennis Winterson. The plaintiff also introduced testimony to prove that the market value of the land when conveyed to her by John and Bridget Wills was not over $2,500, and it was admitted that the plaintiff paid nothing to John and Bridget Wills for said conveyance. Upon these facts, the judge ruled that the plaintiff’s claim against the defendant for the balance of the note over and above the market value of the land on September 30, 1878, was not extinguished. The jury returned a verdict for the plaintiff for $707.95; and at the request of the defendant, the judge reported the case for determina- tion of this court. If the ruling was right, judgment was to be en- tered on the verdict; otherwise, the verdict was to be set-aside, and a new trial ordered. Ames, J. It appears from the report that the note in suit, which was for $3,000, was given by the defendant to the plaintiff, and was secured by a mortgage upon certain premises in Henchman Street in Boston. The note and the mortgage were of the same date, and MERGER. 211 there is no intimation of any other mortgage on the property. Some years afterwards, and before the note became due, the defendant conveyed the property to John and Bridget Wills, subject to the mortgage, it being recited in the deed that the grantees assumed and agreed to pay the mortgage. The effect of this transaction was to impose upon grantees, by their acceptance of such a deed, a duty to make the payment, upon which the law would imply a promise to do so. Pike v. Brown, 7 Cush. 133; Braman v. Dowse, 12 Cush. 227; Jewett v. Draper, 6 Allen, 434. Subsequently, and after the matur- ity of the note, these grantees, in consideration of $3,500, conveyed the mortgaged property to the plaintiff subject to the mortgage of $3,000, “which mortgage forms part of the above consideration.” In other words, the plaintiff repurchased the property, or -took it back, and part of the price of this repurchase was the debt or claim which she at the time held against the same property. The plain- tiff accepted a deed, which on its face imported that the amount due to her upon this note, which John and Bridget Wills had become liable to pay, was reckoned and included in the consideration for that very deed. This mode of dealing operated as a payment of the mortgage debt, by a party legally bound to pay it, to a party en- titled to receive it. Upon these facts, the same person who held the mortgage has become the holder of equity of redemption, and there being no intervening incumbrance or outstanding interest in any other person, the mortgage is merged and the debt extinguished. 2 Wash. Real Prop (4th ed.), 193, and cases here cited. Verdict set aside, and new trial ordered. SPENCER v. HARFORD. SupREME Court oF New York, 1830. 4 Wend. (N. Y.) 381. [Demurrer to pleas. The declaration is in debt on bond executed by defendant’s testator to plaintiff. ] ‘By the Court, Savacg, C. J. The defendants plead four pleas, the object of which seems to be set up the same defence, to wit, a satisfaction of the debt by an extinguishment of a mortgage which was given as collateral security at the same time the bond was executed. * * * * * * * The third plea states that Fellows, by the sheriff’s deed became seised of the equity of redemption; and that being requested by the 15 Compare, Johnson v. Walter, 60 Iowa 315; Moore v. Olive, 114 Iowa 650; Russell v. Pistor, 7 N. Y. 171; Kellogg v. Ames, 41 N. Y. 259. 212 DISCHARGE OF MORTGAGES. plaintiff either to pay the debt due him or to assign to him the equity of redemption in the mortgaged premises, Fellows conveyed for the consideration of one dollar, whereby the plaintiff became seised thereof, and the debt became paid and satisfied. The fourth plea is like the third, except it contains the additional averment that the plaintiff on the 17th November, 1825, sold the premises in fee for $650 to John Harford. We thus learn in these pleas, by way of inference, that Fellows purchased the equity of redemption in the mortgaged premises, and that the plaintiff became assignee of the same for a nominal con- sideration; and that he sold the premises in fee for $650. Had the third plea contained an averment that the value of the premises when the equity of redemption was conveyed to the plaintiff was equal to the amount due on the bond, or had the fourth plea con- tained an averment that the property was of the same value when the equity of redemption was conveyed to the plaintiff as when he sold to Harford, or was of value equal to the amount due on the bond, I should think the pleas good in substance, though in some re- spects informal. The only effect of the. sheriff’s sale was to substitute Fellows in the place of the mortgagor; when, therefore, the mortgagor re- leased his equity of redemption for a nominal consideration to the mortgagee, the latter had the whole estate. Whether this effect is produced by a technical merger of the equitable into the legal estate, according to 2 Cowen, 246, or whether he holds the legal estate dis- charged of the condition, according to 2 Mason, 539, it is not-im- portant to inquire. The mortgagee becomes absolute owner, as he would by a foreclosure; and if the property when he thus receives it is equal in value to the debt for which it was mortgaged, it is payment in full; otherwise, not: but, in any event, is payment, pro tanto, acccording to its actual value. The pleas do not contain the necessary averments. It may be that the property was well worth $650 or more when sold to J. Harford, and not worth $100 when the title was vested in the plaintiff; the difference may have been caused by improvements or a rise in the value of the land. The value therefore should appear by proper averiments. The pleas are all bad, and the plaintiff is entitled to judgment upon them, with leave to the defendants to amend, on payment of costs.16 16Compare, Lilly v. Palmer, 51 Ill. 331; Murphy v. Elliott, 6 Blackf. (Ind.) 482; Northwestern Nat. Bank v. Sloan, 97 Iowa 183; National Investment Co. v. Nordin, 50 Minn. 336; Tucker v. Crowley, 127 Mass. 400 (cf. Pratt v. Buckley, 175 Mass. 115). See also, 15 Harv. L. Rev. 740. MERGER. 213 EDITORIAL NOTE. On discharge by alteration, see Kendall v. Kendall, 12 Allen (Mass.) 92; Waring v. Smyth, 2 Barb. Ch. (N. Y.) 119. On discharge by foreclosure, on the effect of bankruptcy of the mortgagor, and on the effect of the statute of limitations, see post, Chap. VII. CHAPTER V. ASSIGNMENT OF MORTGAGES. YOUNG v. MILLER. SupREME Court oF MassacuHusetts, 1856. 6 Gray (Mass.) 152. Suaw, C. J. The plaintiff is indorsee of one of two negotiable notes, one for $300, the other for $750, secured by a mortgage. The payee indorsed the $300 note to the plaintiff, but did not as- sign the mortgage or any part of it, but retained it and the other note secured by it, and afterwards transferred them, and the as- signee discharged the mortgage. The plaintiff now brings this writ of entry to foreclose the mortgage, and claims that she had an interest in the mortgaged premises pro tanto, and that the mortgage could not be discharged in full, to her injury; and that, although the present defendant came in by an apparently good title, yet that the estate was sub- ject to her lien. A proposition of this sort, not only that the holder by indorse- ment of a negotiable note, originally secured by mortgage, has some equitable interest in the mortgage under some circumstances, but that she may maintain a real action in her own name to recover the land, is so contrary to settled notions here, that it seems quite startling. It seems to be repugnant to what have long been regarded in this state as first principles. The true character of a mortgage is the pledge of real estate to secure the payment of. money, or the performance of some other obligation. Its object, from its creation to its redemption or fore- closure, is that of a pledge for such debt or duty. It may, in many aspects, be called a real lien, a chattel interest, a chose in action, and quasi personal. But as it binds land, and may lay the foundation of a title to real estate, it assumes, in many re- spects, the character of a land title. It is so in its origin, by deed; in the mode of giving it notoriety, by registration; in its transfer, by deed of assignment; its discharge, by deed of release; and in the mortgagee’s remedy, by writ of entry against the mortgagor or other person in possession under him. It may be admitted that there are equitable and incidental inter- 214 ASSIGNMENT OF MORTGAGES. 215 ests, which are recognized and enforced in a court of equity only. Whatever may be the tendency to confound legal and equitable rights, there is great convenience, if not safety, in keeping up this distinction. ” But whatever may be the equitable interest of a party situated like the present plaintiff, it seems to us that she can stand in no higher relation than that, of a cestui que trust, having an equitable interest in real estate, the legal title to which is in another; such interest being manifested by an actual or resulting trust. In this case, it is difficult to perceive, without further evidence, that she can establish any such trust. The original payee held two nego- tiable notes, both secured by one and the same mortgage. The notes constituted personal contracts of the maker, independent of the mortgage, both or either of which might be enforced as such, without reference to the mortgage. It was therefore competent for such payee and mortgagee, if such was his real intention, to indorse one of the notes and give his indorsee all the legal title thereto, as a personal contract, and retain to his own use the en- tire mortgage interest, or pledge of the realty, as security for his other note. When a party holds a mortgage to secure the payment of a single negotiable note only, and no formal assignment is made of the mortgage, and nothing to indicate an intention of the parties that it is not to be assigned; as the mortgagee and indorser of the note, after such indorsement, would hold only a barren fee, with- out beneficial interest, and as the mortgage accompanying the note would be highly beneficial to the indorsee for the security of his note, the law may well imply the intention of the parties that the mortgage is thenceforth to be held by the mortgagee in trust for the indorsee. In other words, such a transaction might manifest a resulting trust. But when such mortgage is given for two such negotiable notes, and the holder indorses one, without the expres- sion of any intent, either to retain the mortgage to his own use as security for his remaining note, to the security of which alone per- haps it is adequate, or to hold it in trust for himself and his in- dorsee, and when therefore the mortgagee has a beneficial interest in the mortgage, and there is nothing express in favor of the in- dorsee, it may perhaps be doubted whether any resulting trust would be implied.t 1“The principle that an assignment of the debt involves an assign- ment of the mortgage security applies in the case of an assignment of a part only of the debt, which is usually effected by a transfer of one of several notes evidencing the debt, and in such cases the assignee is entitled to share in the benefit of the mortgage security. When the various notes secured by the mortgage are transferred to different per- sons, a question arises as to the respective priorities of those persons in case the mortgaged land is not sufficient to pay all the notes in 216 ASSIGNMENT OF MORTGAGES. But supposing that such a trust would be implied, then the ques- tion is, whether stich cestui que trust can maintain a real action. The opinion of the court is that he cannot, And we think that no case cited in the learned argument of the plaintiff’s counsel, rightly understood, leads to any different result. The case cited of Martin v. Mowlin, 2 Bur. 978, contains some very strong expressions of Lord Mansfield, to the effect, that what- ever transfers the money secured by mortgage, transfers the land. Mr. Justice Wilde, in Parsons v. Welles, 17 Mass. 424, following Judge Trowbridge, thinks that there must have been some quality. ing expressions, which the reporter omitted to state, in that case. But with reasonable limitations, arising plainly from the subject- matter, it does not import anything contrary to the law, as held in Massachusetts. The only point adjudged was, that when, by the terms of a will, real estate is given to one, and money and personal property to another, a mortgage due to the testator, al- though it had become absolute at law by the nonpayment of the debt at the day, being still redeemable in equity by the established rules of chancery, should be considered personal property, and pass to the legatee of the personal estate, and not land, to go to the devisee of the realty. It was inferring the intent of the tes- tator from the nature of a mortgage, as a pledge and security for money, and not as land, so long as it is redeemable. Green v. Hart, 1 Johns. 580, was a case in the court of chancery, and the equitable rights and remedies only of the plaintiff were drawn in question. But in that case the mortgage was given for the security of one note only, and the mortgage deed was delivered with the note to the indorsee, and this act was clearly an indica- tion of the intent of the mortgagee to give the indorsee the benefit of the mortgage. full. In some states the rule has been adopted that, if the notes in the hands of different persons mature at different times, as is usually the case, they are entitled to priority, as regards the benefit of the mort- gage, in the order of their maturity. In other states, the assignees of the different notes are entitled to share in the proceeds of the mortgaged land in proportion to the amounts of their respectve notes, without reference to the time of their maturity. The rights of the assignees of the notes in this respect may also be controlled by an express stipula- tion in the mortgage, or by an agreement made at the time of assign- ing a note, as to the order of priority. “Occasionally, though not usually, the view has been taken that a mortgagee who assigns one or more of the notes, retaining the balance, cannot claim to share in the benefit of the mortgage security as against his assignee, since he is presumed to have been paid by the latter the value of the notes assigned, and it seems to be agreed that a contract to this effect is to be presumed from the fact that the mortgage is as- signed with the notes. Likewise, if the mortgagee is a surety for the payment of the note, he cannot claim a part of the benefit of the mort- gage as against his assignee.” ‘Tiffany, Real Property, § 533. ASSIGNMENT OF MORTGAGES. 217 Jackson v. Blodgett, 5 Cow. 203, was the case of a mortgage to secure one debt on a bond not negotiable; the bond was as- signed without the mortgage, and the debtor had notice thereof. Afterwards, acting under a supposed power of the mortgagee, with- out legal authority and by collusion with the debtor, an agent re- ceived payment of the debt and discharged the mortgage. It was decided that the discharge was fraudulent; the payment by the debtor, after notice of the assignment of the bond, a payment in his own wrong; and that an action might be maintained by the original mortgagee, in connection with the assignee of the bond, for the benefit of the latter. Jackson v. Willard, 4 Johns. 41, decided that the interest of a mortgagee in mortgaged premises could not be taken in execution by the sheriff and sold to satisfy the debt of the mortgagee, until foreclosure, though the estate of the mortgagee had become abso- lute at law; because, whilst redeemable in equity, it was but a pledge for a debt; which is quite consistent with our laws. Our own authorities are numerous, and we think decisive. Read- ing of Judge Trowbridge, 8 Mass. 554, and seq.; Warden v. Adams, 15 Mass. 233; Somes v. Skinner, 16 Mass. 348. In that case, suit was brought for several tracts of land; it turned out that, though the plaintiff had a legal title to several, one was held by a trustee for him; and it was held, that he could not maintain a real action. for that; and on motion he was allowed to discontinue as to that parcel. Parson v. Welles, 17 Mass. 419; Crane v. March, 4 Pick. 131. In that case, it was held, that if the indorsee of one of several notes secured by mortgage, without assignment, has any right to the mortgaged estate in security, it is only in equity, as cestui que trust, the legal estate being in the mortgagor. Of course he could not maintain a real action. In conclusion, the court are of the opinion that, under the cir- cumstances, if the plaintiff, by taking one of two notes secured by mortgage, by indorsement, without any assignment of or refer- ence to the mortgage, took it with any resulting trust in the mort- gaged premises—upon which it is unnecessary to express an opin- ion for the decision of this cause—she took no legal interest in the realty, and therefore that this action cannot be maintained. Judgment for the defendant. KENT, J., in Jounson v. Hart, 3 Johns. Cas. 322 (N. Y. Court of Errors, 1802). Here was a note given to Green, which was secured by a mortgage. Wherever the note goes it will carry the charge upon the land along with it. The estate in the land is here the same thing as the money due on the note. It will be liable to debts; it will go to executors. It will pass by a will not made with the solemnities of the statute of frauds. The assign- 218 ASSIGNMENT OF MORTGAGES. ment of the debt, or forgiving it even, by parol, draws the land after it, as a consequence. The right to the land will follow, not- withstanding the statute of frauds: This doctrine was established by the court of K. B. as early as the year 1760; (2 Burr. 978, 979), and according to this doctrine, when Green duly negotiated his note to Hart, the interest in the mortgage, which was given for no other purpose but to secure that note, passed of course. It re- quired no writing, no assignment on the back of the mortgage, The assignment of the note applied equally to the note and the pledge. The one was but appurtenant to the other. Whoever was owner of the debt, was likewise owner of the security. There must be something peculiar in the case, some very special provision of the parties, to induce the court to separate the ownership of the note from the ownership of the mortgage. In the eye of common: sense and of justice, they will generally be united. By the transfer, then, of the note to Hart, the mortgage went with it, and the same interest passed in the one as in the other. Had this been an absolute transfer, there could have been no good rea- son for requiring Green to be a party to the suit, because he had no further interest in the subject. He could not be considered as having any longer even the estate at law in him. From the doc- trine to which I have referred, he would be considered at law, as well as in equity, as having passed all his interet in the mort- gage, by the assignment of the note. The assignment of the one would be deemed an assignment of the other.? BrIcKELL, C. J., in WetsH v. Puruuips, 54 Ala. 309 (1875). Whether a mortgagee may by an assignment to a stranger of the mortgage, or by a conveyance of the premises, unattended by a transfer of the mortgage debt, pass the legal estate, is a question on which the authorities in this country are in irreconcilable conflict. In New York, New Hampshire and some other states which have followed their decisions, such a conveyance or assignment would be void, and one entering under it would be a trespasser as against the mortgagor. In other states, the assignment or conveyance, if 2This was an equitable suit by the assignee to foreclose the mort- gage. The mortgagee-assignor was not made a party. It was held that he was a necessary party and the decree of foreclosure was re- versed. Kent, J., gave as his reasons that, the assignment not being absolute but by way of security only, the right ‘of the assignee to the mortgage depended upon there being something still due to him from the assignor, and that, assuming a balance due, the assignor had a right to redeem from the assignee. Radcliff, J., concurred upon the grounds stated by Kent, J., and also upon the ground that “no such assignment has been made to carry the estate at law; that the fee is, therefore, still vested in Green, * * * All the parties before the court are, therefore, possessed of equitable interests only, yet the chan- cellor has decreed the whole estate to be sold. It is certain that a decree can never affect the interest of a party not before the court.” ASSIGNMENT OF MORTGAGES. 