Hogarty v. Lynch — 19 N.Y. Super. Ct. 138

Majority

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Patrick Hogarty, Plaintiff and Appellant, v. James Lynch and Leonide S. de Agreda, Defendants and Respondents.

Headnote

1. Where a conveyance, absolute in form, was made to one to whom the equitable owner was indebted, without any agreement that the deed should not operate according to its legal import, there is no presumption that the conveyance was taken as security merely, but rather that there was a sale for the consideration expressed in the conveyance.

2. One who alleges such a conveyance to be a mortgage, has the burden of proof, if the allegation be denied.

3. Where one, holding a contract of purchase, assigns it to another, whom he owes, by an assignment absolute in form, and permits the assignee to perform the contract, (giving mortgages to the owner,) and take an absolute deed from the owner, if he insists that such -transfers were intended as a

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security to his debtor and seeks to redeem, must show some agreement or understanding that the premises should be so held. His mere allegation that he made the assignment and permitted the conveyance in confidence that his debtor would so hold, though not denied, will not entitle him to treat the grantee as mortgagee and redeem the premises. Some assent of the grantee, and taking the conveyance with knowledge that it was given in that expectation or upon that confidence, must at least be shown.

4. In such case, the bona fide grantee of the party receiving such conveyance, having no notice that the conveyance to the latter was not to operate according to its legal import, has a good title which cannot be defeated by any proof of a parol understanding that the conveyance should be held as a mortgage.

(Before Hoffman and Woodruff, J. J.)

Submitted, November 7th, 1859;

decided, January 28th, 1860.

This action is brought for the redemption of certain two houses and lots from an alleged mortgage. The complaint alleges that the plaintiff held a contract for the purchase of two lots of ground, upon which he was, with the aid of moneys loaned for that purpose by the vendor, erecting two dwelling-houses, upon the completion of which he was to receive a conveyance of the lots and execute a mortgage upon each lot to such vendor to secure the sum of $15,000 each—that being the amount of the purchase-money and the advances so to be made to him.

That the plaintiff, in the progress of such erection, became unable promptly to meet all his pecuniary obligations, and, in August, 1857, the defendant Lynch became the holder of promissory notes made or indorsed by the plaintiff, amounting in the aggregate to less than $6,000, and was pressing him for payment and threatening to prosecute the parties who had indorsed the notes for the plaintiff’s accommodation.

That, in order to obtain “ a temporary pacification of the said Lynch,” and to secure the payment of the said demand then due to said Lynch, and with no other intention on his part, he executed to the said Lynch two assignments of the said contract, in each of which the consideration expressed was $27,000—the same being each subject to the deduction of $15,000 which was to be secured to the vendor of the lots by mortgage thereon; but that the plaintiff received no consideration whatever, except forbearance of the said sum of less than $6,000 so due to the said Lynch; and although such, assignments were absolute on

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their face, they, were executed and delivered on the express under standing by the plaintiff and the promise of the said Lynch that they should opérate ánd be held as security only for the said indebtedness. '

That the said Lynch still pressing him for payment, the plaintiff was induced, by the confidence he reposed in the said Lynch, to permit the vendor of the said lots to convey the same to the said Lynch, which was done on the 19th of October, 1857 ;■ and the said Lynch executed to such vendor a mortgage for $15,000 on each lot. That such last named deeds were obtained from such vendor by virtue of the said two assignments, and the confidence of the plaintiff that they would be held as security and that the said Lynch would execute an acknowledgment that they were so held, which he promised to' do.

That the said Lynch has - never executed such acknowledgment, but claims to hold the houses and lots absolutely as his own property as purchaser. .......

That on the 9th day of April, 1858, the - said defendant, Lynch, conveyed to the other defendant (Agreda,) one of the-said houses, and lots for the consideration of $18,300, subject to the mortgage for $15,000 thereon, which' was deducted from the consideration of $18,300 as a part thereof, and the balance is alleged to have been paid to said Lynch. - .

That the said Agreda, at. the timé of the conveyance to her, had notice of the plaintiff’s beneficial and actual ownership of the said house, or sufficiént -knowledge to put her upon inquiry.

