Murray v. Sweasy — 69 A.D. 45

Majority

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Henry Murray, Respondent, v. J. Frederick Sweasy and Others, Appellants.

Headnote

Parol proof that a deed, was in fact a mortgage—ratification, by an attorney, of the acts of his managing clerk, by acceptance of the benefit thereof—proof of declarations of the clerk.

Evidence relied upon to establish that a deed absolute in form was intended to be a mortgage must be of dear and decisive import.

The existence of a collateral agreement for the redemption of the premises, made at or before the execution of the deed, which constituted a defeasance clause, to be read into the deed, and which, during the time that the light to redeem existed, made the deed a mortgage, may be established by parol evidence.

Where a managing clerk in the office of an attorney for a mortgagee, having apparent authority to represent the attorney, enters into a contract with the mortgagor, pursuant to which the latter executes promissory notes for unpaid taxes upon the mortgaged premises and for the unpaid interest on the mortgage, and also a deed to a person acting in the interest of the attorney, upon the understanding that when the notes are paid the premises will be deeded back to the mortgagor, the attorney's acceptance of the deed and the benefits accruing thereunder constitutes a ratification of the acts of the managing clerk and of the 'agreements by which the latter obtained the deed.

Proof: of declarations made by the managing clerk in connection with obtaining the deed, as well as of subsequent declarations and acts bearing upon the subject while he was still representing the attorney, is admissible.

Appeal by the defendants, J. Frederick Sweasy and others, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 1st day of August, 1901, upon the decision of the court, rendered after a trial at the New York Special Term, declaring a certain paper purporting to be a deed to be in fact a mortgage^ restraining dispossession proceedings by the defendant J. Frederick Sweasy, and ordering an accounting.

The complaint averred that the plaintiff was the owner and in possession of a house and lot subject to a mortgage of $35,000; that the defendant John W. Sterling, an attorney, represented the mortgagee, and on or about March Y, 1898, demanded of the plaintiff collateral to secure payment of taxes levied against the property and unpaid for several years, and agreed to pay the same if the plaintiff would give him a series of twenty notes for $239.Y9

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each, .payable monthly, and all payable upon default in any one note, and for further security a deed of the premises to the defendant J. F. Sweasy, who should deliver a yearly lease to the plaintiff at the monthly rental of $212.50; that the notes and deed were given and the lease was taken upon the representation and understanding'that the deed and lease were collateral security for the payment of the sum alleged to be due from the plaintiff, the rent under the lease representing yearly taxes, water rates ■ and premium upon a policy of fire insurance; that plaintiff was not indebted to the defendant Sweasy and received no consideration from him for the deed; that in August, 1898, a summons and complaint were given the plaintiff in an' action brought by Sweasy to recover upon seventeen notes alleged to be due, but the plaintiff continued making payment to defendant Sterling; that in April, 1900, he-informed the latter that he was ready to pay. the mortgage on the- premises and the notes-outstanding and. requested a statement, which was not furnished, the defendant Sterling claiming to be the owner of the premises by virtue of the deed which had been given as collateral; that on April 21,1900, judgment in favor of defendant Sweasy was entered against the plaintiff in the action which had been brought in August, 1898, and thereupon defendant Sweasy commenced'an action to dispossess the plaintiff -; that the plaintiff has tendered payment upon said judgment and is willing to pay all sums due for the redemption of the premises. Judgment is asked that the defendant Sweasy" be restrained from further proceeding against the plaintiff; that the' e premises be adjudged to belong to the plaintiff and that an account . be taken of the amount due to said Sweasy.

The answer averred that the deed was given unconditionally, and-in consideration the defendant Sterling agreed that if the notes were paid “ he would insure the plaintiff against any immediate proceedings for a foreclosure of the said mortgage, and against any liability for a deficiency judgment whenever such foreclosure might be deemed necessary, and would thus relieve the plaintiff from his liability for the principal of the said bond and mortgage for $35,000.”