219 in proper form to pass an interest in real estate, is treated as a conveyance of the legal estate, passing to the assignee or grantee, the right of the mortgagee to enter—2 Wash. Real Prop., § 4, ch. 16. The correctness of the one decision or the other, depends on the theory of a mortgage which may prevail. If it is regarded as a mere security for a debt, a chattel interest, until foreclosure, the mortgagor continuing the real owner of the fee, an assignment of the mortgage or a conveyance by the mortgagee of the prem- ises, not intended, and incapable of operation as a transfer of the debt, may be treated as void, not passing any estate or interest in land. That, however, notwithstanding what is said in Duval v. McLoskey, 1 Ala. 737, is not the theory of a mortgage which the current of our decisions has recognized, and by which they have been controlled. A mortgage is more than a mere security for a debt—it creates a direct, immediate estate in land—a fee simple, unless otherwise expressly limited. The estate is condi- tional—annexed to the fee is a condition which may defeat,it. The mortgage, if in the conveyance there is not a reservation of the possession to the mortgagor, until default in the performance of the condition, has the immediate right of entry, and may eject the mortgagor or his tenants——Duval v. McLoskey, supra. If the mortgagor is permitted to remain in possession, he is the mere tenant at will of the mortgagee. After the law day, and default in the performance of the condition, at law the estate is absolutely vested in the mortgagee—the fee is freed from the condition an~ nexed to it. Nothing remains in the mortgagor but the equity of redemption, of which courts of law take no notice. Paulling v. Barron, 32 Ala. 11; Barker v. Bell, 37 Ala. 358. Before default, all that remains in him, is the right to perform the condition and thereby restore his original estate. An assignment of the mort- gage debt, without an assignment of the mortgage, will not pass the legal estate, that remains in the mortgagee in trust, an equitable security for the payment of the debt. In Center v. P. & M. Bank, 22 Ala. 751, it is said that the mortgage is but an incident and passes in equity to the assignee of the debt. But, the legal estate resides in the mortgagee until the mortgage is assigned. In Gra- ham v. Newman, 21 Ala. 498, it is said, the assignment of a mort- gage debt operates in equity an assignment of the mortgage, en- titling the assignee to use the name of the mortgagee to enforce the mortgage at law. If not only the debt, but the mortgage also is assigned, the legal title passes to the assignee, and he may at law proceed in his own name. If the mortgage is of land, to pass the legal estate there must be a deed from the mortgagee to the assignee, “either on a separate paper or endorsed on the mortgage deed, with suitable words to convey the thing itself.” On a bill to foreclose, the mortgagee in possession having died, the heir to 220 ASSIGNMENT OF MORTGAGES. whom the legal title has descended is an indispensable party, that the legal title may be bound by the decree—Huggins v. Hall, 10 Ala. 283. In a court of law nothing less than payment, or some- thing equivalent to payment of the mortgage debt, a release in writing of the mortgage, or a reconveyance, operates a divestiture of the legal estate of the mortgagee.—Barker v. Bell, supra; Powell v. Williams, 14 Ala. 476. It is not settled in this state that pay- ment of the debt after the law day, without reconveyance from the mortgagee, will restore the fee to the mortgagor; and in Col- lins v. Robbinson, 33 Ala. 91, the court refrained from determin- ing whether after payment the mortgagee not having reconveyed, could maintain ejectment. It is manifest that our decisions have regarded mortgages as of a dual character—a conveyance of an estate in lands—and a security for a debt; bearing one character in a court of law and another in a court of equity. At law it is a conveyance of an estate in lands, with a condition annexed which may defeat it. It comprehends the entire fee, leaving the mort- gagor the right, on the performance of the condition, to restore himself to his original estate. This right, as between mortgagor and mortgagee, is not property, but matter of jurisdiction, and if it is not exercised to the day it is lost. In equity it is a security for a debt, passing as an incident with the assignment of the debt, as any security for its payment would pass. The mortgagor has an equity of redemption, a right to perform the condition, on mak- ing compensation to the mortgagee, which is regarded as an estate in lands, separate from the legal estate, alienable or transmissible by descent or devise. It would not comport with this theory, now too firmly engrafted in our law to be controverted, to assert that a conveyance by the mortgagee, though not operating an assign- ment of the mortgage debt, does not pass the legal estate. However this may be, it can not be doubted that a mortgagee in actual possession, as was John S. Welsh when he conveyed to Nicholas Welsh, may convey to a stranger, and his conveyance, if expressed in proper terms, will pass the possession, enabling the grantee to hold and defend against all who can not show a superior title—Smith v. Smith, 15 N. H. 55; Wallace v. Goodall, 18 N. H. 439; Hinds v. Ballou, 44 N. H. 619; Givan v. Doe, 7 Blackf. 210. The conveyance employs the statutory words, “grant, bargain, sell,” declared when it was made to import an express covenant that the grantor was seized of an indefeasible estate in fee simple, freed from incumbrances done or suffered from the grantor, and for quiet enjoyment against the grantor, his heirs or assigns.—Clay’s Dig. 156, § 31. The operation of this convey- ance was to. pass not only the present interest of John S. Welsh, the mortgagee, which was an estate in fee simple debased by the quality annexed in its creation, but the pure fee simple accruing ASSIGNMENT OF MORTGAGES. 221 from the failure of the mortgagor to perform the conditions on the day appointed. Such a conveyance by a mortgagee operates not only a conveyance of the land, but an equitable assignment of the debt, to which the interest of the grantor in the lands may be said to be incidental—Ruggles v. Barton, 13 Gray, 506; Hunt v. Hunt, 14 Pick. 382; Connor v. Whitmore, 52 Me. 186. If the fee of John S. became perfect at law, freed from the conditions annexed by the failure of the mortgagor to pay the debt, it would have enured to his grantee, and he would have been estopped from setting it up against him. A breach of the covenants of the con- veyance can be avoided only by treating it, as it imports to be, a transfer of the grantor’s interest ‘in the lands, and of all he had necessary to render the conveyance operative and effectual. ELLISON v. DANIELS. SUPREME Court oF NEw Hampsuire, 1840. 11 N. H. 274. Writ of Entry, to recover twenty-five acres of land in Barring- ton, in the county of Strafford. Plea, nul disseizin. It appeared, that on August 5, 1814, the demandant was seized of the demanded premises in fee, and that on that day he con- veyed the same, together with eight acres of other land, to Jo- seph Ellison, in mortgage, to secure the payment of the demand- ant’s promissory note of even date with the deed of mortgage, and payable to the mortgagee on or before August 1, 1818. Jo- seph Ellison, on November 30, 1820, executed a deed of the prem- ises to Abraham Ellison, with covenants of warranty, and Abra- ham Ellison, on March 6, 1826, executed a similar deed of the premises, to the tenant. The tenant offered evidence tending to prove that Joseph Ellison took possession of the twenty-five acres, for the purpose of foreclosing the mortgage. The note was not produced at the trial, and there was no evidence of any transfer, or assignment of it by Joseph Ellison. The court ruled that whatever right Joseph Ellison acquired by the mortgage, passed, in virtue of said deeds, to the tenant. A verdict was returned for the tenant, and the counsel for the demandant moved to set the same aside, and for a new trial, for alleged error in said ruling. Woops, J. This action is brought by the. demandant to recover possession of a tract of land conveyed by him in mortgage to one 222 ASSIGNMENT OF MORTGAGES. Joseph Ellison, while the mortgage still continues outstanding and in full force. Upon the facts reported, there can be no pretense that the mort- gage has been foreclosed as to the lands in question. Under our statute, no possession, short of a peaceable and continued actual possession, for one year after entry, can operate a foreclosure of a mortgage. N. H. Laws 486. It does not appear that Joseph Ellison, the mortgagee, was ever in the actual possession of the twenty-five acres of land claimed in this suit. The question of actual possession by Joseph Ellison was not submitted to the jury, nor is the fact found by the case, upon the concession of the par- ties. That fact was controverted, but not determined. Two questions properly arise upon the case. 1. Can the demandant, who is the mortgagor of the premises sought to be recovered, maintain the action while the mortgage remains in force, against even a stranger to the title in possession? 2. Is the tenant a stranger to the mortgage title, or is he as- signee thereof ? * * * * * * * Upon the authorities cited, the doctrine would seem to be fully established, that, as against all strangers to the title of the mort- gagee, the mortgagor is at law the owner, and is seized of the estate mortgaged, and may maintain a real action for the recovery thereof, while the mortgage is still a subsisting mortgage; and that no stranger to the mortgage will be permitted to set up such out- standing mortgage, without entry or foreclosure of the mortgage by the mortgagee or his assigns, to defeat the seizin and recovery, on the part of the mortgagor. This brings us to the question, and makes it important to en- quire, whether the tenant is, upon the facts reported, a mere stranger to the mortgage interest of Joseph Ellison, or was in fact the assignee thereof? To a proper solution of this question, it is not unimportant to ascertain the nature, character, and extent of the interest of Elli- son, the mortgagee, in virtue of his mortgage. At law, by the mortgage, a conditional estate in fee simple vests in the mortgagee. Dexter v. Harris, 2 Mason 531. And a real action may be maintained by a mortgagee, to recover possession of the mortgaged premises. Estabrook v. Moulton, 9 Mass. 258. And in Southerin v. Mendum, 5 N. H. 420, it is said, that a mortgage in fee passes to the mortgagee, as between him and the mortgagor, all the estate in the land; and he may maintain tres- pass, or a writ of entry, against any one who may disturb his possession, even against the mortgagor himself. And so far as it may be necessary, to enable the mortgagee to ASSIGNMENT OF MORTGAGES. 223 prevent waste, and to keep the iand from being in any way dimin- ished in value, or to receive the rents and profits, and, in short, to give him the full benefit of the security, and appropriate remedies for any violation of his rights, he is undoubtedly to be treated as the owner of the land. Southerin’ v. Mendum, and authorities there cited. Glass v. Ellison, 9 N. H. Rep. 69. (Ante 55, Smith v. Moore.) In all other respects, and for all other purposes, the interest of the mortgagee is treated as a mere personal chattel. * * * * * Xk 2 The right of the mortgagee to have his interest treated as real estate, extends to, and ceases at the point, where it ceases to be necessary to enable him to protect and to avail himself of his just rights, intended to be secured to him by the mortgage. To enable the mortgagee to sell and convey his estate, is not one of the purposes for which his interest is to be treated as real estate. There is no necessity that it should be so treated for that purpose. That can be equally well effected in the usual way of assigning and transferring the debt secured by the mortgage. The mortgagee is secured, and fortified in all his rights, without the adoption of any such principle, and the plain purposes of a mort- gagee forbid it. The object of the mortgage is the security of the debt; and it is obvious reason, that he only who controls the debt should control the mortgage interest. The right of Joseph Ellison, then, in the premises in question, for the purpose of sale or transfer, was a mere personal chattel, incident to, inseparable from, and capable of being transferred only in connection with the note by virtue of an assignment thereof. And the question is, whether that right passed to the tenant, in virtue of the conveyances from Joseph to Abraham Ellison, and as Abraham to the tenant. Did the note pass by force of those deeds? The deeds from Joseph to Abraham Ellison, and from Abraham Ellison to the tenant, were deeds, with covenants of warranty, pur- porting to convey the lands described in the mortgage deed of the demandant to Joseph Ellison. The deeds did not in terms import a transfer of the note secured by the mortgage, nor from the deeds alone could it be ascertained that the note described in the mort- gage ever had existence. If in terms, then, there was no assign- ment, or transfer of the note, the further question arises, whether the deeds did not in legal effect operate an assignment of the note. * * * * * * * Ch. J. Richardson, in delivering the judgment of the court in Bell v. Morse, 6 N. H. Rep. 205, holds this language: “It ap- pears that the tenant is in possession under a title derived from Thomas Morse. But Thomas Morse was only a mortgagee when 224 ASSIGNMENT OF MORTGAGES. he conveyed to the tenant. We have no doubt that, under certain circumstances, a conveyance of the land by the mortgagee will pass the debt secured by the mortgage. But there are certain cases in which a deed of the land by the mortgagee will pass nothing. Thus, where a note is secured by a mortgage, if the mortgagee has transferred it he cannot afterwards convey the land. And we are of opinion, that it is not enough to show a deed from a mort- gagee, in order to prove that the land passed, but it’ must be made to abpear that the debt passed to the grantee—at least, it must appear that the mortgagee had a right to transfer the debt to the grantee. As no account is given of the debt secured by the mort- gage in this case, we think that the tenant is not entitled to hold the land against the demandant.” This case is directly in point, and to the effect that nothing passed by the deed of Joseph Ellison to Abraham, and conse- quently nothing to the tenant by Abraham’s deed. In this case, as in Bell v. Morse, it did not appear that there had been a trans- fer of the note by the mortgagee prior to the date of the deed to the grantee of the mortgagee. In fact, no account was given in either case of any disposition made of the notes by the mortgagees. The point of the decision in Bell v. Morse, is, that a deed alone of the mortgagee, importing a conveyance of ‘the land, does not pass the debt secured by the mortgage. It would seem, however, fairly to be inferred from the language of the opinion, that if it had appeared that Thomas Morse had had the control of the debt at the date of his deed to the tenant, that the debt would have passed by the deed; that the control of the debt is one of the cir- cumstances under which it seemed to be the impression of the court, that a deed of the land would also pass the debt. Whether proof of the fact of the possession of the note by Jo- seph Ellison, at the date of his deed, to Abraham, would have given effect to that deed, so as to pass the debt and the mortgage interest, need not now be determined. Upon the authorities cited, and the facts of this case, we think it entirely clear, that nothing passed by the deed of Joseph to Abraham Ellison, or by the deed of Abraham to the tenant. The tenant, then, was a mere stranger to the mortgage title and had no interest therein. The instruction, therefore, to the jury, that the interest of Jo- seph Ellison did pass to the tenant, was incorrect. New trial granted. ASSIGNMENT OF MORTGAGES. 225 MERRITT v. BARTHOLICK. Court oF APPEALS OF NEW York, 1867. 