Macauley v. Smith — 44 N.Y. St. Rep. 847

Majority

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Antoinette Macauley, App’lt, v. Robert H. Smith et al., Resp’ts.^[1]

(Court of Appeals, Second Division,

Filed May 3, 1892.)

Headnote

1. Deed—When intended as a mortgage.

T. being the owner of certain premises, in 1871 conveyed them by deed, and took back an agreement stating that the conveyance was to be made as a security for a loan for a term not exceeding one year; ihat if the loan was repaid within the year the grantees would reconvey; if not, the deed was to be absolute, which agreement was never recorded. The loan was-not repaid,.and at the end of the year the grantor surrendered the premises, and the same were afterwards sold to defendant. In an action by judgment creditors of T., Held, that the deeds were intended as mortgages, and the trial court erred in refusing plaintiff’s request to so find, and that, the title did not pass to the grantees, but remained in T.

2. Same—Bona fide purchaser.

This defendant, in order to maintain the defense that it is a bona ftde purchaser without notice of plaintiff’s rights, must have paid all the purchase money, but is entitled to protection to the extent of the payment made.

Appeal from a judgment of the general term of the fifth department,- affirming a judgment of the Monroe equity term dismissing plaintiff’s complaint on the merits.

The action was brought to have certain conveyances of real estate by warranty deeds declared to be mortgages, and to have the real estate adjudged to be subject to the lien of a certain judgment recovered by the plaintiff against the grantor in such deeds, and an execution issued thereon. The action in which the judgment was entered was for the recovery of money only, and was commenced in August, 1879, by this plaintiff against Lucilia Tracy by publication of a summons against the defendant therein as a non-resident, and an attachment was at the same time issued against her property, which was in form levied upon the real estate in question. Judgment by default was entered in that action in July, 1883, and an'execution issued thereon to the sheriff of the county where the property was situated, which execution has since been held by the sheriff.

On and prior to the 6th day of July, 1871, Lucilia Tracy was the owner and in possession of two parcels of real estate on Alexander street, in the city of Eochester, upon one of which parcels there were two mortgages of $5,000 and $2,000, respectively. On the 5th day of July, 1871, she entered into an agreement in writing with the defendants, Eobert H. Smith and Calvin Tracy, and one Slocum Howland, since deceased (who is repre

p. 848

seated in this action by the defendants, William and Emily How-land, as his executors), whereby, in consideration of and for the purpose of securing a loan of $8,240, she agreed to execute and deliver to them a good and sufficient warranty deed of both parcels of land above mentioned, and the agreement proceeds as follows: “And the said Howland, Smith and Tracy, in con-

sideration of, and before the execution and delivery of, said deed, hereby agree to advance the said sum of $8,240 (in a manner •specified) to the said Lucilia Tracy. It is also hereby agreed by and between the parties hereto that the said deed is. to be and is a security for said loan for a term not exceeding one year from the date of said deed, which is to be hereafter executed; ;and that upon the repayment of said sum of $8,240, with interest, within or at the expiration of said one year, by the said Lucilia 'Tracy, her heirs, executors, administrators or assigns, the said Howland, Smith and Tracy, their and each of their heirs, executors, administrators or assigns, are to re-convey said premises so ■conveyed to said Lucilia Tracy, her heirs, executors, administrators and assigns, free from all incumbrances or liens thereon, •except such as exist and are liens or incumbrances upon said premises at the time of the conveyance thereof as aforesaid by the said Lucilia Tracy."’ “And in case the said sum of $8,240 shall not be repaid during or at the expiration of one year, as .aforesaid, then it is understood and agreed that the said deed, so as aforesaid to be executed by the said Lucilia Tracy, is to become and be a deed absolute, and the said Howland, Smith and 'Tracy, or their heirs or assigns, are to become and be the owners thereof in fee simple absolute.”

Accordingly on the following day Miss Tracy executed and delivered to the other parties to the agreement deeds of the two parcels of land, containing the usual covenants of warranty, which were on the same day duly recorded in the clerk’s office of Monroe county, in and by one of which deeds the grantees, as part ■consideration of the conveyance, assumed the payment of the ■two mortgages above mentioned, but did not covenant to pay them. The loan was not repaid, and in December, 1872, the :grantor, having remained in possession of the premises for about two years after the date of the deeds, quit and surrendered possession of the premises- to the grantees, who .remained in possession thereof, by tenants or otherwise, until the 1st of January, 1875, when they sold and conveyed the same to the defendant, the New York-Baptist Union for Ministerial Education, which has ever ■since been in possession of the premises claiming title thereto.

The debts for which plaintiff obtained judgment against Lucilia Tracy were contracted prior to January 1, 1872. The agreement ■of July 5, 1871, was never recorded, and the defendant, the Baptist Union, had no notice thereof at the time of its purchase of the property.

It is conceded on the part of the plaintiff that her j udgment against the grantor in the deeds above mentioned is of no force ■or effect for the purposes of this action unless as a judgment in

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rem by virtue of a levy of the attachment upon the property in question. Code of Civil Procedure, § 707.

John Van Voorhis, for app’lt; Rollin Tracy, for resp’ts.

The agreement, which antedated the deeds by one day and expressed their intent and purpose, should be read in connection with them. Thus read, the deeds are shown to have been given by Lucilia Tracy to Howland, Smith and Tracy “ for the purpose of securing and in consideration of said loan of $8,240 ” made by the grantees to the grantor, and “ that the said deed * '5i * is a security for said loan for a term not exceeding one year from the date of said deed * * * and that upon the repayment of said sum of $8,240, with interest within or at the expiration of one year by the said Lucilia * * * the said Howland, Smith and Tracy are to re-convey said premises to said Lucilia, * * * and in case said sum of $8,240 shall not be repaid during or at the expiration of one year as aforesaid, then it is understood and agreed that the said deed * * * is to become and be a deed absolute, and the said Howland, Smith and Tracy are to become and be the owners in fee simple absolute.”