Upon these issues the case was tried, and the learned trial judge decided that the real agreement between the parties was that the deed, although absolute on its face, should be regarded in equity as

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a mortgage. From the judgment entered on this decision the defendants appeal.

John A. Ga/rver, for the appellants.

Lawrence JE. Brown, for the respondent.

■The principal question upon this appeal is one of fact, and the appellants recognizing , this, insist that the decision of the Special Term is not supported by - that clear, satisfactory and convincing evidence which under some of the authorities is required in order to prove a deed a mortgage.

We assent to the proposition that evidence intended to convert a deed absolute in form into a mortgage must be of a clear and decisive import, but this in. no way impairs the rule that each caséis to be decided on its own special facts. Here, whether we' take the plaintiff’s or the defendants’ version, the deed, absolute in form, was not given and held unconditionally, but was subject to some agreement by which it might subsequently be defeated. - The burden was upon the plaintiff to show by a fair preponderance of evidence that the agreement was as alleged in his complaint. ■ In disposing, therefore, of appellants’ main contention that the evidence is not only insufficient, but that the judgment is against the weight of evidence, we are required briefly to review the testimony-of the principal witnesses.

That there was an agreement between the parties is conceded,; and the point upon which the case must turn is, what was the understanding when the deed and the notes were given by the plaintiff? It is admitted that the plaintiff was the owner of. the property, and that there was an outstanding mortgage of $35,000, the mortgagee being represented by Mr. Sterling; that the plaintiff had failed to pay the taxes and water rates; that the defendant Sterling agreed to pay the same upon receiving from the plaintiff a series of notes which covered the amount; that such notes were given, and that the deed was also given by the plaintiff and his wife, and the title was nominally transferred to Mr. Sweasy, and a lease of the premises was given by him to the plaintiff for an amount as rent which equaled the yearly taxes, water rates and

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insurance premiums. It does not appear that the outstanding bond and mortgage were canceled, or that the plaintiff was by any writing released upon such obligation.

The deed was given by the plaintiff and his wife on Harch 23, 1898, at the plaintiff’s office fin the presence of his son, where the defendant Sterling’s representative and managing clerk, Hr. Betts, also an attorney, went with the papers. These papers included twenty notes to cover the taxes past due which Hr. Sterling was to pay, and seven notes to cover interest on the mortgage due, the deed which the plaintiff had already previously signed, a form of lease and a “ proposed option.” After an interview lasting over an hour, in which the plaintiff’s wife at first refused to give her signature, the deed Was duly executed.

The plaintiff testified" that Hr. Betts called to his attention the taxes and interest Unpaid, and suggested that some plan be adopted by which he could retain the house aiid pay the moneys, and said that Hr. Sterling agreed to take a" deed of the property and notes for arrears and Would do anything reasonable to have him retain the house; that “ they wanted their money and they wanted some sécurity for the money, and they did not want to foreclose because they were afraid the house would not bring the amount of the mortgage; and then this arrangement was substituted for the fore-, closure, that I should give a deed of that house, and when the notes were paid the house should come back to me. Hr. Betts said they only asked the deed for the purpose of additional security for those notes, they did not want it for any other purpose; that the moment those notes were paid the house came back to me. This interview Was held in his office in Wall Street.” He also testified that at the interview of Harch twenty-third his wife asked, “ What does this mean; does this mean I am to lose my home, lose my house ? ” and Hr. Betts said, “ It don’t mean anything of the kind. * * * It means that we want this as security for these'! notes in relation to the taxes that Hr. Sterling paid; ” that they argued and encouraged her to sign, and Hr. Betts assured her again and again that there was no danger in the world; that his son, having heard Hr. Betts’ statements, also urged her to sign the deed. Hr. Hurray further testified that after the deed was given, Hr. Betts said" that they must provide so that taxes would not accumulate again and a lease would be given with

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a monthly rental which would cover taxes, etc., and interest on the mortgage, and this was done; that in April, 1900, he told Mr. Betts he was ready to pay the notes and everything, and Mr. Betts congratulated him and said he would at once make up a statement; that a few days afterwards Mr. Betts notified him that Mr. Sterling refused to take money for the house and refused to see him; that Mr. Sweasy had recovered a judgment upon some of the notes and he (plaintiff) had tendered payment of everything due; that at no time had he said anything to Mr. Betts about getting an option to repurchase, such as the paper in evidence, signed by Mr. Sweasy and dated March twenty-fourth, the day after the deed was given.