36 N. Y. 44. Parker, J. If the delivery of the mortgage, without the bond, to Wentworth, as collateral security for the debt which such de- livery was intended to secure, operated as a valid assignment of the mortgage to Wentworth, the judgment below is wrong and can- not be sustained. On the other hand, if it conveyed no interest in the mortgage to Wentworth, then the defendant, who claims his title through Wentworth’s foreclosure of that mortgage has no defense to the plaintiff’s action to foreclosure, and no interest in respect to it, which, under the facts found by the referee, can avail him upon this appeal. : The single question for consideration then, is, did the delivery of the mortgage by Merritt, the mortgagee, to Wentworth, under the circumstances stated in the referee’s report, operate to invest Wentworth with any interest in the mortgage? The referee finds that, “On the 16th of July, 1853, or shortly thereafter, the bond and mortgage were assigned by the obligee and mortgagee therein named, to John Campbell, by assignment in writing, which was duly acknowledged and recorded on the 16th day of May, 1853. That prior to the assignment of said bond and mortgage to said Campbell, the mortgagee was indebted to Henry T. Wentworth in the sum of $200, borrowed money; that Wentworth desired that said mortgage should be left with him as collateral security for said debt, and that the said Merritt delivered the said mortgage to said Wentworth, according to such request, and as collateral security for said debt of $200; that the said mort- gage was so delivered to the said Wentworth before the same was assigned to said Campbell, but that the bond accompanying the same was not delivered to the said Wentworth at the time, nor was anything said about the same, nor is there any evidence that the same was ever delivered to said Wentworth, nor was there any writing executed in reference to such transfer.” As a mortgage is but an incident to the debt which it is intended to secure (Martin v. Mowlin, 2 Burr., 969; Green v. Hart, 1 Johns., 580; Jackson v. Blodget, 5 Cow. 202; Jackson v. Bronson, 19 Johns. 325; Wilson v. Troup, 2 Cow., 231; Cooper v. King, 17 Abb., 342), the logical conclusion is, that a transfer of the mortgage without the debt is a nullity, and no interest is acquired by it. The security cannot be separated from the debt and exist independently of it. This is the necessary legal conclusion, and recognized as the rule by a long course of judicial decisions. (See cases cited above; also, 4 Johns., 41; 5 Johns. Ch. 570; 9 Wend., 80.) 15 226 ASSIGNMENT OF MORTGAGES. Unless then, the bond was, in effect, assigned with the mort- gage, Wentworth obtained no interest in the mortgage. Did the bond or the debt which it evidenced pass to Wentworth? In the first place, the transfer of the mortgage did not of itself operate to transfer the bond, for the legal maxim is, the incident shall pass by the grant of the principal, but not the principal by the grant of the incident. So that unless we are authorized to say, that such was the intent of the parties, we cannot hold that it did. This is a question of fact, which the counsel for the appellant argues in his points, but unless the referee has found it, as a fact, or found facts from which we are bound to infer its existence, it is a ques- tion not in the province of this court to determine. The act done by Merritt, the mortgagee, was the delivery of the mortgage to Wentworth, and the purpose of the delivery was to secure the pay- ment of the debts of the mortgagee to Wentworth. Does it nec- essarily follow that the intention of the parties was to transfer the bond? The referee has not found either way upon this ques- ‘tion of intent, and therefore, unless the intent in question is to be inferred, as a matter of legal necessity from what he does find, it must now be held not to have existed. If the transfer had been by a written assignment, describing the mortgage alone, and expressing the object to be to secure the debt of the assignor to the assignee, nothing being said about the bond or the debt which it represents, and delivery of the mortgage made, it would be impossible, I think, to hold that the intention was to assign the bond. There would be no opportunity for an implication to that effect. The circumstance that the assignmient would be inoperative, unless the bond is held to pass, would not give the assignment that effect. The result of such holding would be to reverse the maxim, and make the principal follow the inci- dent. To make the circumstance of its inefficiency a reason for giving it the effect desired, would, manifestly, uproot the maxim, and establish the contrary rule. The fact that here the transfer was by manual delivery, merely, nothing being said as to the bond, or the indebtedness secured by it, does not afford any stronger evidence of intent to transfer the bond than the case supposed. There is no circumstance in the case not considered in the supposed case, and, as I think, nothing to compel the inference of intent to transfer the bond. I am un- able to see, therefore, any escape from the conclusion, that, upon this appeal, the judgment of the Supreme Court must be held correct, and affirmed.® Davis, Ch. J., and Porter, Bockes, and Scrugham, JJ., concurring. Hunt and Grover, JJ., for reversal. 2Compare Stewart v. Crosby and Ladue v. D. & M. R. Co., supra. See also, Barrett v. Hinkley, 124 Ill. 32; Woods v. Woods, 66 Maine ASSIGNMENT OF MORTGAGES. 227 MATTHEWS v. WALLYN. Court oF CHANCERY OF ENGLAND, 1798. 4 Vesey, 118. The Lord Chancellor (LoucHzoroucH). In this cause the ques- tion was only, whether the assignee of a mortgage had a right to be paid according to the sum that appeared due upon the mort- gage deed, whatever might be the state of the account between the mortgagor and mortgagee. The circumstances had nothing in them so particular as to vary at all the general question. Matthews had created a mortgage, upon which Shephard had advanced money ; and Shepheard being his attorney, the purpose of creating the mortgage was, that money might be raised for the use of Matthews. Shepheard ought not to have made any use of the mortgage, but for the purpose, for which it was created: namely, to raise money for Matthews: but he thought fit to assign the mortgage without the privity of the mortgagor; and the assignee now claims to hold the mortgage to the full extent of the sum appearing due upon the face of the deed. When the cause came on before me, a case was referred to, in which, it was supposed, Lord Thurlow had entertained an idea, but not decided, that a mortgagor having permitted the mortgage deed without any endorsement upon it to be in the possession of the mortgagee, an assignee taking from that mortgagee might have a right to hold that mortgage to the full extent of it against the mortgagor, who permitted the mortgagee to deal with and to make a security upon it. It was also supposed, that in practice there is no occasion to make the mortgagor a party; and in some cases it may not be possible to make him a party to the assignment; and that to hold, that the assignee of a mortgage is bound to settle the accounts of the person from whom he takes the assignment, would tend to embarrass transfers of mortgages. I have got all the information I could; and I think I have got the best. The result is, that persons most conversant in conveyancing hold it extremely unfit, and very rash, and a very indifferent security, to take an assignment of a mortgage without the privity of the mort- gagor, as to the sum really due; that in fact it does happen that assignments of mortgages are taken without calling upon the mort- 206; Lunt v. Lunt, 71 Maine 377; Ruggles v. Barton, 13 Gray (Mass.) 506; Morris v. Bacon, 123 Mass. 58; Hilton v. Woodman’s Estate, 124 Mich. 326; Kernohan v. Manss, 53 Ohio St. 118. 228 ASSIGNMENT OF MORTGAGES. gagor; but that the most usual case where that occurs is where it is the best security that can be got for a debt not otherwise well secured; and it is not in the course of transferring mortgages, but of raising money upon such securities; but no conveyancer of es- tablished practice would recommend it as a good title to take an assignment of a mortgage without making the mortgagor a party, and being satisfied, that the money was really due. * * * Xe * * * Considering the general principles upon which this court acts with regard to mortgages, I have no difficulty in deciding the point. It is true there is a legal estate or term; but it must be apparent upon the face of the title that it is not an absolute conveyance of the term or legal estate, but as a security for a debt; and the real transaction is an assignment of a debt from A. to E. that debt collateraily secured by a charge upon a real estate. The ‘debt there- fore is the principal thing; and it is obvious that if an action was brought upon the bond in the name of the mortgagee, as it must be, the mortgagor shall pay no more than what is really due upon the bond: if an action of covenant was brought by the covenantee, the account must be settled in that action. In this court the con- dition of the assignee cannot be better than it would be at law in any mode he could take to recover what was due upon the as- signment. Therefore the plaintiff must be at liberty to redeem, upon pay- ment of what the master shall find due upon the original mortgage from him to Shepheard.4 BAILEY v. SMITH. SUPREME Court oF Ounzo, 1863. 14 Ohio St. 396. Ranney, J. On the 8th day of October, 1853, the plaintiff gave to the defendant, Charles H. Bolles, his negotiable promissory note for the sum of $5,370, and payable two years after date, with inter- est. Prior to the 14th of December, in the same year, sundry pay- ments had been made and indorsed thereon, leaving then due the 4in the course of the argument, the Chancellor said, “It struck me at first that it was quite different from the case of the bond; for that is not assignable at law. A mortgage is a conveyance of a legal estate; though this court only holds it a security: for what? For the money that upon the face of the mortgage appears to be due.” Compare, First National Bank v. Stiles, 22 Hun (N. Y.) 339; Davis v. Bechstein, 69 N. Y. 440. ASSIGNMENT OF MORTGAGES. 229 sum of $2,500; and on that day, the plaintiff executed and delivered a mortgage upon real estate situated in Lorain county to secure this balance: On the 9th of June, 1856, he filed his amended peti- tion against Bolles, the original payee of the note—Kendall and Lucas, through whose hands the note and mortgage had passed by assignment, and Smith, the then holder—to compel the delivery and cancellation of these instruments; alleging that the note was given for a pretended patent right for a machine, which was utterly worthless, whether patented or not; that both the note and mort- gage were obtained by fraud; and that every subsequent holder thereof took them with full notice of the fraud and want of con- sideration. * * * * * * * The plaintiff obtained the relief demanded in his petition for everything beyond the amount paid by Smith for the note and mortgage,’ with interest thereon; and for that amount, an affirma- tive judgment for the sale of the mortgaged premises was rendered in favor of Smith, and the plaintiff was ordered to pay the costs of the action. This judgment was founded upon a finding by the court, that the note was obtained by fraud, and without consideration, of which the intermediate parties, Kendall and Lucas, had notice, and that, as against them and Bolles, the plaintiff was entitled to the relief prayed for in his petition; but the court further find, that Smith purchased the note and mortgage from Lucas in September, 1855, and paid therefore $1,250, without knowledge of the fraud and want of consideration existing between the original parties, and is entitled to hold the mortgage for the sum so paid with interest, and to recover thereon for that amount. Passing by, without any remark, the objection that this affirmative judgment in favor of Smith, could not have been rendered without a distinct counterclaim interposed by him, and coming, at once, to the merits of the controversy, it is evident, that the judgment can only be supported upon the establishment of the two propositions: First, that upon the facts found by the court, taken in connection with his answer asserting his title, the defendant, Smith, in the sense of the commercial rule, was a bona fide holder of the note, with- out notice of the equities existing between the original parties ; and, second, that the immunity belonging to the note in the hands of such a holder, in virtue of this rule, is extended to the mortgage by which it was originally secured, and equally entitles the holder to recover upon that. [His honor here considered the first point and came to the con- clusion that there was no error in the finding of the District Court that Smith was a bona fide holder of the note.] The remaining question is one of much importance, and for the 230 ASSIGNMENT OF MORTGAGES. first time presented in this court. As it was supposed to be in- volved in other cases upon our docket, we have given opportunity to counsel in those cases to be heard, and after full argument, we have bestowed upon it very careful attention. Does the fact that a note, obtained by fraud, has passed into the hands of a bona fide indorsee, entitle him to enforce a mortgage, given to the original holder, to secure its payment? Or may the mortgagor still insist upon the fraud, as a defense to an action brought to foreclose it? On the one hand, the question is in no way affected by the fur- ther question, whether a mortgagee acquires such an interest in the land as to enable his grantee, being also assignee of the note, by deed duly executed, to claim the benefit of the rule which pro- tects bona fide purchasers of real estate—there being no claim that any such deed was made. And on the other, we assume, as un- doubted, that, whether a written assignment was made or not, the assignee of the note acquired all the rights and interests of the assignor, in the mortgage. Very little aid is to be derived, either from adjudged cases or the elementary books, in the solution of the precise question now before us. This is not because the pur- chase and assignment of mortgages is a new thing. On the con- trary, scarcely any business transaction has been more common and familiar, or has oftener engaged the attention of the courts. Nor has the nature of this instrument, and the rights of parties growing out of its assignment, either alone or in connection with a non-negotiable security, escaped attention, or failed to receive very full and accurate illustration. In such case, the universally acknowledged doctrine, from the case of Davies v. Austin, 1 Ves. 247, to Bush v. Lathrop, 22 New York R. 535, has been, that it is to be regarded as a chose in action, and, as expressed by Lord Thurlow, “the purchaser must abide by the case of the person from whom he buys;” but during all that long period, neither in England, nor in any of the old states of the Union, does the ques- tion seem to have been presented, whether it might not have a different effect upon its assignment, when made to secure a nego- tiable instrument. This may be accounted for, in part, undoubt- edly by the general practice of taking a non-negotiable bond with a mortgage; but it cannot be doubted that mortgages have many times been taken to secure negotiable bills and notes, fraudulently transferred, and if such a distinction was thought to exist, it seems very singular that the holders should never have made the attempt to avail themselves of such securities. In New York, the attempt has been frequently made to confine the principle, that the pur- chaser must abide by the case of the seller, to the original debtor, allowing him to make the same defense against the assignee that he could against the assignor, but protecting the assignee, without notice, from what have been denominated latent equities, or inter- ASSIGNMENT OF MORTGAGES. 231 ests in third persons, not in the apparent chain of title. And this for the very plausible reason, that one proposing to purchase such an instrument, might inquire of the debtor whether he pretended to any defense, and make his answer estop him from afterward as- serting any, but that no amount of diligence would enable him to protect himself from such latent equities. But after some vacilla tion in judicial opinion, the court of appeals, in Bush v. Lathrop, repudiated the distinction, and held, that the purchaser, in such cases, must rely upon the good faith of the seller, that he could “tale only such title as the seller had and no other,” and that if mortgages were “to be further assimilated to commercial paper, the legislature must so provide.” But the direct question arising upon mortgages given to secure negotiable paper, has arisen in two of the new states of the west, whose courts are entitled to high respect for their learning and ability, and it has there been held, that the quality of negotiability is so far imparted to such mortgages, as to make them available in the hands of a bona fide indorsee of the paper, without any re- gard to the equitable rights of the original parties. Reeves v. Sently, Walker’s Ch. Rep. 248; Dutton v. Ives, 5 Michigan Rep. 515; Fisher v. Otis, 3 Chand. Rep. 83; Martineau v. McCollum, 4 Id. 153; Croft v. Bunster, 9 Wisconsin Rep. 503. In the first of these cases, decided by the chancellor of Michigan, in 1843, no reasons are assigned, or authorities cited; and in Dutton v. Ives, decided by the Supreme Court, in 1858, the doctrine is again ad- vanced upon the authority of Reeves v. Sentley, and the two Wis- consin cases, reported in 3 and 4 Chandler. On referring to the first case decided in that state (Fisher v. Otis), we find it pro- fessedly based on authority, and it serves to show upon what a slender foundation, a line of decisions may be made to rest. The court say: “This doctrine is sustained by respectable authorities, and by the reason and sound policy which have long ruled in rela- tion to commercial paper;” and Powell on Mortgages, 908, and note are cited. Mr. Powell certainly did suggest the question, whether such a distinction might not be made. His exact position is thus stated by Mr. Coventry in the note: “When it is said that a debt is not assignable at law, it must be understood with this re- striction, that if it be secured by a negotiable instrument, such as a bill of exchange, the legal interest will pass by indorsement, and this has induced the learned author, in the next paragraph of the text, to suggest, whether, in such a case, the rule as to the mortgagee’s liability would apply.” The rule here referred to, is that announced by Lord Loughborough, in the leading case of Matthews v. Wallyn, 4 Ves. 126, that the assignee of a mortgage takes it subject to all equities which could be asserted against his assignor. Now, it may be fairly assumed, that Mr. Powell sup- 232 ASSIGNMENT OF MORTGAGES. posed that such a distinction could be judiciously made; but it must be admitted that he had then no authority to base it upon, that neither the judicial records of England, nor of any of the old states, furnish any evidence that it has ever been adopted, and that it was first acted upon, nearly half a century after the sugges- tion was made, by a new state upon another continent. Under such circumstances, it cannot be reasonably claimed, that we are at lib- erty to regard it as an established principle, and we can only adopt it when we are convinced that it is correct in principle, and. con-. sistent with the analogies of the law. The reasons for supposing it to be so, are well stated in the case of Croft v. Bunster, 9 Wis. Rep. 510. The reason assigned, it is said, why the assignee can recover no more in equity than is actually due from the mortgagor to the mortgagee, is, that he could recover no more at law on the bond or covenant, and the reason ceasing as to negotiable securi- ties, the rule also ceases to have application; that the debt is the principal thing, and the mortgage the mere incident, following the debt wherever it goes, and deriving its character from the instru- ment which evidences the debt. To which may be added, the con- sideration pressed upon our attention in argument, that, if a re- covery may be had for the debt, the mortgagor can have no interest in withdrawing the mortgaged property from liability to satisfy it. This last position is easily disposed of. If it were true, it would furnish no authority for changing the legal character and incidents of the mortgage deed, and, it is evident, that other lienholders would often have a deep interest in the question. But it is not true as to the mortgagor. The right to dispose of property at the will of the owner, and to pay honest debts instead of those tainted with fraud, are valuable privileges, of which he should not be de- prived without a necessity exists; and a decree upon the mortgage would very often deprive him of the benefits of the homestead law, which could not be effected by a judgment upon the fraud- ulent note. It is very evident also, that the wife of the mortgagor, in a large majority of cases, might have a deep interest in the solution of this question. Wholly incapable of becoming a party to any commercial contract whatever, she may nevertheless con- vey her estate, or release her dower, by way of mortgage for the security of her husband’s negotiable paper. If the mortgage is to be deemed negotiable in the hands of an assignee of the paper, we see no escape from the conclusion, that the mortgage must be enforced against her, however gross and palpable the fraud may be, by which it was obtained. In a general sense, it may be very well and very correct, to speak of a mortgage as an incident to the debt it is created to secure; but the importance of this mere term may be easily over- rated. It certainly is not one of the incidental effects of the crea- ASSIGNMENT OF MORTGAGES. 