The deeds are thus clearly shown to have been intended as mortgages. This conclusion is also inferable from the facts. The premises at the date of the deeds were worth $30,000. The judgments against .the premises were by the terms of the agreement to be paid from the money loaned, and presumably were either paid ■or their amount retained by the grantees from the $8,240. The amount of the outstanding mortgages against the premises was :$7,000. It is not presumable that Lucilia Tracy intended to sell property worth $30,000 for $15,240. The grantor remained in possession of the premises for about two years after the delivery of the deeds. She was embarrassed and straitened for money. Stress is laid by the defendants upon the fact that the grantor did not expressly covenant to repay the money. The cases are to the effect that this is one óf several circumstances to be considered, Horn v. Keteltas, 46 N. Y., 605 ; Morris v. Budlong, 78 id., 552; Brown v. Dewey, 1 Sand. Ch, 57 , and here it is to be considered in connection with the repeated statement that the money to be advanced by the grantees is a loan and that “said deed is a security for said loan, for a term of not exceeding one year ” and that upon re-payment the grantees should re-convey to the -grantor. It is plain that re-payment of the loan was contemplated ; nothing is said of the re-payment of purchase money, and there is nothing in the agreement indicating that the money advanced by the grantees was purchase money, except that in case said sum of $8,240 (previously termed a loan) should not be repaid at the expiration of one year, “ then it is understood and agreed that the said deed is to become and be a deed absolute ;” thus clearly indicating that at the date of the transaction said sum was not purchase money and said deed was not a deed absolute, but was to become so in case of non-payment of the loan.

p. 850

Clearly upon the undisputed facts the deeds were a mortgage to-secure the money loaned, and the trial court erred in refusing the-plaintiff’s request so to find. The agreement that the non-payment of the loan within the time specified should convert the mortgage into an absolute deed did not have that effect.

The agreement to turn a mortgage into an absolute deed in case of default is one that finds no favor in equity. The maxim “oncea mortgage always a mortgage ” governs the case. Horn v. Keteltas, supra; Murray v. Walker, 31 N. Y., 400 ; Carr v. Carr, 52 id., 251; Remsen v. Hay, 2 Edw. Ch., 535 ; Clark v. Henry, 2 Cow., 324 ; Morris v. Ex’r of Nixon, 1 How. U. S., 118; Villa v. Rodriguez, 12 Wall., 323 ; 4 Kent’s Com., 143. Since the deeds were a mortgage the title did not pass to the grantees, but remained in Lucilia Tracy. Barry v. Hamburg-B. Fire Insurance Co., 110 N. Y., 1 ; 16 St. Rep., 634 ; Thorn v. Sutherland, 123 N. Y., 236 ; 33 St. Rep., 408 ; Shattuck v. Bascom, 105 N. Y., 46 ; 6 St. Rep., 775 .

The levy under the plaintiff’s attachment was, therefore, upon Mrs. Tracy’s land, to which she had the legal title. It was not. merely an attempted levy upon her equitable right to obtain title. As against Howland, Smith and Tracy the levy was valid, and the judgment and execution which followed the attachment became a specific lien upon the land itself, and the land could be sold upon execution.

Howland, Smith and Tracy conveyed the premises before the attachment was issued to the defendant, the New York Baptist Union for Ministerial Education. This defendant, by its answer, admits that $3,000 of the purchase mone.y, with interest from January 1, 1883, remains unpaid, and that $1,550 of the principal of one of the mortgages upon the premises given by Mrs. Tracy also remains unpaid. This defendant, in order to maintain the defense that it is a bona fide purchaser without notice of plaintiff’s rights, must have paid all the purchase money. Sargent v. Eureka B. A. Co., 46 Hun, 19 ; 11 St. Rep., 68 ; Harris v. Norton, 16 Barb., 264 ; Jewett v. Palmer, 7 Johns. Ch., 65 ; Jackson v. Cadwell, 1 Cow., 622 ; Boone v. Chiles, 10 Peters, 179; Patten v. Moore, 32 N. H., 382 .

In equity it has not completed its purchase, but to the extent, of its payments innocently made before notice of plaintiff’s claim is entitled to protection. It may, therefore, retire from the transaction without actual loss, and without impairing "the rights of the plaintiff.

The action is in aid of plaintiff's execution. Its object is not. to reach any equitable assets of Mrs. Tracy, but to strip from her legal title to the premises in question the obstructions created by the deeds by which such title apparently, but not in fact, passed from her to Howland, Smith and Tracy, and from them to the Baptist Union, and thus to show that the lien acquired by plaintiff’s attachment of the premises, and perfected by her judgment and execution, was valid, and therefore • may now be enforced free from the obstructions which seemed to defeat it. Such, an action is within the equitable jurisdiction of the court.

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Beck v. Burdett, 1 Paige, 305: Heye v. Bolles, 33 How. Pr., 266 ; Rinchey v. Stryker, 28 N. Y., 45 ; Frost v. Mott, 34 id., 253. Thurber v. Blank, 50 id., 80, does not hold otherwise, but does hold that the attachment to be effective must operate upon legal rights; the precise position of the plaintiff here.

The judgment should be reversed, and a new trial granted; -costs to abide event.

All concur.