The plaintiff thereupon prays that he be declared the-beneficial and equitable owner of the said two houses and lots subject to the said two mortgages of $15,000 each,' and that he be permitted to redeem the same, and that the defendants, respectively convey to him oh the payment to each of - them respectively of such sum as shall in the aggregate amount to the just indebtedness of the plaintiff to the said Lynch, and for such further -or other relief, &c. .

The defendant, Lynch,- by his answer denies that the contracts were assigned to hind as security or as a means of obtaining “ a temporary pacification,’’ and alleges, unqualifiedly, that the contracts and' all the plaintiff’s rights under the same, and to the said lots of land, were sold and conveyed to him in consideration

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of debts then due to him from the plaintiff, and money paid to him and money paid for interest to the vendor of the property, such consideration being the full value of the said houses and lots which were not worth more than $18,300, or thereabouts. He denies any promise or understanding that the said assignments were to operate or be held by him as security. He denies that any persuasions were used to induce the execution of the deeds to him by such vendor, or that any agreement or promise, express or implied, was made that such deeds should be held as security or that he would execute an acknowledgment of such fact. He does not deny in any form that the plaintiff had confidence that he would hold the property as security, or that the plaintiff made the assignments and permitted the conveyances to be made to him in confidence in his own (the plaintiff’s) mind, that he would hold the property as securily and permit him to redeem. Other facts are stated in the answer, but they are not material to this appeal.

The defendant, Agreda, denies every allegation in the complaint, except that she purchased one house and lot for $18,300, which was conveyed to her bona fide for that sum paid, partly in cash, and by assuming the mortgage of $15,000 thereon; and that the conveyance was received and money paid by her without any notice of any claim by the said plaintiff.

Upon the issues so joined, the case came on for trial before Mr. Justice Hoffmajst, on the 4th of June, 1859. The plaintiff rested his case upon the pleadings, and declined offering any proof in support of the allegations in the complaint; whereupon, on' motion of the defendants, it was ordered that the complaint be dismissed.

Judgment of dismissal being entered, the plaintiff appealed to the General Term.

The appeal was submitted without argument upon the points of the plaintiff’s counsel, the counsel for the defendant submitting the matter without points or argument.

J. W. Blydenburgh, for the plaintiff (appellant).

I. A creditor in possession, with an assignment of his debtor’s estate, repudiating the price named in his assignment, and affirmatively substituting an indefinite consideration in its place, aoknow

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¡edging he obtained the assignment on the confidence of the debtor that it would be held as security only for the debt due; is a mortgagee in equity.

Lynch denies nothing but the value of the property, and any agreement on his part to hold it as security only for the debt then due, all else in the plaint is fully admitted.

Though he denies any agreement, he does not deny that the plaintiff, by his confidence that Lynch would hold the property as security and permit him to redem it, was led to assign the contracts to him, and permit him to take the title.

• There never was a sale by the plaintiff to Lynch. No price was ever agreed upon between them. (Milnes v. Gesey, 14 Ves., 408.) If there be a doubt, whether it be a sale or mortgage, it is of necessity a mortgage until the doubt be cleared up; and the burden is on him who alleges a sale. (Story, J., 2 Sumn., 535 .) No debt to Lynch was canceled. To make out a sale, the defendant must prove the price paid. (Hugh v. Batte, 10 Yer., 335 ; Clarke v. White, 12 Pet., 178 .)

Where a mortgage is taken for a preexisting indebtedness, without any intention of discharging the original debtor from personal responsibility upon his former security, his liability upon that security will remain, notwithstanding the debt is further secured by mortgage. (Hone v. Fisher, 2 Barb. Ch. R., 570.)

II. One who would oppose a legal presumption, has the burden of proof whether that presumption arises from a positive or negative allegation, of the plaintiff’s or defendants’ pleading, or both taken together. (Mills v. Barber, 1 Mees. & Welsb., 427; Ames v. Hughes, 1 Moody & Rob., 461.)