233 tion of the debt itself, and it can only be made to have relation to the debt by the force of the contract contained in the mortgage; and is incident to the debt only in the same sense, that every inde- pendent contract, having for its object the payment or better se- curity of the debt, is incidental to it. The existence of the debt, is the occasion out of which they arise, and the subject of their vari- ous provisions; but they embrace all the elements of a perfect contract in themselves, and are enforced by appropriate remedies, according to their own stipulations. At law, a mortgage effects the conveyance of an estate upon condition, but in the view of a court of equity, where alone the rights of an assignee can be en- forced, it is a chose in action, having no negotiable quality, and not differing in character from collateral personal agreements, de- signed to effect the same object. Any of these collateral agree- ments may be entered into for the purpose of securing a debt, evi- denced by a negotiable instrument; and if they are not obtained by fraud, and rest upon a sufficient consideration, in the absence of any agreement to the contrary, they undoubtedly enure in equity to the benefit of any owner of the debt. But the question here is, whether one of these collateral agreements, made to secure a ne- gotiable note, loses its character of a mere chose in action, and has imparted to it the qualities of negotiability, so that upon the trans- fer of the note, it may be enforced, although obtained by fraud? This question has been repeatedly answered, in respect to a class of collateral agreements, much more intimately connected with the negotiable instrument, than is the mortgage deed. We refer to guarantees indorsed upon the note itself. Passing by those which have been claimed to be such, but held by the courts to be mere indorsements, or original contracts, with apt words of negotiability incorporated in them, the universal doctrine has been, that the legal title does not pass upon the transfer of the note; that they are mere non-negotiable choses in action, and to be treated, in every respect, as such. Lamorieux v. Hewit, 5 Wend. 307; McLaren v. Watson’s Executors, 26 Wend. 425; Miller v. Gaston, 2 Hill, 188. In the first of these cases, Chief Justice Savage says: “Promis- sory notes are negotiable only by virtue of the statute, but this negotiable quality is not extended to any other instrument relating to the note;” and Bronson, J., in the last, in support of the same position, says: “But the guarantee itself is not a negotiable instru- ment, and can not be transferred to a third person so as to give him a legal title to proceed in his own name against the guarantor. As in the case of other contracts which are not in their own nature assignable, the remedy upon a guarantee is confined to the original parties to the instrument.” We have said that these instruments are much more intimately connected with the note, than is a mort- gage deed. This will be apparent when it is remembered, that the 234 ASSIGNMENT OF MORTGAGES. one ordinarily guarantees the particular instrument specified in it, and does not survive a renewal or other change of the evidence of indebtedness; while the other secures the debt, whatever changes may intervene, until it is paid; and, even a positive statutory bar which precludes a recovery upon the note, it has been held, does not prevent the enforcement of the mortgage. Fisher v. Mossman, 11 Ohio. St. Rep. 42. In order to sustain the judgment rendered in this case, it is in- dispensably necessary to affirm—either, that the mortgage, when made to secure a negotiable note, contrary to its general nature and qualities, becomes a negotiable instrument, or, that the transfer of such a note, without the aid of any statute, or of any judicial decision, except those of very recent date, has an effect beyond the note itself, and draws after it, and within one of the most important incidents of negotiability, a collateral contract having relation to the same debt. A very careful consideration of the whole subject, has convinced us that we have no power to do either; and that neither justice nor public policy would be promoted by making the attempt. It certainly has never been thought to be within the prov- ince of a court, to determine what instruments should be taken from the list of mere choses in action, and clothed with the at- tributes of negotiability. Bills, foreign and inland, assumed this position upon the immemorial custom of merchants, and were adopted into the law, upon the reasons which availed to make up the great body of the common law. But the statute, third and fourth Anne, was found necessary to place promissory notes upon the same footing; and from that day to this, neither in England nor in this country has an instrument been added without express legislative sanction. Indeed, this could not well be otherwise. The necessities of commerce, and the instruments best calculated to answer its purposes, must all be considered before any intelligent decision could be made. These are legislative functions requiring experience and extensive information, and calling for the exercise of a discretion, wholly incompatible with the fixed certainty of judicial decision. But if it were otherwise, and the discretion rested with us, we could not introduce the mortgage deed into the list of negotiable instruments, without disregarding the very foundation principles upon which such paper has always been sup- posed to rest. From the case of Miller v. Race, 1 Burr. R. 452, to the very latest case in our own reports, the language of the courts has been uniform, that such paper is only allowed in the interests of commerce, and “possessing some of the attributes of money,” to answer the purposes of currency. Lord Mansfield, in answer to the “ingenious” argument of Sir Richard Lloyd, that the plaintiff could take nothing by assignment from a thief who had stolen the paper, said the fallacy of the argument consisted ASSIGNMENT OF MORTGAGES. 235 in comparing bank notes to what they did not resemble. “They are not goods,” he said, “not securities, nor documents for debt, nor are so esteemed; but are treated as money, as cash, in the ordinary course and transaction of business, by the general con- sent of mankind;” “the course of trade creates a property in the assignee or bearer,” and they cannot be recovered “after they have been paid away in currency, in the usual course of business.” This was said, it is true, of bank notes; but the same principles, and for the same reasons, were afterward applied by the same learned judge, to every description of negotiable paper, and the case of Miller v. Race is still the leading authority upon this branch of commercial law. Now, mortgages are not necessities of commerce, they have none of the “attributes of money,” they do not pass in currency in the ordinary course of business, nor do any of the prompt and de- cisive rules of the law merchant apply to them. They are “securi- ties,’ or “documents for debts,” used for the purpose of invest- ment, and unavoidably requiring from those who would take them with prudence and safety, an inquiry into the value, condition and title of the property upon which they rest; nor have we the least apprehension that commerce will be impeded by requiring the fur- ther inquiry of the mortgagor, whether he pretends to any defense, before a court will foreclose his right to defend against those which have been obtained by force or fraud. Against any amount of mere theory, advanced to sustain the po- sition that commerce requires these instruments to be invested with negotiable qualities, may be successfully opposed the stubborn fact, that in the first commercial country of the world, as well as in the great commercial states of the American Union, they have never been used for such purposes, or heard of in such a connection. It is quite immaterial whether this has arisen from the cause sup- posed—that they are never made to secure negotiable paper— or not; since it equally shows that no necessity for their use has ever been felt. A long experience has demonstrated, that they are not necessary instruments of active trade and business; and we but follow in the footsteps of the ablest and wisest judges, when we say, that the harsh rule which excludes equities, and often does injustice for the benefit of commerce, should not be ap- plied to them. This remits them to the position they have so long occupied—that of mere choses in action; and whether standing alone, or taken to secure negotiable or non-negotiable paper, they are only available for what was honestly due from the mortgagor to the mortgagee. If they are assigned, either expressly or by legal implication, the assignee takes only the interest which his assignor had in the instrument—acquires but an equity, and upon the long-established doctrine in courts of equity, is bound to sub- 236 ASSIGNMENT OF MORTGAGES. mit to the assertion of the prior equitable rights of third persons. To hold otherwise, is to engraft legal incidents upon a mere equi- table title; to give to the transfer of negotiable paper an effect be- yond what it imports, or is necessary in the accomplishment of its legitimate purposes; and, finally, to invest with negotiable quali- ties a class of instruments, neither used for, nor adapted to, the trade and commerce of the country, and thereby to deprive the mortgagor of the just right of defending against fraud, without subserving any public policy whatever. These views necessarily lead to the conclusion, that, upon the facts found in the court below, the plaintiff was entitled to have his title cleared from the incumbrance of this fraudulent mortgage, and that the court erred in giving the affirmative judgment of fore- closure in favor of Smith. For this error, that judgment is .re- versed, and the cause remanded for further proceedings. Peck, C. J., and Brinkerhoff, Scott and Wilder, JJ., concurred. CARPENTER v. LONGAN. SupREME Court oF THE Unttep States, 1872. 16 Wall. (U. S.) 271. Mr. Justice SwAYNE stated the case, and delivered the opinion of the court. On the 5th of March, 1867, the appellee, Mahala Longan, and Jesse B. Longan, executed their promissory note to Jacob B. Car- penter, or order, for the sum of $980, payable six months after date, at the Colorado National Bank, in Denver City, with interest at the rate of three and a half per cent. per month until paid. At the same time Mahala Longan executed to Carpenter a mortgage ° upon certain real estate therein described. The mortgage was con- ditioned for the payment of the note at maturity, according to its effect. On the 24th of July, 1867, more than two months before the maturity of the note, Jacob B. Carpenter, for a valuable considera- tion, assigned the note and mortgage to B. Platte Carpenter, the appellant. The note not being paid at maturity, the appellant filed this bill against Mahala Longan, in the District Court of Jefferson County, Colorado Territory, to foreclose the mortgage. She answered and alleged that when she executed the mortgage to Jacob B. Carpenter, she also delivered to him certain wheat and flour, which hé promised to sell, and to apply the proceeds to the payment of the note; that at the maturity of the note she had ten- dered the amount due upon it, and had demanded the return ot ASSIGNMENT OF MORTGAGES. 237 the note and mortgage and of the wheat and flour, all of which was refused. Subsequently she filed an amended answer, in which she charged that Jacob B. Carpenter had converted the wheat and flour to his own use, and that when the appellant took the assign- ment of the note and mortgage, he had full knowledge of the facts touching the delivery of the wheat and flour to his assignor. Tes- timony was taken upon both sides. It was proved that the wheat and flour were in the hands of Miller & Williams, warehousemen, in the city of Denver, that they sold, and received payment for, a part, and that the money thus received and the residue of the wheat and flour were lost by their failure. The only question made in the case was, upon whom this loss should fall, whether upon the appellant or the appellee. The view which we have taken of the case renders it unnecessary to advert more fully to the fact relat- ing to the subject. The District Court decreed in favor of the ap- pellant for the full amount of the note and interest. The Supreme Court of the Territory reversed the decree, holding that the value of the wheat and flour should be deducted. The complainant thereupon removed the case to this court by appeal. It is proved and not controverted that the note and mortgage were assigned to the appellant for a valuable consideration before the maturity of the note. Notice of anything touching the wheat and flour is not brought home to him. The assignment of a note underdue raises the presumption of the want of notice, and this presumption stands until it is overcome by sufficient proof. The case is a different one from what it would be if the mortgage stood alone, or the note was non-negotiable, or had been assigned after maturity. The question presented for our determination is, whether an assignee, under the circumstances of this case, takes the mortgage as he takes the note, free from the objections to which it was liable in the hands of the mortgagee. We hold the affirmative. The contract as regards the note was that the maker should pay it at maturity to any bona fide indorsee, without reference to any defenses to which it might have been liable in the hands of the payee. The mortgage was conditioned to secure the fulfilment of that contract. To let in such a defense against such a holder would be a clear departure from the agree- ment of the mortgagor and mortgagee, to which the assignee sub- sequently in good faith, became a party. If the mortgagor desired to reserve stich an advantage, he should have given a non-negotiable instrument. If one of two innocent persons must suffer by a de- ceit, it is more consonant to reason that he who “puts trust and confidence in the deceiver should be a loser rather than a stranger.” Upon a bill of foreclosure filed by the assignee, an account must be taken to ascertain the amount due upon the instrument secured by the mortgage. Here the amount due was the face of the note 238 ASSIGNMENT OF MORTGAGES. and interest, and. that could have been recovered in an action at law. Equity could not find that less was due. It is a case in which equity must follow the law. A decree that the amount due shall be paid within a specified time, or that the mortgaged premises shall be sold, follows necessarily. Powell, cited supra, says: “But if the debt were on a negotiable security, as a bill of exchange collaterally secured by a mortgage, and the mortgagee, after pay- ment of part of it by the mortgagor, actually negotiated the note for the value, the indorsee or assignee would, it seems, in all events,. be entitled to have his money from the mortgagor on liquidating the account, although he had paid it before, because the indorsee or assignee has a legal right to the note and a legal remedy at law, which a court of equity ought not to take from him, but to allow him the benefit of on the account.” A different doctrine would involve strange anomalies. The as- signee might file his bill and the court dismiss it. He could then sue at law, recover judgment, and sell the mortgaged premises un- der execution. It is not pretended that equity would interpose against him. So, if the aid of equity were properly invoked to give effect to the lien of the judgment upon the same premises for the full amount, it could not be refused. Surely such an excres- cence ought not to be permitted to disfigure any system of enlight- ened jurisprudence. It is the policy of the law to avoid circuity of action, and parties ought not to be driven from one forum to obtain a remedy which cannot be denied in another. The mortgaged premises are pledged as security for the debt. In proportion as a remedy is denied the contract is violated, and the rights of the assignee are set at naught. In other words, the mortgage ceases to be security for a part or the whole of the debt, its express provisions to the contrary notwithstanding. The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity. It must be admitted that there is considerable discrepancy in the authorities upon the question under consideration. In Bailey v. Smith et al—a case marked by great ability and fullness of research—the Supreme Court of Ohio came to a con- clusion different from that at which we have arrived. The judg- ment was put chiefly upon the ground that notes, negotiable, are made so by statute, while there is no such statutory provision as to mortgages, and that hence the assignee takes the latter as he would any other chose in action, subject to all the equities which subsisted against it while in the hands of the original holder. To this view of the subject there are several answers. The transfer of the note carries with it the security, without any formal assignment or delivery, or even mention of the latter. ASSIGNMENT OF MORTGAGES. 