In Bradbury v. Davenport et al., 46 P. 1062, on appeal to the supreme court of California for the first time, the following doctrine is announced: "A conveyance of the mortgaged premises by the mortgagor to the mortgagee, by delivery of deed in escrow, to be delivered in case of the non-payment of the mortgage deed within a certain time, will be set aside where the property is of double the value of the indebtedness."Summary of this case from Wagg v. Herbert
Appeal from a judgment of the Superior Court of San Diego County. E. S. Torrance, Judge.
The contract is void, because it is an agreement for forfeiture of the property subject to the lien in satisfaction thereof, in case the debtor does not pay before July 1st; also, because it is in restraint of the right of redemption from the lien, since it cuts down the right of redemption to less than four months. ( Civ. Code, secs. 1667, 2889, 3513; Jones on Mortgages, secs. 251, 1042, 1043, 1045; Tennery v. Nicholson , 87 Ill. 464; Batty v. Snook , 5 Mich. 231; Peugh v. Davis , 96 U.S. 332.) The deed being incident to and executed in pursuance of a void contract is itself void, and cannot make the illegal transaction valid. ( Civ. Code, sec. 1608; Moffett v. Bulson , 96 Cal. 106; 31 Am. St. Rep. 192.) The deed was not an executed contract. The heirs and administrator notified Anderson not to deliver it, and the delivery was a nugatory act. ( Civ. Code, sec. 1661; Thompson v. Doaksum , 68 Cal. 598; Miller v. Sears , 91 Cal. 282; 25 Am. St. Rep. 176; Raisch v. San Francisco , 80 Cal. 6; Hermann on Estoppel, 922.) Transactions of this nature will be closely scrutinized so as to prevent any oppression of the debtor, and the release must always be for an adequate consideration. (Peugh v. Davis, supra .) No tender was necessary, and therefore none need be alleged. (Wiard v. Brown , 59 Cal. 194; Wingerter v. Wingerter , 71 Cal. 105; Code Civ. Proc., secs. 1569, 1570, 1582, 1589; Pennie v. Hildreth , 81 Cal. 127.)
Withington & Carter, for Appellant.
Haines & Ward, for Respondent Josiah N. Davenport.
The doctrine of section 2889 of the Civil Code, "once a mortgage always a mortgage," does not refer to future contracts. (Watson v. Edwards , 105 Cal. 70, 75.) The written agreement between Keniston and Davenport was a conditional contract of sale complete in all its elements. Both Keniston and Davenport were bound, each to the other, from the time of the mutual deliveries to Anderson, and neither could revoke his deposit. (Cannon v. Handley , 72 Cal. 133; McDonald v. Huff , 77 Cal. 279; Millet v. Parker, 2 Met. (Ky.) 608; Shirley v. Ayers, 14 Ohio, 308; 45 Am. Dec. 546; Stanton v. Miller , 58 N.Y. 192; Schmidt v. Deegan , 69 Wis. 300; Prutsman v. Baker , 30 Wis. 644; 11 Am. Rep. 592.) Neither had Anderson the right to comply with plaintiff's notice not to deliver the deed. (Evert v. Agnes , 4 Wis. 343, 353; 65 Am. Dec. 314; Washburn on Real Property, 2d ed., 615.) And immediately after the condition became absolute, Davenport was absolutely entitled to it, and by virtue of its delivery to him became the owner of the premises. (Cannon v. Handley, supra .) This would have been so even if the condition had happened after Keniston's death instead of before, as it did. (Bostwick v. McEvoy , 62 Cal. 496, 499, and cases cited; Webster v. Kings County Trust Co ., 145 N.Y. 275; Prutsman v. Baker, supra ; Bury v. Young , 98 Cal. 446; 35 Am. St. Rep. 186; Crain v. Wright , 43 N.Y. S.Ct. 74; Wittenbrock v. Cass , 110 Cal. 1.) Under the law in this state as to mortgages there is no such thing as an equity of redemption in the mortgagor, because no mortgage conveys the legal title; it is a mere lien and a chattel, and the legal and equitable estate remains in the mortgagor. ( Civ. Code, sec. 2920; Carpenter v. Benham , 40 Cal. 221; McGurren v. Garrity , 68 Cal. 567; Tapia v. Demartini , 77 Cal. 383; 11 Am. St. Rep. 288; Stewart v. Powers , 98 Cal. 514; Pomeroy's Equity Jurisprudence, sec. 1188; Sichler v. Look , 93 Cal. 600.) A tender was necessary, and an allegation of it was essential. (Hall v. Arnot , 80 Cal. 348; Raynor v. Drew , 72 Cal. 307, 311; Brandt v. Thompson , 91 Cal. 458, 462; De Cazara v. Orena , 80 Cal. 132; Pico v. Gallardo , 52 Cal. 206; Spect v. Spect , 88 Cal. 437; 22 Am. St. Rep. 314.)