The presumption; raised by a creditor’s admission that he took an assignment of his debtor’s property for the nominal consideration of $27,000, on the confidence of the debtor that he would hold it as security for a debt of $18,000 or thereabouts, and in violation of that confidence, holding the assignment as a sale against him for an indefinite consideration; requires proof to overthrow, and more than indefinite allegations to neutralize. It is a fraud on its face. And none the less a fraud, than if the creditor had agreed to execute a defeasance, and afterwards refused. To accept a deed under such confidence of the maker, is in fact to agree so to hold it. The law makes the promise, and equity

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is not precluded by the statutes of fraud, from enforcing it. It is fully saved by the last section of our statute. (2 R. S., 69.)

III. A trust being fully established by the admitted breach of confidence, the law never presumes an illegality; but requires proof to follow the charge of an unlawful trust. This not being done, the trust was manifestly to take up the fee from Field, and secure the debt of the party taking it up; beyond that, the trust results to Hogarty by operation of law, and is but another name for a mortgage.

If a transaction resolve itself into a security, whatever may be its form, and whatever name the parties may choose to give it, it is in equity a mortgage. (Flagg v. Mann, 2 Sumn., 535 .)

IV. Mrs. Agreda’s answer denies everything except that she held under Lynch. As such, she can hold no greater right than her grantor, except as an innocent purchaser. She does not venture to say she is. But says her purchase was Iona fide and without notice. But she pins her good faith on the want of notice, and not on the want of knowledge. She had knowledge sufficient to put her on inquiry. This she does not deny.

The judgment should be reversed, and a new trial ordered.

John E. Burrill, for the defendants (respondents).

The plaintiff, according to his own allegations, had executed and delivered to the defendant Lynch a transfer absolute in form, conveying all his interest in the premises, and this was followed by the execution and delivery to the said Lynch of an absolute deed for the houses and lots.

Now, the very first point to be established by the plaintiff, (without which there is no foundation whatever for his claim to redeem,) is, that his transfer to Lynch was made and delivered and received as a mortgage; that it was to secure the debt which he owed Lynch.

Without inquiring how far he was concluded by the absolute form of the transfer, or whether he could be permitted, for his own benefit, to show by parol that such a transfer was not to operate according to its terms and legal effect, it must suffice to say, that, in the face of the absolute assignments and conveyance to the defendant Lynch, and in the absence of any agreement that those

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instruments shall not operate according to their legal import, or even of any understanding to that effect, there is no presumption that they were intended as a mortgage, but rather that they were intended as a sale for the consideration expressed therein.

The plaintiff’s-allegation is expressly and unqualifiedly denied in the answer of the defendant Lynch. The absolute form of the transfer, and the express denial that it was received under any agreement, promise or understanding that he should hold the premises as security merely, are a full protection to the defendant.. They are a full denial of the only ground upon which the plaintiff asks the interposition of the Court. And until some competent proof was given by the plaintiff in support of his allegations, they stand denied and not proved.

The mere statement of the plaintiff that he had in his own mind confidence that Lynch would continue to hold the property as security merely, and that he would permit the plaintiff to redeem, did not require any denial: it is not averred that this expectation or confidence was communicated to Lynch, or that he knew it when he took the assignments and deeds, still less that he consented to take the property upon any such trust.

As to the defendant Agreda, there is not the slightest just pretense of claim to maintain the action against her. She denied generally every allegation in the complaint, except her own purchase. This put the plaintiff to proof of his allegations, and he offered none.

Besides, as to her, the plaintiff could not claim a right to redeem, if he had shown a parol agreement that the deed to Lynch should be held as a mortgage, unless he also proved that she knew it. The bona fide purchaser from one who holds by an absolute deed obtains a good title, although it was intended as a mortgage, if such purchaser have no notice. (Stoddard v. Rotton, 5 Bosw., 378 .)

The Court were bound to dismiss the complaint, or order judgment on the merits for the defendants.

The fact that $27,000 was named as the consideration of each of the assignments to the defendant Lynch, however useful it might be if this were an action for unpaid purchase-money, does not sufficiently show that the assignments were intended as mortgages. The judgment should be affirmed.

Judgment affirmed, with costs.