239 If not assignable at law, it is clearly so in equity. When the amount due on the note is ascertained in the foreclosure proceed- ing, equity recognizes it as conclusive, and decrees accordingly. Whether the title of the assignee is legal or equitable is imma- terial. The result follows irrespective of that question. The proc- ess is only a mode of enforcing a lien. All the authorities agree that the debt is the principal thing and the mortgage an accessory. Equity puts the principal and ac- cessory upon a footing of equality, and gives to the assignee of the evidence of the debt the same rights in regard to both. There is no departure from any principle of law or equity in reaching this conclusion. There is no analogy between this case and one where a chose in action standing alone is sought to be enforced. The fallacy which lies in overlooking this distinction has misled many able minds, and is the source of all the confusion that exists. The mortgage can have no separate existence. When the note is paid the mortgage expires. It cannot survive for a moment the debt which the note represents. This dependent and incidental re- lation is the controlling consideration, and takes the case out of the rule applied to choses in action, where no such relation of depend- ence exists. Accessorium non ducit, sequitur principale. In Pierce v. Faunce, 47 Maine 513, the court say: “A mortgage is pro tanto a purchase, and a bona fide mortgagee is equally en- titled to protection as the bona fide grantee. So the assignee of a mortgage is on the same footing with the bona fide mortgagee. In all cases the reliance of the purchaser is upon the record, and when that discloses an unimpeachable title he receives the protec- tion of the law as against unknown and latent defects.” Matthews v. Wallyn is usually much relied upon by those who maintain the infirmity of the assignee’s title. In that case the mortgage was given to secure the payment of a non-negotiable bond. The mortgagee assigned the bond and mortgage fraudu- lently and thereafter received large sums which should have been credited upon the debt. The assignee sought to enforce the mort- gage for the full amount specified in the bond. The Lord Chan- cellor was at first troubled by the consideration that the mortgage deed purported to convey the legal title, and seemed inclined to think that might take the case out of the rule of liability which would be applied to the bond if standing alone. He finally came to a different conclusion, holding the mortgage to be a mere se- curity. He said, finally: “The debt, therefore, is the principal thing; and it is obvious that if an action was brought on the bond in the name of the mortgagee, as it must be, the mortgagor shall pay no more than what is really due upon the bond; if an action of covenant was brought by the covenantee, the account must be settled in that action. In this court the condition of the assignee 240 ASSIGNMENT OF MORTGAGES. cannot be better than it would be at law in any mode he could take to recover what was due upon the assignment.” The principal is distinctly recognized that the measure of liability upon the instru- ment secured is the measure of the liability chargeable upon the security. The condition of the assignee cannot be better in law than it is in equity. So neither can it be worse. Upon this ground we place our judgment. We think the doctrine we have laid down is sustained by reason, principle, and the greater weight of authority. Decree reversed, and the case remanded with directions to enter a decree in conformity with this opinion.5 FOSTER v. CARSON. SUPREME Court OF PENNSYLVANIA, 1894. 159 Pa. St. 477. Scire facias sur mortgage. Opinion by Mr. Chief Justice STERRETT, Jan. 22, 1894: On the trial of this scire facias, it appeared among other things that the mortgage in suit was executed and delivered by the defendant 5“Conceding, then, that a mortgage given as security for a negotiable note, which refers to it, may partake of the negotiable character of the latter, the rule should be limited by the proposition that when the terms of the mortgage so affect the note as to render it uncertain in amount, or in time of payment, or ingraft upon it conditions as to the payment of the amount, it takes away the negotiable character of the note, and leaves its owner or purchaser in the same position as the owner or pur- chase» of any other chose in action. No good reason is suggested for a contrary rule. If a negotiable note is ‘a courier without luggage’ that passes from hand to hand, and choses in action, which are bur- dened with uncertainties and conditions, are not, why should the courier who carries his luggage in a trunk be held to be not excluded from the negotiable class because he has no hand baggage? If it be said that the general usage justifies it, we should at least be able to find cases in the books which support such general usage. Yet it is confidently believed that such cannot be found where the language of the mortgage goes beyond provisions for the collection of the security, and under- takes to increase, diminish, or place conditions upon the obligations of the parties, thereby rendering the instrument uncertain.” Hooker, J., in Brooke v. Struthers, 110 Mich. 562. Compare, Wilson v. Campbell, 110 Mich. 580. “It was urged that the note in question here, although payable to order, and without contingency, on a day certain, was not negotiable, because it purported to be according to the condition of a mortgage. But, as the terms of the mortgage correspond with those expressed in the note, there is nothing to affect its negotiability.” Campbell, J., in Littlefield v. Hodge, 6 Mich. 326. ASSIGNMENT OF MORTGAGES. 241 Agnes J. Carson to Mary Speelman, who assigned the same, on the margin of the record thereof, to A. C. Jarrett: of which assign- ment the mortgagor had actual notice. The bond accompanying the mortgage was also assigned, by indorsement thereon, to said Jarrett, and a certificate of no defense, execttted and acknowledged March 28, 1888, was delivered to him. On May 22, 1888, said Jarrett assigned, on the margin of said mortgage record, “to plain- tiff, his heirs and assigns, seven hundred dollars of the moneys se- cured by the mortgage, with interest from January 26, 1888.” Same day this assignment was noted by the recorder on the back of the mortgage. The mortgagor had no actual notice of the as- signment to plaintiff until after she had paid said Jarrett the entire mortgage debt, except the sum of two hundred dollars, etc. A verdict was taken in favor of the plaintiff, subject to the opin- ion of the court on the question of law reserved. The facts above stated are, in substance, those upon which the question was re- served. Judgment was afterwards entered for defendants non obstante veredicto, and this appeal was taken. Briefly stated, the question presented is whether the assignment of May 22, 1888, on the margin of the mortgage record, by Jarrett to plaintiff, was such legal notice to the mortgagor as precluded her from setting up payments made by her to Jarrett before she had any actual notice of said assignment. The key to the solution of this question is in the principle that the recording act was intended not for the benefit of the mortgagor, but to provide a real security for his debt. Not being for the mort- gagor’s benefit, it is obviously immaterial to him whether or not the mortgage has been recorded. His creditor may or may not avail himself of his security; but the fact of record does not alter the contract relations of the parties. The undertaking of the mort- gagor is to pay, and payment wherever or however made will satisfy the debt. He is under no obligation to make inquiry as to the record; and the mortgagee cannot allege an unsatisfied record in answer to a plea of actual payment. If the debtor is under no obligation to take notice of the record of his mortgage, much less must he take notice of the assignment of it. The assignee has but an equity, and as he is bound to in- quire for all the defenses which the debtor may have, whether they appear of record or not, so he must give notice of the assign- ment if he would protect himself against subsequent payments made to his assignor; Bury v. Hartman, 4 S. & R. 175; Henry v. Brothers, 48 Pa. 70; Horstman v. Gerker, 49 Pa. 282. “Legal or constructive notice as distinguished from actual,’ said Mr. Jus- tice Strong, in Henry v. Brothers, supra, “is that which the law regards as sufficient to give knowledge. If the existence of knowl- edge is presumed from any other fact, if the presumption be 16 é 242 ASSIGNMENT OF MORTGAGES. juris et de jure, the other fact must be certain. But there is no certainty that a debtor has knowledge of the entry of a judgment against him by virtue of a warrant of attorney which he may have signed, much less that he has knowledge of the assignment of a judgment. * * * A subsequent incumbrancer or purchaser must know, for it is his duty to examine the record.” The record- ing act imposes no such duty on a mortgagor; it is to the interest of the assignee, not his, that the assignment should be made ef- fectual; and it would be an intolerable hardship if every time he may wish to make a payment and obtain a credit on his debt, he should be compelled to visit the recorder’s office to ascertain whether or not his mortgage has been assigned. It is therefore apparent that actual notice of the assignment is essential to the completion of the contract relations between the assignee and the mortgagor; and, consequently, until that has been given, the mort- gagor does no wrong in making payments to the mortgagee. The court below was therefore right in entering judgment for defendants non obstante veredicto; and its judgment must be af: firmed.® Morss, C. J., in WiLtraMs v. Keyes, 90 Mich. 290 (1892). The note made by Keyes to C. L. Luce was a negotiable one, and was transferred to complainant before due, and for a valuable consid- eration. Under the previous rulings of this court he took his mort- gage free from all equities of which he had no notice between Luce or his administrators and Keyes; and any payment made to Arthur B. Luce, or arrangement between him and Keyes, after the note and mortgage were transferred to complainant, could not affect the latter’s rights in the premises. See Reeves v. Scully, Walk. Ch. 248; Dutton v. Ives, 5 Mich. 515; Helmer v. Krolick, 36 Id. 371; Judge v. Vogel, 38 Id. 568. After the assignment of the mortgage, and indorsement and delivery of the note, to com- plainant, and before maturity, the defendants assumed to pay the note and mortgage to the administrators of the original mortgagee, without requiring the production of the note; and the only ques- tion here is, could they thus discharge the note and mortgage, so as to defeat the right of a good-faith purchaser? The statute (How. Stat., § 5687) provides that— 6Compare, Vann v. Marbury, 100 Ala. 438; Brown v. Blydenburgh, 7 N. Y. 141; Foster v. Beals, 21 N. Y. 247; Robbins v. Larson, 69 Minn. 436; Brewster v. Carnes, 103 N. Y. 556. See also, Rodgers v. Peckham, 120 Cal. 238, construing C. C. § 2935— “When the mortgage is executed as security for money due, or to become due, on a promissory note, bond or other instrument designated in the mortgage, the record of the assignment of the mortgage is not, of itself, notice to a mortgagor, his heirs or personal representatives, so as to invalidate any payment made by them, or either of them, to the person holding such note, bond or other instrument.” ASSIGNMENT OF MORTGAGES. 243 “The recording of an assignment of a mortgage shall not, in itself, be deemed notice of such assignment to the mortgagor, his heirs or personal representatives, so as to invalidate any payment made by them, or either of them, to the mortgagee.” This statute has no application whatever to the present case. It was not intended to authorize the mortgagor to pay the mortgage to one not the holder of the note; but if a payment be made to one who, by the possession of the evidence of debt, shows himself prima facie entitled to receive payment, or, in case of non-nego- tiable security, if the payment be made to the original holder, the fact that an assignment has been placed of record will not, of itself, invalidate a payment made in good faith to such apparent owner. The statute means no more than that the mortgagor shall not be required to search the record before making payment to the one prima facie entitled to receive it. In case of negotiable securities, the holder alone is the one prima facie entitled to receive payment. Neither under the statute nor under the law-merchant can the maker of a negotiable note assume that it has not been transferred, and make payment thereof before maturity to the original holder, and thus defeat the right of a purchaser for value before maturity. The case of Dutton v. Ives is directly in point. See, also, 2 Daniel, Neg. Inst., § 1233, and cases cited. Jones, Mortcaces, § 843. Whether the rule [that the assignee of a non-negotiable chose in action takes subject to the equities against his assignor] is limited to equities between the original par- ties is a question upon which different courts are not in accord. On the one hand, the rule that the assignee of a bond and mort- gage, which are merely choses in action, takes them subject to existing equities, is limited in its application to such equities only as existed between the mortgagor and mortgagee, and is not ex- tended to those existing between the mortgagee and third persons. The reason for this limitation seems a strong one. “The assignee,” says Chancellor Kent, (2 Johns. Ch. 441), “can always go to the debtor, and ascertain what claims he may have against the bond, or other choses in action, which he is about purchasing from the obligee ; but he may not be able, with the utmost diligence, to as- certain the latent equity of some third person against the obligee. He has not any object to which he can direct his inquiries; and for this reason the claim of the assignee, without notice, of a chose in action, was preferred, in the late case of Redfearn v. Ferrier, (3 Dow. 50), to that of a third party setting up a secret equity against the assignor. Lord Eldon observed in that case that, if it were not to be so, no assignments could ever be taken with safety.” § 844. But the settled rule in New York is that the assignee is 244 ASSIGNMENT OF MORTGAGES. affected by equities in favor of third persons in the same manner that he is affected by equities existing against him in favor of the mortgagor. This question has been frequently discussed in recent cases in that State. In the case of Bush v. Lathrop, (22 N. Y. 535), Mr. Justice Denio, after examining numerous authorities, came to the conclusion that the supposed distinction between these equities is without foundation, and that the assignee takes the security sub- ject to all equities that third persons could enforce against the as- signor, as well as subject to those existing between the parties to the instrument. In that case the holder of the mortgage and bond as- signed them by an absolute and unconditional bond, as security for a debt for a much smaller sum than that due upon the mortgage, and his assignee transferred the mortgage for full value to a third per- son without notice of this fact. The rule above stated as to the equities of third persons was applied to the case, and it was held that the subsequent assignee took the security subject to the equity of the former holder of the mortgage, to redeem it upon payment of the amount of the debt for which he had pledged it. § 844a. The doctrine of estoppel may come in to qualify the application of this rule. Thus in the case last named the applica- tion of this rule to the facts presented was overruled by the case of Moore v. Metropolitan National Bank, 55 N. Y. 41, although the rule there stated as to the equities of third persons was not questioned. The latter case held that, where the holder of a non- negotiable chose in action has conferred the apparent absolute own- ership of it upon another by assignment, one who purchases from stich assignee in good faith for value, relying upon the faith of stich apparent ownership, obtains a valid title as against the first assignor, who is estopped from asserting a title in hostility to such apparent ownership. The decision is based altogether upon the doctrine of estoppel. The owner of the security, having conferred apparent ownership upon his assignee and apparent authority to convey, is estopped as against a bona fide purchaser to deny that ownership or that authority. Applying this rule of estoppel to the facts of the case presented in Bush v. Lathrop, the owner of the mortgage and bond having assigned them absolutely and conferred upon his assignee apparent absolute authority over the securities, would be estopped from asserting his title to them against one who had purchased upon the faith of the assignee’s apparent au- thority to sell. * * * * * * * But aside from the doctrine of estoppel, the rule above stated as to the equities of third persons has been several times approved in recent cases before the Court of Appeals of New York; and the general doctrine is there well established, that one who takes an assignment of a bond and mortgage takes them subject not only ASSIGNMENT OF MORTGAGES. 245 to any latent equities that exist in favor of the mortgagor, but also subject to the latent equities in favor of third persons.” 5 EncycLopepia oF Law anp Practice, 937. (Title, Assign- ments). The authorities are in direct conflict on the question whether, as between successive assignees, assignments of choses in action take precedence according to their date or only from the time of notice to the debtor. According to the English rule, he will have the preference who first gives notice to the debtor, even if he be a subsequent assignee, provided that at the time of taking it he had no notice of the prior assignment. In the United States, the English rule has been adopted in the federal courts and in many of the state courts. It is further held, however, even if a subsequent assignee can acquire priority by notice, that such assignee must be a bona fide purchaser for value, and if he have notice of a prior assignment, that will have priority, and so also if he be put on inquiry. In other states the doctrine requiring notice is denied, and it is held that the assignment is complete on the mutual assent of the assignor and assignee, and does not gain additional validity as against sub- sequent assignees by notice to the debtor. If none of the assignees gives notice or the notices are simul- taneously given, then the rule prevails that he whose assignment is prior in time is prior in right.