JUDGES: Haynes, C. Searls, C., and Belcher, C., concurred. McFarland, J., Temple, J., Henshaw, J.
This appeal is from a judgment rendered against the plaintiff upon demurrer to the complaint.
The complaint, after alleging the appointment of the plaintiff as administrator of Daniel Keniston, deceased, and describing the property involved in the controversy herein, alleged in substance as follows: That on January 1, 1891, Keniston executed a mortgage to the defendant Davenport upon certain of the real estate described in the complaint to secure the sum of four thousand dollars, with interest at ten and one-half per cent per annum, payable in two years from said last-mentioned date, which mortgage was duly recorded; and defendant Davenport claimed that there was due thereon of principal and interest to March 1, 1895, the sum of three thousand nine hundred and thirty-three dollars and eighty-seven cents.
The remainder of the complaint (except paragraph 4, which need not be noticed) is as follows: "That on or about said first day of March, 1895, the said Daniel Keniston, being then sick in body and embarrassed financially, and being persuaded thereto by the representations of said defendant Davenport, was induced to sign, and did sign, a certain agreement with said Davenport, and to execute a deed to lots 4 and 5 of the premises, above described, to said J. N. Davenport, which he, the said Keniston, handed, together with said agreement, to the defendant J. H. Anderson, cashier of the Bank of Escondido. That by the terms of said agreement, upon the payment to said cashier of a sum of money, not expressed in said agreement, before July 1, 1895, the said cashier was to discharge said mortgage and return the note secured thereby to said Keniston, and that in case said Keniston should not pay said sum of three thousand nine hundred and thirty-three dollars and eighty-seven cents, and interest to July 1st, before said July 1, 1895, the said cashier should deliver said deed to said Davenport and the note to said Keniston, and the delivery of said deed should be in full cancellation and satisfaction of said note.
" 3. That the said Daniel Keniston from the time of the execution of said agreement continued sick and unable properly to attend to his business, and from and after the twenty-ninth day of June until the ninth day of July, 1895, the said date of his death, was unconscious, and that subsequent to the death of said Daniel Keniston, [46 P. 1063] and after plaintiff had applied for administration in behalf of himself and the heirs of said Keniston, he notified the defendant Anderson not to deliver said deed to said Davenport, but that he, the said Anderson, in violation of the trust reposed in him, and well knowing that said Keniston was dead, and after said notice, upon the demand of said Davenport, upon the twenty-fourth day of July, 1895, delivered said deed to said Davenport, and the said Davenport caused the same to be recorded, and claims to be the owner of said property. That no demand had been made by said Davenport before said last date for said deed.
" 5. That said deed constitutes a cloud upon the title of plaintiff, and his right to subject said property to administration. That the equity in said property is of great value, namely: The sum of four thousand dollars, and that the estate of said Daniel Keniston is largely indebted, and that it is necessary to sell the interest of the estate in said premises in order to pay said indebtedness."
The prayer of the complaint is that said deed from Daniel Keniston to the defendant Davenport be decreed to be void and of no effect, or that the same is a mortgage to secure any sum which may be found due from said intestate to said defendant Davenport, and that said property be further decreed to be assets of the estate and subject to administration.