A deposition by Mrs. Murray was read in evidence, and therein she testified that at the meeting of March twenty-third she asked Mr. Betts if she was to understand that they were to give up the house by signing the paper and he answered, “ Bo,” that it was merely for the purpose of holding it until they redeemed by the payment of the notes, and they could either let or sell the premises until such time as they paid; that Mr. Betts said he would return . the deed when the notes were paid; that she did not know any lease was to be given, all she knew being that the notes were to be paid, and when paid the deed of the house was to be returned. Plaintiff’s son corroborated this testimony. The defendant Sterling testified that an option was given to repurchase until October, 1899, as stated in the writing signed by Mr. Sweasy. It was admitted that Mr. Sweasy had acted for the defendant Sterling, and himself gave no consideration for the deed.

Mr. Betts testified that before the meeting of March twenty-third Mr. Murray had said he would like an opportunity to repurchase the property provided he paid all his notes; that he had a draft of the proposed option and showed it to Mrs. Murray ; that he did not state that the deed was taken merely as security, but said that he bad been instructed to foreclose the mortgage, and the only way to avoid foreclosure was to sign the deed; that a copy of the option was sent to Mr. Murray the following day; that after the deed was signed he referred to the lease and option, and Mrs. Murray spoke up very quickly and said, “We do want an option.” Mr. Betts further testified that he had stated at the interview that an option

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would be given to Mr. Murray to repurchase at any time within ..twenty months, upon payment of $35,000 and everything unpaid; that Mrs. Murray was not given ■ any consideration for the deed; that the rental expressed in the lease was interest on the mortgage, plus taxes, etc.; that he did not state to Mr. Murray that by conveying the property he would be relieved from his liability on the bond, and there was no understanding on the subject, verbal or written. Mr. Sterling testified that he had not instructed Mr. Betts to take the deed as collateral security; and said that by signing the deed, Mr. Murray, as matter of law, was released from the mortgage and bond. The option signed by Mr. Sweasy and dated March twenty-fourth, after which time it was sent to the plaintiff, recited that the latter was given an option to; purchase the premises before October 25, 1899, for $35,000, and such additional amount as remained unpaid upon twenty-seven notes dated March 7, 1898, aggregating the sum of $6,518.89, the option to terminate upon default in the payment of any of the notes. The plaintiff denied that he ever received this option.

This evidence shows clearly that the deed, although absolute in form, was not given unconditionally as alleged in the answer, but that there was some other understanding between the parties. As summarized by the defendant, the situation was that, instead of the mortgage being foreclosed and title thus obtained, the plaintiff gave the mortgagee a deed of the property and notes for the defaulted .interest and taxes, and that it was not until after this arrangement had actually been concluded that, .upon plaintiff’s request, the written option to repurchase the property was given together with the lease, the rental of which was sufficient to represent the interest on the $35,000 mortgage and taxes accruing upon the property for the , period during which the option could be exercised. On the other -hand, the plaintiff claims that prior to and at the time of the exe- . cution of the deed, it was distinctly stated to him and his wife, and agreed upon, that, on the payment of the notes which he gave, the .house,wq.ujd be deeded back, and that upon such assurance he and filis, wife.,executed the deed.