§ CoNSOLIDATED Laws oF NEw York (1909), Chap. 52, Art. 9, § 290. 1. The term “real property,” as used in this article, includes lands, tenements and hereditaments and chattels real, except a lease for a term not exceeding three years. 2. The term “purchaser” includes every person to whom any 7TSee Williston’s Wald’s Pollock on Contracts, 284, note 78. &See Ames Cases on Trusts, 326-328, note. The learned editor says, inter alia, “Whatever view may be entertained as to the English doc- trine which prefers the assignee who first gives notice, the second as- signee is in several contingencies clearly entitled to supplant the first assignee. E. g. (1) if, acting in good faith, he obtains payment of the claim assigned; Judson v. Corcoran, 17 How. (U. S.) 612; Bridge v. Conn, Co., 152 Mass. 343; Bradley v. Root, 5 Paige (N. Y.) 632, 640; or (2) if he reduces his claim to a judgment in his own name; Judson v. Corcoran, 17 How. (U. S.) 612; Mercantile Marine Ins. Co. v. Corcoran, 1 Gray (Mass.) 75; or (3) if he effects a novation with the obligor, whereby the obligation in favor of the assignor is superseded by a new one run- ning to himself, N. Y. & N. H. R. Co. v. Schuyler, 34 N. Y. 30, 80; Strange v. Houston Co., 53 Tex. 162; or (4) if he obtains the document containing the obligation when the latter is in the form of a specialty; In re Gillespie, 15 Fed. Rep. 734; Bridge v. Conn. Co., 152 Mass. 343; Fisher v. Knox, 13 Pa. 622. In all these cases, having obtained a legal right in good faith and for value, the prior assignee cannot properly deprive him of this legal right.” 246 ASSIGNMENT OF MORTGAGES. estate or interest in real property is conveyed for a valuable con- sideration, and every assignee of a mortgage, lease or other con- ditional estate. 3. The term “conveyance” includes every written instrument, by which any estate or interest in real property is created, trans- ferred, mortgaged or assigned, or by which the title to any real property may be affected, including an instrument in execution of a power, although the power be one of revocation only, and an instrument postponing or subordinating a mortgage lien; except a will, a lease for a term not exceeding three years, an executory contract for the sale or purchase of lands, and an instrument con- taining a power to convey real property as the agent or attorney for the owner of such property. § 291. A conveyance of real property, within the state, on being duly acknowledged by the person executing the same, or proved as required by this chapter, and such acknowledgment or proof duly certified when required by this chapter, may be recorded in the office of the clerk of the county where such real property is situated, and such county clerk shall, upon the request of any party, on tender of the lawful fees therefor, record the same in his said office. Every such conveyance not so recorded is void as against any subsequent purchaser in good faith and for a valuable consideration, from the same vendor, his heirs or devisees, of the same real property or any portion thereof, whose conveyance is first duly recorded. PEPPER’S APPEAL. SUPREME Court OF PENNSYLVANIA, 1875. 77 Pa. St. 373. This case arose under the following facts: On the 16th of February, 1869, Mary J. Pennypacker executed a bond and mortgage to David F. Schuler for $2,000. On the 27th of the same month, Schuler executed a power of attorney to Raimond D. Fox, to sell, assign, etc., all his real and personal property, etc.; by virtue of this power of attorney, Fox assigned the mortgage to Carroll Neide, on the 28th of May, 1869. The assignment was recorded the same day. The mortgage and bond, with the assignment, were left in the possession of Fox, who was Neide’s conveyancer and agent, had acted for him in the purchase of the mortgage, and had been his intimate friend for a long time. Fox had the reputation also of being a man of integ- rity, and a responsible conveyancer. ASSIGNMENT OF MORTGAGES. 247 On the 7th of February, 1870, Fox having the bond and mort- gage in his possession, under the same power of attorney, as- signed them to David Pepper, and delivered them to him with the assignment. Pepper was a bona fide purchaser, and had no actual notice of the assignment to Neide. Pepper’s assignment was recorded February 9th, 1870. On the 13th day of December, 1871, Neide issued a scire facias on the mortgage, and judgment being recovered on it, by agree- ment of parties the amount, $2,070.25, was paid into court, to be paid to the party whom the court should determine was entitled to it. The matter was referred to W. W. Weighly, Esq., who found the foregoing facts. He reported also, as his opinion, that the assignment of a mort- gage is not within the recording acts, so as to make its record notice to a subsequent assignee. He further reported that Neide was guilty of gross negligence in selecting as his agent, the agent of the mortgagee, and leaving the bond and mortgage in his pos- session, knowing that he had a power of attorney to assign, etc., from the mortgagee. He therefore awarded to Pepper the money in court, $1,818.50, after deducting expenses. Neide filed exceptions to the report of the auditor. The District Court, Mitchell, J., sustained the exception, and awarded the fund to Neide. Pepper appealed to the Supreme Court, and assigned the decree of the District Court for error. Mr. Justice Mercur delivered the opinion of the court, May 10th, 1875. The contention in this case is between two claimants for the money collected on a mortgage. Each has an assignment for a valuable consideration duly executed by the attorney of the mort- agee. : The assignment to the appellee was made on the 28th of May, 1869, and duly recorded on the same day. The one to the ap- pellant was executed on the 7th of February, 1870, and recorded two days thereafter. The question raised by the first assignment is whether the recording of the first assignment was notice to the appellant. The 14th section of the Act of April 9, 1849, Purc. Dig. 471, pl. 66, declares “all assignments of mortgages, and letters of at- torney authorizing the satisfaction of mortgages, duly executed and acknowledged in the manner provided by law for the acknowl- edgment of deeds, may be recorded in the office for the recording of deeds in the county in which the mortgage assigned or author- ized to be satisfied may be or shall have been recorded, and the record of such instrument or a duly certified copy thereof shall be 248 ASSIGNMENT OF MORTGAGES. as good evidence as the original assignment or letter of attorney, when duly proved in any court of justice.” It is contended that although this act permits the assignment of a mortgage to be recorded, yet the authority is so far discretionary, that if recorded, the effect is limited to making the record, or a certified copy, evidence. That inasmuch as the language of the statute declares it “may be recorded,” it is insufficient to make the record notice to a subsequent assignee. To this we answer that “may be recorded” are the identical words used in many of the Acts of Assembly providing for the recording of instruments of writing, and substantially the lan- guage used in others. * * * * * * * Thus it appears that the language of the Acts of Assembly pro- viding for the recording of written instruments has not generally been mandatory. When recorded, however, we do not understand the effect thereof is in any respect lessened by the absence of an imperative command to record. It.is optional whether or not to record. When the election is made and an instrument authorized by law to be recorded, is actually recorded, all the incidents and force of a public record attach to that record. It is an early and well recognized principle that one great object in spreading an in- strument of writing on a public record, is to give constructive no- tice of its contents to all mankind: Levine v. Will, 1 Dall. 430; Evans v. Jones et al., 1 Yeates 173; Brotherton v. Livingston, 3 W. & S. 334. We discover no evidence of legislative attempt to make the record of the assignment of a mortgage less effective than that of the mortgage itself. It was held in Pryor v. Wood et al., 7 Casey 142, the assignment of a mortgage, duly executed and recorded passed the legal title, and no suit could subsequently be maintained thereon in the name of the assignor for the use of the assignee. In Partridge v. Partridge, 2 Wright 78, where the assignment was not under seal nor in the presence of wit- nesses and not acknowledged and recorded, it was held, the scire facias might issue in the name of the holder of the legal title for the use of the assignee. The first section of the Act of April 22, 1863, Purd. Dig. 485, pl. 130, provides, however, that the assignee of a mortgage, although the assignment has been duly recorded, may, at his option, sue and proceed thereon, either in his own name, or in the name of the mortgagee, to his use. Prior to the enactment of the 14th section of the Act of April 9, 1849, supra, the decisions were conflicting as to whether the assignment of a mortgage was within the recording acts. In Craft v. Webster, 4 Rawle 242, and in Mott v. Clark, 9 Barr. 399, it was held not to be; but in Philips v. Bank of Lewistown, 6 Har- ris 394, it was held to be within the recording Act of May 28, ASSIGNMENT OF MORTGAGES. 249 1715.8 The right to record this assignment was set at rest by the Act of 1849. To adopt the view urged for the appellant would defeat the main object of all the statutes which we have cited. Instead of a system designed to give unity and harmony to the recording acts, it would inaugurate one fraught with mischief and uncertainty. It was alleged on the argument that it is not customary in Phila- delphia to search the records for assignments of mortgages. In other parts of the state we think the practice is generally other- wise. Be that as it may, if any custom exists not in harmony with the Act of 1849, it must give way to the statute. Malus usus abolendus est. As the view we have taken is decisive of the case, it is un- necessary to consider the other assignments. Decree affirmed, and it is ordered that the appellee pay the costs of this appeal.1° Sharswood and Paxson, JJ., dissented. 9The act provided that, “all bargains and sales, deeds and conveyances of lands, tenements and hereditaments, may be recorded.” The court, in the case last cited, said, “A mortgage is in form a conveyance of the lani, and an assignment of it is another formal conveyance of the same land. The assignment of a mortgage is therefore within the language of the recording act of 1715”, holding the record of an assignment orig- inal evidence. So, in Massachusetts, an assignment of a mortgage seems to have been assumed, without question, to be a “conveyance” within the meaning of the recording act, so that the record is construc- tive notice. Strong v. Jackson, 123 Mass. 60. “See also, Swasey v. Emerson, 168 Mass. 118. In Howard v. Shaw, 10 Wash. 151, an assign- ment was held not to be within the act requiring record of “deeds and mortgages”, the question being between the assignee and a subsequent purchaser of the land. (See post, Chap. X.) So in Williams & Co. v. Paysinger, 15 S. Car. 171, the statute dealing in one section with “con- veyances” and in another with “mortgage or other instrument in the nature of a mortgage”, the court said, “There is no law requiring the assignment of a mortgage to be recorded, and if it had been put on rec- ord it would not have amounted to constructive notice”, holding that the maker of a promissory note paying a transferee thereof after the latter had transferred and delivered it to a third person, did not dis- charge his obligation to the holder, even though there was no record of the last transfer. The commonest form of statute is that which, like the New York statute supra, uses terms so comprehensive that an assignment of a mortgage can hardly be excluded from the “conveyances” etc. which may be recorded; nor an assignee of a mortgage, from the “purchasers” etc. against whom an unrecorded conveyance is declared invalid. The application of these statutes to assignments, for some purposes at least, has almost universally been conceded. See, however, Hull v. Diehl, 21 Mont. 71, and Reeves v. Hayes, 95 Ind. 521. It should be observed that in several states the earlier decisions holding assignments not within the recording acts have been followed by amendment of the statutes upon this point. 10See also, Strong v. Jackson, 123 Mass. 60; Stein v. Sullivan, 31 N. J. Eq. 409; Mott v. Newark German Hospital, 55 N. J. Eg. 722. 250 ASSIGNMENT OF MORTGAGES. SYRACUSE SAVINGS BANK v. MERRICK. Court oF APPEALS OF NEw York, 1905. 182 N. Y. 387. Cutten, Ch. J. The action was brought to foreclose a mort- gage held by the plaintiff on certain real estate situate in the city of Syracuse. No defense was interposed to the plaintiff’s claim, but two of the defendants, each claiming to be the holder of a mortgage on the land subsequent to that of the plaintiff, sought to have their respective titles adjudicated in the action. No ques- tion has been made as to their right to inject such an issue into the suit, and we shall raise none, though it may be doubted whether the plaintiff should have been delayed in the enforcement of its claim to await the settlement of a dispute in which it had no interest. The facts out of which the controversy arose are as follows: The owners of the property, subject to the plaintifi’s mortgage, executed on August 2, 1895, a bond and mortgage to one Warner to secure the sum of $8,398.92, borrowed from him, which last mortgage covered the premises in suit and others. On the same day Warner, to secure payment of a loan of $3,500, exe- cuted and delivered to the appellant’s testator, Tolman, an assign- ment of said bond and mortgage. At the same time Warner de- livered the bond to Tolman but retained possession of the. mort- gage. The assignment to Tolman was not recorded until Novem- ber 12, 1902. On May 16, 1900, Warner assigned for value said bond and mortgage with others to the respondent, the Salt Springs Bank, which assignment was recorded on May 20, 1901. Warner delivered to the respondent the mortgage but not the bond, which was in the possession of Tolman. The trial court found that the respondent had no actual notice of the assignment to Tolman and took its assignment in good faith and for value; that while the respondent did not receive the bond, it made due and diligent in- quiry as to the rights of other persons to the bond and mortgage, and did not discover that the defendant Warner had not full right to assign the same. On these facts the trial court awarded the bond and mortgage to the bank. That judgment has been af- firmed by the Appellate Division by a divided court. From that judgment this appeal was taken. The appellants contend that the Recording Act, on the strength of whose provisions title to the bond and mortgage has been award- ed to the respondents, does not apply to the present case or affect the rights of the prior assignee of a bond and mortgage whose assignment is not recorded as against a subsequent assignee who records his assignment. It has been decided that an assign- ASSIGNMENT OF MORTGAGES. 251 ment of a mortgage is a conveyance of real estate within the mean- ing of the Recording Act. (Westbrook v. Gleason, 79 N. Y. 23; Decker v. Boice, 83 N. Y. 215; Bacon v. Van Schoonhoven, 87 N. Y. 446; Gibson v. Thomas, 180 N. Y. 483.) But in nearly all the cases the question arose, not with reference to the rights of rival claimants to the security, but in regard to the rights of subsequent purchasers or lienors on the land itself.11 The only case in which the question now before us was presented to this court is that of Kellogg v. Smith, 26 N. Y. 18, in which the ques- tion was not determined, the decision proceeding on another ground. The difficulty in disposing of the question is inherent in the nature of the security. On the one hand, it is contended that as the mortgage is merely collateral or incident to the debt, and as there is no provision for the recording of any assignment of the bond, which is the principal obligation, an assignee’s title to the debt or obligation cannot be impaired by the failure to record the assignment, nor can the mortgagor be subjected to a double obligation, to wit, to have his land foreclosed under the mort- gage and to be held personally responsible on the bond. This view is strongly presented in the dissenting opinion below.1* On the other hand, it is contended that by the Recording Act it was intended to confer a quasi or limited negotiability on bonds and 11See post, Chap. X. 12“The assignment of a mortgage may be in the form of a convey- ance, and when thus executed and acknowledged it may be admitted to record. But we all know that the assignment of a mortgage may be effected without any such formal conveyance. It may be assigned by a mere writing of the assignor declaring that he thereby assigns the mortgage to the person named in such writing, or it may be assigned by a simple indorsement or delivery of the note for which the mortgage is a security. It is a familiar principle that in the case of a debt secured by mortgage, the debt is the principal and the mortgage an incident, and that an assignment of the debt is an assignment of the mortgage. This principle is too well understood, and the authorities in support of it are too numerous to require citation. “And in cases of this character which are not in the form of a con- veyance, there is no assignment to record or which would be entitled to record. Nor do we understand, when the assignment of the mortgage is made in the form of a conveyance, there is any obligation imposed by the statute which requires the assignee to have it recorded to protect himself against subsequent encumbrancers and purchasers; only, when executed in such form, it may be admitted to record, and when recorded. a certifed copy of it may, perhaps be used as evidence.” Lord, J., in Watson v. Dundee M. & T. I. Co., 12 Ore. 474. The recording act of Oregon was substantially like section 291 of the New York statute, supra. Misc. Laws (1872) Chap. VI, § 26. See also, Burhans v. Hutcheson, 25 Kans. 625; Byles v. Tome, 39 Md. 461; Hull v. Diehl, 21 Mont. 71; Holliger v. Bates, 43 Ohio St. 437; Oregon & W. Trust Co. v. Shaw, 5 Sawy. (U. S.) 336. But see Pickett v. Barron, 29 Barb. (N. Y.) 505. 252 ASSIGNMENT OF MORTGAGES. mortgages, and that to accomplish this result it must be held that the title to a bond or evidence of debt to secure which a mort- gage is given will be defeated by failure to comply with the pro- visions of the Recording Act as to assignments of mortgages, what- ever may be the rule as to the assignment of other obligations. The question is a broad one. In our view, however, its decision is not necessary to a determination of this case, and, therefore, we leave it open. As already stated, the learned trial court found as a fact that the respondent made due and diligent inquiry ; that it had no notice of the rights of Tolman to the bond and mortgage, nor was it able to discover the same. As the decision of the Appellate Divi- sion was not unanimous the finding is open to examination by this court and we are of opinion that there is no evidence to sus- tain it. The failure of Warner to produce the bond at the time of the assignment was sufficient to put the respondent on inquiry and if unexplained to operate as notice of the defect in Warner’s title. (Brown v. Blydenburgh, 7 N. Y. 140; Kellogg v. Smith, supra; Merritt v. Bartholick, 36 N. Y. 44; Bergen v. Urbahn, 83 N. Y. 49.) The only evidence of inquiry or diligence on the part of the respondent is that given by the lawyer who acted for it in procuring the assignment. He testified that upon his discovery that several of the bonds were not delivered to him with the mort- gages he called the attention of the officers of the bank to that fact and spoke to Warner about it, to which Warner responded: “Well, if any of them are missing they are doubtless in my office and I will have them looked up and furnish them to the bank— hand them in.” He also took an affidavit from Warner that he owned the securities. With this the subject was dropped and nothing further was done. Now, so far from this showing due diligence on the part of the assignee, we think it discloses an en- tire failure to exercise diligence. The learned counsel for the respondent relies on the case of Munoz v. Wilson, (111 N. Y. 295) as an authority for the proposition that where the mortgage itself contains a covenant to pay the debt the production of a bond is not necessary. In that case, however, it was proved that while the mortgage referred to a bond, in fact no bond had ever been given. In the present case, however, the respondent was expressly told that the missing bonds were in the assignor’s office. After that statement common prudence would have dictated that the as- signor be required to produce and deliver the bonds. If on such demand he failed to deliver them, that failure itself would create suspicion. It is argued that if the demand had been made the assignor would have made some other excuse for his failure to produce the missing security. This does not follow, even if we assume the assignor to have acted dishonestly in the transaction. ASSIGNMENT OF MORTGAGES. 253 The assignor, however, testified on the stand that at the time of the assignment to the bank, which was one of great excitement on his part, he turned over all his securities to satisfy the bank’s claim gainst him as an indorser and that he forgot that he had previously transferred the mortgage to Tolman. If this state- ment is to be credited it may very well be that Warner, on dis- covering that the bond was not in his possession, would have recalled the transfer to Tolman and have refused to assign it to the bank. However this may be, it is no answer to the failure of the bank to make proper inquiry and to obtain the bond to assert that if it had the assignor would have told plausible false- hoods to account for his failure to deliver the bond. This might or might not have proved the case. We cannot speculate on it. The same argument was made before the Supreme Court of Massachusetts in Shaw v. Spencer, 100 Mass. 382, where a se- curity was registered in the name of A, trustee, and transferred to the defendant for the trustee’s personal benefit. It was urged that the defendant was relieved from making inquiry of the trus- tee as to the nature of his interest because the trustee would doubt- less have told a falsehood on the subject. It was held that there was no such presumption and that even if such conduct on the part of the trustee was probable it did not relieve the assignee from the duty of making inquiry. The case before us is stronger for the appellant than that of Kellogg v. Smith, supra. In that case the assignor stated to the assignee that the bond and mort- gage which he failed to produce were locked up in the safe of his agent who, at the time, was away. It was held that despite this excuse the non-production of the bond and mortgage was suff- cient notice to deprive the assignee of the benefit of the Record- ing Act. In the present case, if the story told by Warner to the bank’s lawyer had been true, the bond was immediately accessible. The judgment of the Appellate Division and that part of the judgment of the Special Term appealed from should be reversed and a new trial granted, costs to abide the event. Gray, O’Brien, Bartlett, Haight, Vann and Werner, JJ., concur.. Judgment reversed, etc.18 LEE v. KELLOGG. SuPREME Court oF MICHIGAN, 1896. 108 Mich. 535. Mary Baker, being the owner of 40 acres of land, on March 30, 1893, executed to one George E. Breck a mortgage thereon 13See also, Adler v. Sargent, 109 Cal. 42; Byles v. Tome, 39 Md. 254 ASSIGNMENT OF MORTGAGES. for $1,000, collateral to six notes—one for the principal amount, and five interest coupon notes. The mortgage was recorded on the day following its execution. June 26, 1893, Breck sold and delivered the notes and mortgage to one Hubbard, accompanying the same with the usual form of assignment. March 17, 1894, Hubbard sold, assigned, and delivered them to defendant Kellogg. These assignments were recorded September 24, 1894. August 17, 1893, Breck forged a mortgage and six notes, for the same amount as the others, upon the same land, with defendant Baker as the maker, and offered to sell and assign them to complainant, Lee. Lee went to an abstract office, and inquired if Breck was the owner, upon the record, of such a mortgage. The abstractor informed him that he was. He: then purchased, Breck delivering to him the forged mortgage and notes as and for genuine ones. Subsequently complainant ascertained the true situation, viz., that defendant Kellogg was the bona fide purchaser and owner of the mortgage and notes, and that those held by him were forgeries. He thereupon commenced foreclosure proceedings in chancery by the ordinary suit, making defendant Kellogg a party thereto, “as having, or claiming to have, rights and interests in the premises as subsequent incumbrancer or otherwise.” Defendant Kellogg answered, setting up the true state of affairs, and praying affirma- tive relief by way of cross-bill, Complainant answered the cross- bill, denying that the mortgage and notes held by him were for- geries, and asserting their genuineness. Upon the hearing the bill was dismissed. Grant, J. (after stating the facts). The theory of the com- plainant’s bill, and of his answer to the cross-bill, was that he owned and had in his possession the original and genuine mort- gage and notes. He did not prove, or attempt to prove, their execution ; but, although forgeries, they were admitted in evidence. The complainant made no case entitling him to relief. Under his bill it was incumbent upon him to prove and produce the original mortgage and notes. His bill was not framed upon the theory «upon which he now seeks to recover. Forged papers cannot be made the basis of a recovery, either at law or in equity, against the supposed maker, or those in good faith holding and owning the genuine papers. Austin v. Dean, 40 Mich. 396; Camp v. Carpenter, 52 Mich. 375; Crawford v. Hoeft, 58 Mich. 21; Laprad v. Sherwood, 79 Mich. 520; Williams v. Keyes, 90 Mich. 290. Had the suit been againt Mrs. Baker alone, either at law, upon the notes, or in equity, to foreclose the 461; Q'Mulcahy v. Holley, 28 Minn. 31; Brumbach v. McLean, 196 Pa. St. 321; Richards Trust Co. v. Rhomberg, 19 S. Dak. 595; Potter v. Stran- sky, 48 Wis. 235. ASSIGNMENT OF MORTGAGES. 255 mortgage, the suit would have failed, upon proof that the papers were forged. Where an assignor does not have the papers to be assigned, to deliver, this is sufficient to put the purchaser upon his guard, to put his good faith in doubt, and to charge him with any defect in his assignor’s title. 1 Jones, Mortg. (5th Ed.) § 483. Forged papers cannot give to an assignee any greater or better right than he would have without any, nor can they be made the basis of a valid assignment, or held to convey to such pretended assignee the original papers, which have been, in good faith, purchased by another. The recording laws do not apply to such a case. Com- plainant might as well claim that if Mrs. Baker had sold and con- veyed the land, by warranty deed, to Kellogg, and, before she had recorded it. Breck had forged a deed from Mrs. Baker to himself, and then conveyed to complainant, he would have been a bona fide purchaser, entitled to the protection of the recording law. Ker- nohan v. Manss, 53 Ohio St. 118. The decree is affirmed, with costs.14 The other justices concurred. KERNOHAN v. MANSS. SUPREME Court oF Ou1o, 1895. 53 Ohio St. 118. Spear, J. The question presented by the record, is whether, both parties, acting in good faith, one who obtains title to a mort- gage given to secure several notes to several persons, by assign- ment for value by one of the mortgagees with delivery of the same and a forged copy of one of several notes secured thereby, indorsed by the payee who was then the owner of the genuine note, obtains a lien for money thus advanced on the faith of the security, in preference to the bona fide indorsee for value of the genuine note obtained afterwards, both transactions occurring be- fore the maturity of the note ?15 14The recording act of Michigan was identical, in all material re- spects, with that of New York, supra, the difference, if any, being in the direction of a more specific provision for the recording of assign- ments. See How. Ann. St. §§ 10842, 10843, 10850, 10855, 10856. Compare Morris v. Bacon, 123 Mass. 58. 15The reporter’s statement of facts shows that the first assignment wis not recorded until after the transfer of the genuine note, and that the transferee of the note examined the records before advancing his money. For the provisions of the Ohio statutes and their construction by the courts, see Swartz v. Hurd, 2 Ohio Dec. 134; Holliger v. Bates, 256 ASSIGNMENT OF MORTGAGES. It seems to us that the question will be solved by the applica- tion of simple and well-established principles. The concession that each party acted in entire good faith removes any necessity for considering equities, and leaves the case to be determined on purely legal grounds. The following propositions we consider are settled in Ohio: 1. Where a promissory note is secured by mortgage, the note, not the mortgage, represents the debt. The mortgage, is there- fore, a mere incident, and an assignment of such incident will not, in law, carry with it a transfer of the debt; on the other hand a transfer of the note by the owner so as to vest legal title in the in- dorsee will carry with it equitable ownership of the mortgage. And so, if the debt be evidenced by several promissory notes, the legal transfer of a portion of the notes carries with it such proportional interest in the security as the notes transferred bear to the whole. Harkrader v. Leiby, 4 Ohio St., 602; Ex’rs of Swartz v. Leist, 13 Ohio St., 419; Fithian v. Corwin, 17 Ohio St., 118; Allen v. Bank, 23 Ohio St., 97; Holmes v. Gardner, 50 Ohio St., 167. 2. Being but an incident of the debt, the mortgage remains, until foreclosure or possession taken, in the nature of a chose in action. Where given to secure notes it has no determinate value apart from the notes, and, as distinct from them, is not a fit subject of assignment. And where the notes are legally trans- ferred, the mortgagee, and all claiming under him, will hold the mortgaged property in trust for the holder of the notes. Jordon v. Cheney, 74 Maine, 359; Jones on Mortgages, 818; Pomeroy’s Eq. Jur., § 1210. 3. All notes payable to any person or order are negotiable by indorsement thereon, so as absolutely to transfer and vest the prop- erty thereof in each and every indorsee or holder successively. Such indorsee, or holder, may, in his own name, institute and main- tain an action thereon against the maker. Sections 3171 and 3172, Revised Statutes. 4. A holder of negotiable paper who takes it before maturity for a valuable consideration, in the usual course of trade, without knowledge of facts which impeach its validity, holds it by a good title. To defeat a recovery it is not sufficient to show that he took it under circumstances which ought to excite suspicion in the mind of a prudent man. To have that effect, it must be shown that he took the paper under circumstances showing bad faith or want of honesty on his part. Nor does the note lose its commercial char- 43 Ohio St. 437. In the latter case, the court said, “Conceding that a written assignment of the mortgage may, under the statute, be recorded and thus be notice to others, yet the statute does not require it, and a failure to have it done cannot divest the assignee of his rights and equities.” ASSIGNMENT OF MORTGAGES. 257 acter when secured by mortgage. Johnson v. Way, 27 Ohio St., 374; Kitchen v. Loudenback, 48 Ohio St., 177. Applying these rules to the facts, the following conclusions seem to result, viz.: Kernohan, by the assignment of the mortgage, took the legal title to it so far as the same was owned by McGill, and an equitable right in the $7,602.72 note. He did not take, nor did McGill in- tend to transfer to him, any legal title to the note, for McGill kept, and intended to keep that in his own possession, unindorsed, and subject to his continued control. Such rights as Kernohan took he might assert as against McGill, but John and Louis Manss alone can recover on the note. They, by their purchase and the. indorsement to them by McGill, took a full title to it as against the world, together with the equitable title to the mortgage in whosoever hands it might be. The one has the legal title to the incident, with an equitable right in the debt; the other the legal title to the debt, together with an equitable title to the incident. As both cannot have precedence the weaker must give way to the stronger. The legal title to the incident must be subordinated to that which is superior, viz.: the legal title to the debt, although the holder of the incident acquired his right first. John and Louis Manss were, therefore, entitled to the proceeds of the mortgaged lands. The case of Kernohan v. Durham, 48 Ohio St., 1, is relied upon by plaintiff in error. In that case Coddington took by indorse- ment the genuine note after due. Kernohan took an assignment of the mortgage which assignment also purported to transfer the note. This was not only before the transfer of the note to Cod- dington, but before the note was due. The holding is, that, as be- tween Kernohan and McGill (the payee), the former took an equitable title to the genuine note, and hence, as Coddington’s title was acquired after the note had been dishonored, he could take no better right than his indorser had. The note being past due he was put upon inquiry and was chargeable with whatever knowl- edge due inquiry would have elicited. The vital difference between the position of the holder of the note in that case and in this is, that, while Coddington took his title after due and hence was charged with all infirmities, John and Louis Manss being indorsees and purchasers for value in the ordinary course of trade, before due, took good title as against the world. Judgments affirmed.1® 16Compare, Himrod v. Gilman, 147 Ill. 293; Boyle v. Lybrand, 113 Wis. 79. 17 CHAPTER VI. REDEMPTION. PEUGH v. DAVIS. SUPREME CouRT OF THE UNITED States. 1877. 96 U. S. 332. Mr. Justice Fretp delivered the opinion of the court. This is a suit in equity to redeem certain property, consisting of two squares of land in the city of Washington, from an alleged mort- gage of the complainant. The facts, out of which it arises, are briefly these: In March, 1857, the complainant, Samuel A. Peugh, borrowed from the defendant, Henry S. Davis, the sum of $2,000, payable in sixty days, with interest at the rate of three and three- fourths per cent. a month, and executed as security for its payment a deed of the two squares. This deed was absolute in form, purport- ing to be made upon a sale of the property for the consideration of the $2,000, and contained a special covenant against the acts of the grantor and parties claiming under him. This loan was paid at its maturity, and the deed returned to the grantor. In May following the complainant borrowed another sum from the defendant, amounting to $1,500, payable in sixty days, with the same rate of interest, and as security for its payment redelivered to him the same deed. Upon this sum the interest was paid up to the 6th of September following. The principal not being paid, the defendant placed the deed on record on the 7th of that month. In January, 1858, a party claiming the squares under a tax title brought two suits in ejectment for their recovery. The defendant thereupon demanded payment of his loan, as he had previously done, but with- out success. On the 9th of February following, the complainant obtained from the defendant the further sum of $500, and thereupon executed to him an instrument under seal, which recited that he had previously sold and conveyed to the defendant the squares in question; that the sale and conveyance were made with the assurance and promise of a good and indefeasible title in fee-simple; and that the title was now disputed. It contained a general covenant warranting the title against all parties, and a special covenant to pay and refund to the defendant the costs and expenses, including the consideration of the 258 REDEMPTION, 259 deed, to which he might be subjected by reason of any claim or liti- gation on account of the premises. Accompanying this instrument, and bearing the same date, the complainant gave the defendant a receipt for $2,000, purporting to be in full for the purchase of the land. The question presented for determination is whether these instru- ments, taken in connection with the testimony of the parties, had the effect of releasing the complainant’s equity of redemption. It is in- sisted by him that the $500 advanced at the time was an additional loan, and that the redelivered deed was security for the $2,000, as it had previously been for the $1,500. It is claimed by the defendant that this money was paid for a release of the equity of redemption which the complainant offered to sell for that sum, and at the same time to warrant the title of the property and indemnify the defend- ant against loss from the then pending litigation. It is an established doctrine that a court of equity will treat a deed, absolute in form, as a mortgage, when it is executed as security for a loan of money. That court looks beyond the terms of the instru- ment to the real transaction; and when that is shown to be one of security, and not of sale, it will give effect to the actual contract of the parties. As the equity, upon which the court acts in such cases, arises from the real character of the transaction, any evidence, writ- ten or oral, tending to show this is admissible. The rule which ex- cludes parol testimony to contradict or vary a written instrument has reference to the language used by the parties. That can not be qualified or varied from its natural import, but must speak for itself. The rule does not forbid an inquiry into the object of the parties in executing and receiving the instrument. Thus, it may be shown that a deed was made to defraud creditors, or to give a preference, or to secure a loan, or for any other object not apparent on its face. The object of parties in such cases will be considered by a court of equity: it constitutes a ground for the exercise of its jurisdiction, which will always be asserted to prevent fraud or oppression, and to promote justice. Hughes v. Edwards, 9 Wheat. 