As ..correctly, urged by the respondent, it is immaterial whether there yias,an,oral agreement that the deed was given as security and that plaintiff had a right to redeem, or whether there .was a written

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option; for, accepting either version, it is certain that there was some collateral agreement for the redemption of the premises made at or before the execution of the deed, which constituted a defeasance to be read into the deed, and which, during the time that the right to redeem existed, made it a mortgage. That such an agreement may be established by parol or extrinsic evidence was directly held in Horn v. Keteltas ( 46 N. Y. 605 ) and many other cases to which reference was made by the judge at Special Term. We do not understand, however, that it is seriously disputed but that a collateral agreement existed, and, as already pointed out, the real contest was as to its terms.

Upon evidence which in part we have referred to and quoted, the learned trial judge found in favor of the plaintiff; and although-there are some considerations which furnish argument in support of the defendant’s view, they do not overcome the force of the plaintiff’s testimony, which is sufficient to sustain the decision upon which the judgment rests. Thus, as against the weight to be given to the written option which limited the time for redemption and which was undoubtedly sent, we have the plaintiff’s testimony that it was never received, and the additional fact that the twenty-seven notes mentioned therein extended for several months beyond the time specified in the option. It is true, however, that this is to some extent explained by the testimony that by arrangement between the parties just before the giving of the deed, the interest note, which was originally twenty-one notes, was split into seven notes, payable monthly, and the time of payment thus extended. Another circumstance in favor of the plaintiff is, that although Mr. Sterling testified that in his view the signing of the deed worked a release of the plaintiff from liability under the. bond and mortgage, it is not claimed that any release was given, nor that the mortgage was satisfied; and Mr. Betts, his agent, stated that that subject was not discussed, nor was any agreement reached upon it. Moreover, we have the additional fact that under the terms of the lease a way was provided by which the interest on the mortgage, as well as taxes, etc., were thereafter to be paid by the plaintiff.

According to the claims of the defendant Sterling, the effect of the arrangement would be to leave the bond and mortgage outstanding, to give him notes for past interest and taxes, and, in the

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shape of “ rents,” payments for yearly taxes and interest, etc., and, in addition, a deed to the premises. ■ This certainly was. a good arrangement for Mr'. Sterling and those whom he represented, but the plaintiff and his wife were by no means equally favored by it. As against the suggestion of the defendant that although the plaintiff lost title in giving the deed, he thereby avoided a deficiency judgment which would have resulted upon a sale of the premises under foreclosure, we have the suggestion of the plaintiff that the defendant, in not foreclosing the property, which had depreciated to such an extent that it would not at that time pay the amount of the mortgage, not only secured the past indebtedness for taxes and interest and the accruing charges, but retained the property itself as security for the mortgage debt.

Our conclusion, after considering the testimony adduced on both sides, is that we would not be justified in interfering with the decision of the court below, which is supported by sufficient evidence and is not against the weight thereof.

The only remaining subject which 'it is necessary for us to discuss, is the contention that the defendant Sterling was not bound by the statements of Betts or by the agreement which the court found had been made by him with the plaintiff and his wife. In this connection it must be remembered that -Mr. Betts was the person with whom they dealt and concededly he was the one who throughout the transaction represented Mr. Sterling. It would be a strange rule of law which would enable' the latter to make an agreement by which, so far as there were profits, he should benefit, and which, to the extent that there, was any burden, he might repudiate. If Mr. Betts was not fully authorized to conduct the .transaction, he was so held out to the plaintiff and his wife, and they were justified in acting upon the apparent authority with which he was clothed; and a-s it was through him that the agreement, whatever its nature, was made and the deed'obtained, by- accepting the deed and the benefits accruing under it; the attorney ratified his acts and the agreements made by him. It was competent to prove what he said in connection with obtaining the deed, as well as to prove his subsequent declarations and acts bearing upon the subject while he was still representing Mr. Sterling, because all this evidence threw light upon what agreement was actually made by the-

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parties. The subsequent declaration was competent to show the tender by the plaintiff of the amount due.

"We think, therefore, that the judgment should be affirmed, with costs.

Van Brunt, P. J., Ingraham and Hatch,' JJ., concurred.

Judgment affirmed, with costs.

Cases cited

Horn v. Keteltas 46 N. Y. 605 N.Y. 1871-12-05 p. 51