489; Russell v. Southard, 12 How. 139; Taylor v. Luther, 2 Sumn. 228; Pierce v. Robinson, 13 Cal. 116. It is also an established doctrine that an equity of redemption is inseparably connected with a mortgage; that is to say, so long as the instrument is one of security, the borrower has in a court of equity a right to redeem the property upon payment of the loan. This right can not be waived or abandoned by any stipulation of the parties made at the time, even if embodied in the mortgage. This is a doc- trine from which a court of equity never deviates. Its maintenance is deemed essential to the protection of the debtor, who, under press- ing necessities, will often submit to ruinous conditions, expecting or 260 REDEMPTION. hoping to be able to repay the loan at its maturity, and thus prevent the conditions from being enforced and the property sacrificed. A subsequent release of the equity of redemption may undoubtedly be made to the mortgagee. There is nothing in the policy of the law which forbids the transfer to him of the debtor’s interest. The trans- action will, however, be closely scrutinized, so as to prevent any op- pression of the debtor. Especially is this necessary, as was said on one occasion by this court, when the creditor has shown himself ready and skilful to take advantage of the necessities of the bor- rower. Russell v. Southard, supra. Without citing the authorities, it may be stated as conclusions from them, that a release to the mort- gagee will not be inferred from equivocal circumstances and loose expressions. It must appear by a writing importing in terms a trans- fer of the mortgagor’s interest, or such facts must be shown as will operate to estop him from asserting any interest in the premises. The release must also be for an adequate consideration; that is to say, it must be for a consideration which would be deemed reason- able if the transaction were between other parties dealing in similar property in its vicinity. Any marked undervaluation of the prop- erty in the price paid will vitiate the proceeding. If, now, we apply these views to the question before us, it will not be difficult of solution. It is admitted that the deed of the complain- ant was executed as security for the loan obtained by him from the defendant. It is, therefore, to be treated as a mortgage, as much so as if it contained a condition that the estate should revert to the grantor upon payment of the loan. There is no satisfactory evidence that the equity of redemption was ever released. The testimony of the parties is directly in conflict, both being equally positive, the one, that the advance of $500 in February, 1858, was an additional loan; and the other, that it was made in purchase of the mortgagor’s in- terest in the property. The testimony of the defendant with refer- ence to other matters connected with the loan is, in several essential particulars, successfully contradicted. His denial of having received the instalments of interest prior to September, 1857, and his hesita- tion when paid checks for the amounts with his indorsement were produced, show that his recollection can not always be trusted. Aside from the defective recollection of the creditor, there are several circumstances tending to support the statement of the mort- gagor. One of them is that the value of the property at the time of the alleged release was greatly in excess of the amount previously secured with the additional $500. Several witnesses resident at the time in Washington, dealers in real property, and familiar with that in controversy and similar property in its vicinity place its value at treble that amount. Some of them place a still higher estimate upon it. It is not in accordance with the usual course of parties, when no fraud is practised upon them, and they are free in their action, to REDEMPTION. 261 surrender their interest in property at a price so manifestly inade- quate. The tax title existed when the deed was executed, and it was not then considered of any validity. The experienced searcher who examined the records pronounced it worthless, and so it subse- quently proved. Another circumstance corroborative of the statement of the mort- gagor is, that he retained possession of the property after the time of the alleged release, enclosed it, and either cultivated it or let it for cultivation, until the enclosure was destroyed by soldiers at the com- mencement of the war in 1861. Subsequently he leased one of the squares, and the tenant erected a building upon it. The defendant did not enter into possession until 1865. These acts of the mort- gagor justify the conclusion that he never supposed that his interest in the property was gone, whatever the mortgagee may have thought. Parties do not usually enclose and cultivate property in which they have no interest. The instrument executed on the 9th of February, 1858, and the accompanying receipt, upon which the defendant chiefly relies, do not change the original character of the transaction. That instru- ment contains only a general warranty of the title conveyed by the original deed, with a special covenant to indemnify the grantee against loss from the then pending litigation. It recites that the deed was executed upon a contract of sale contrary to the admitted fact that it was given as security for a loan. The receipt of the $2,000, purporting to be the purchase-money for the premises, is to be con- strued with the instrument, and taken as having reference to the con- sideration upon which the deed had been executed. That being ab- solute in terms, purporting on its face to be made upon a sale of the property, the other papers referring to it were drawn so as to con- form with those terms. They are no more conclusive of any actual sale of the mortgagor’s interest than the original deed. The absence in the instrument of a formal transfer of that interest leads to the conclusion that no such transfer was intended. We are of opinion that the complainant never conveyed his inter- est in the property in controversy except as security for the loan, and that his deed is a subsisting security. He has, therefore, a right to redeem the property from the mortgage. In estimating the amount due upon the loan, interest only at the rate of six per cent. per an- num will be allowed. The extortionate interest stipulated was for- bidden by statute, and would, in a short period, have devoured the whole estate. The defendant should be charged with a reasonable sum for the use and occupation of the premises from the time he took possession in 1865, and allowed for the taxes paid and other necessary expenses incurred by him. The decree of the Supreme Court of the District must be re- 262 REDEMPTION. versed, and the cause remanded for further proceedings, in accord- ance with this opinion; and it is So ordered. MANNING, J., in Batry v. SNoox, 5 Mich. 231 (1858) : Once a mortgage always a mortgage, may be regarded as a maxim of the court. Equity is jealous of all contracts between mortgagor and mortgagee, by which the equity of redemption is to be shortened or cut off. The mortgagor may release the equity of redemption to the mortgagee for a good and valuable consideration, when done voluntarily, and there is no fraud, and no undue influence brought to bear upon him for that purpose by the creditor. But it can not be done by a contemporaneous or subsequent executory contract, by which the equity of redemption is to be forfeited if the mortgage debt is not paid on the day stated in such contract, without an aban- donment by the court of those equitable principles it has ever acted on in relieving against penalties and forfeitures. What we now call a mortgage was at common law a conditional conveyance of the land, by which the title of the vendee was to terminate or become absolute on the performance or non-performance of the condition of the grant by the vendor at the day. When such conveyance was made to se- cure a debt, or for the performance of some other act by the vendor, equity took cognizance of the transaction, and declared the convey- ance a security merely for the payment of the debt, or doing of the act, and on the performance thereof by the vendor, after the day had elapsed, and the estate had become absolute, would decree a re- conveyance of the premises. To allow the equity of redemption to be cut off by a forfeiture of it in a separate contract, would be a re- vival of the common law doctrine, using for that purpose two in- struments, instead of one, to effect the object.1 1“This court, as a court of conscience, is very jealous of persons taking securities for a loan, and converting such securities into pur- chases. And therefore I take it to be an established rule, that a mort- gagee can never provide at the time of making the loan for any event or condition on which the equity of redemption shall be discharged, and the conveyance [become] absolute. And there is great reason and justice in this rule, for necessitous men are not, truly speaking, free men, but, to answer a present exigency, will submit to any terms that the crafty may impose upon them.” Lord Chancellor Northington, in Vernon v. Bethell, 2 Eden 110. “There are, in decisions rendered in England and Ireland, dicta to the effect that, if the making of a mortgage is accompanied by an agree- ment in reference either to the mortgaged premises or to another sub- ject, by which the mortgagor obtains some ‘collateral advantage,’ such agreement is void. (See Coote, Mortgages, 19, 20; Jennings v. Ward, 2 Vern. 520; In re Edwards’ Estate, 11 Ir. Ch. 367; Broad v. Selfe, Il Wkly. Rep. 1036.) This theory has, however, been exploded by recent decisions, and the rule established that any agreement between the mortgagor and mortgagee, however advantageous to the latter, if not REDEMPTION. 263 ODELL v. MONTROSS. Court or Appracs oF NEw York. 1877. 68 N. Y. 499. This action was brought to have a deed, absolute on its face, de- clared a mortgage, and for an accounting and reconveyance on pay- ment of amount due. The court found, in substance, that in July, 1865, plaintiff being indebted to defendant for moneys loaned and advanced, executed to said defendant a deed of premises described in the complaint, which deed was absolute on its face, and purported to convey the fee, but that it was executed as and intended as a security for the said indebtedness then existing and what might thereafter accrue, and it was agreed and intended by the parties that plaintiff, upon payment, should have the right to redeem and should be entitled to a reconveyance. That in September, 1866, defendant paid to the plaintiff, at his request, the sum of fifty dollars, and plaintiff then and there signed and delivered to the defendant a paper, of which the following is a copy, viz.: “New York, Sept. 17, 1866. “Received from William Montross fifty dollars, in full satisfaction attended with fraud or oppression, is valid, provided it does not inter- fere with the right of redeeming from the mortgage. (Biggs v. Hod- dinott (1898), 2 Ch. 307; Santley v. Wilde, (1899) 2 Ch. 474. See Noakes v. Rice, (1902) App. Cas. 24, and 13 Harv. Law Rev. 595, 15 Harv. Law Rev. 661). So, in this country it has been decided, in at least one case, that any agreement made at the time of executing the mortgage, if not affecting the right of redemption, and not intended for the purpose of evading the usury laws, is valid. (Gleason’s Adm’x v. Burke, 20 N. J. Eq. 300. See, also, Uhlfelder v. Carter, 64 Ala. 527.)” Tiffany, Real Property, $515. In some of the early cases both in England and America, the validity of powers of sale in mortgages was much questioned. Croft v. Powel, 2 Comyns 603 (1738); King v. Edington, 1 East. 288 (1801); Bergen v. Bennett, 1 Caine’s Cas. (N. Y.) 1; Eaton v. Whiting, 3 Pick. (Mass.) 484. And see Colonial Laws of New York, Vol. V, p. 687 (Act of March 19, 1774). When Powell wrote his treatise on Mortgages (1785) he considered powers of sale “of too doubtful a complexion to be relied on as the source of an irredeemable title” (Vol. I, p. 12). Today, however, the validity of powers of sale is recognized in England and almost all our states and the exercise of the power, like an equitable foreclosure, cuts off the equity of redemption. Jones, Mortgages, §§ 1765-1767. And see post, Chap. VII. In at least one state, however, the view has been taken that a power of sale is validated only by statute and that, therefore, the conditions imposed by the statute upon the exercise of such powers can not be waived by the mortgagor. “Parties may add to these con- oe but can not dispense with them.” Pierce v. Grimley, 77 Mich. 273, 280. 264 REDEMPTION. for all claims and demands whatsoever as to the conveyance of prop- erty, or otherwise, up to this date. “Tuomas B. ODELL.” That such payment was made and received, and such receipt signed and delivered with the intention of the parties that the same should be a full settlement of all claims of plaintiff to said lands and premises, and of all claims to any reconveyance thereof. As conclusions of law the court found, that the deed was to be consid- ered as a mortgage; that the payment of the fifty dollars and the receipt given therefor did not operate to change the nature of the deed from a security to an absolute conveyance, nor to release plain- tiff’s right to rdeem, and that upon payment of the sums due from plaintiff to defendant and the sums paid out by the latter, plaintiff was entitled to redeem; and judgment was directed adjudging that upon payment of such sums within thirty days defendant should re- convey, and in default of such payment that the premises be sold, as in foreclosure sales. Judgment was entered accordingly. ALLEN, J. Prior to the transaction of the seventeenth of Septem- ber, 1866, when the defendant upon the payment of fifty dollars to the plaintiff took an unsealed paper signed by him acknowledging the receipt of the fifty dollars “in full satisfaction for all claims and demands whatsoever as to conveyance of property or otherwise, up to this date,” the relation of the parties in respect to the lands now sought to be redeemed was that of mortgagor and mortgagee with all the incidents of that relation. (4 Kent’s Com., 143.) The plain- tiff had conveyed the premises to the defendant by deed absolute in terms, but the conveyance was not intended as a sale, but as a security for the payment of money, and although there was no de- feasance in writing, the intent could be and was shown by parol evidence, and the deed was but a mortgage. Parol evidence is ad- missible to show that an absolute deed was intended as a mortgage, or that a defeasance has been destroyed by fraud or mistake. (Dey v. Dunham, 2 J. Ch. R., 182; Clark v. Henry, 2 Cow. 324; Marks v. Pell, 1 J. Ch. R., 594; Horne v. Kettletas, 46 N. Y., 605.) A con- veyance absolute in terms given as a security, is a mortgage with all the incidents of a mortgage, and the rights and obligations of the parties to the instrument are the same as if the deed had been sub- ject to a defeasance expressed in the body of the instrument, or executed simultaneously with it. (4 Kent’s Com., supra.) It must be recorded as a mortgage and not as a deed. (Dey v. Dunham, supra.) This case was reversed in 15 Johnson’s Reports, 555, but this principle was recognized by the appellate court that reversed the decree of the chancellor. The reversal was on the ground that the subsequent purchaser claiming adversely to the deed was not a pur- REDEMPTION. 265 chaser in good faith, and so not within the protection of the record- ing acts. (James v. Johnson, 6 J. Ch. R., 417; 2 Cow., 249.) In White v. Moore (1 Paige, 551), the chancellor held that the fact that there was no defeasance in writing, did not take the instrument out of the effect of the statute, requiring all mortgages to be recorded as mortgages. The estate remaining in the mortgagor after the law day has passed, before foreclosure, is popularly but erroneously called an equity of redemption, retaining the name it had when the legal es- tate was in the mortgagee, and the right to redeem existed only in equity. Although a misnomer it does not mislead. The legal estate remains in the mortgagor and is subject to dower and curtesy, to the lien of judgments, may be sold on execution and may be mortgaged or sold as any other estate in lands, while the mortgagee has but a lien upon the lands as a security for his debt, and the land is not liable to his debts, or subject to dower or curtesy, or any of the inci- dents of an estate in lands. (2 Wash. R. P., 152 and seq.; Jackson v. Willard, 4 J. R., 41; Powell on Mortgages, 258, N. L.) The mortgagor is possessed of an estate in the land in virtue of his for- mer and original right, and there is no change of ownership. So far as the entire estate is concerned, there is but one title and this is shared between the mortgagor and mortgagee, the one being the general owner and the other having a lien which, upon a foreclosure of the right to redeem, may ripen into an absolute title, their re- spective parts, when united, constituting one title. A mortgagor and mortgagee may, at any time after the creation of the mortgage and before foreclosure, make any agreement concerning the estate they please, and the mortgagee may become the purchaser of the right of redemption.