The demurrer to the complaint is as follows: "That said complaint does not state facts sufficient to constitute a cause of action in this, to wit: "1. That it shows on its face that this defendant is the owner of lots four (4) and five (5) in section four (4), township twelve (12) south, range two (2) west, San Bernardino meridian; 2. That the complaint contains no offer or tender, or any allegation of offer or tender, to pay the overdue mortgage indebtedness to this defendant therein alleged to be subsisting."
This demurrer was sustained, and, the plaintiff declining to amend his complaint, judgment was rendered "that the complaint herein be, and the same is hereby, dismissed on the merits," and for costs.
Appellant insists that said contract or agreement deposited with Anderson with the deed is void, because it is an agreement for forfeiture of the property subject to the lien in case the debtor does not pay before July 1st; and, in support of this proposition, he cites section 2889 of the Civil Code, which is as follows: "All contracts for the forfeiture of property subject to lien in satisfaction of the obligation secured thereby, and all contracts in restraint of the right of redemption from a lien, are void."
Aside from the provision of said section of the Civil Code, it is well settled that the mortgagor is not allowed to renounce beforehand his privilege of redemption; that while generally any one may renounce any privilege or surrender any right he had, that an exception is made in favor of debtors who have mortgaged their property, for the reason that their necessities often drive them to make ruinous concessions; that when one borrows money upon the security of his property, he is not allowed by any form of words to preclude himself from redeeming (Jones on Mortgages, secs. 251, 1045), though the doctrine "once a mortgage, always a mortgage" does not apply to subsequent contracts. (Watson v. Edwards , 105 Cal. 70, 75.)
In Peugh v. Davis , 96 U.S. 332, it was held that an equity of redemption is so inseparably connected with a mortgage that it cannot be waived or abandoned by any stipulation of the parties made at the time, even if embodied in the mortgage, though a subsequent release of the equity of redemption may undoubtedly be made to the mortgagee. As to such release, the court, by Field, Justice, said: "It must appear by a writing importing in terms a transfer 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 a consideration which would be deemed reasonable if the transaction were between other parties dealing in similar property in its vicinity. Any marked undervaluation of the property in the price paid will vitiate the proceeding."
In relation to such subsequent agreement, Jones, in his valuable work on Mortgages, section 251, says: "A subsequent agreement that what was originally a mortgage shall be regarded as an absolute conveyance is open to the same objection [that is, the objection to such agreement in the mortgage itself], and will not be sustained unless fairly made, and no undue advantage is taken by the creditor. The burden is, therefore, upon the creditor to show that the right of redemption was given up deliberately and for an adequate consideration."
In support of this proposition the author cites, among many other cases, Villa v. Rodriguez, 12 Wall. 323, from which we quote the following passage: "The law upon the subject of the right to redeem where the mortgagor has conveyed to the mortgagee the equity of redemption is well settled. It is characterized by a jealous and salutary policy. Principles almost as stern are applied as those which govern where a sale by a cestui que trust to his trustee is drawn in question. To give validity to such a sale by a mortgagor it must be shown that the conduct of the mortgagee was, in all things, fair and frank, and that he paid for the property what it was worth. He must hold out no delusive hopes; he must exercise no undue influence; he must take no advantage of the fears and poverty of the other party. Any indirection or obliquity of conduct is fatal to his title. Every doubt will be resolved against him. Where confidential relations and the means of oppression exist, the scrutiny is severer than in cases of a different character. The form of the instrument employed is immaterial. That the mortgagor knowingly surrendered and never intended to redeem is of no consequence. If there is vice in the transaction, the law, while it will secure to the mortgagee his debt, with interest, will compel him to give back that [46 P. 1064] which he has taken with unclean hands. Public policy, sound morals, and the protection due to those whose property is thus involved, require that such should be the law."
Respondent contends, however, that this case is conclusively settled by this court in McDonald v. Huff , 77 Cal. 279. But that case is clearly distinguishable from this. In that case an unsecured debt, as well as a debt secured by a mortgage, was to be satisfied by the deed deposited in escrow, if such debts were not otherwise paid within the time limited by the agreement, so that a price in addition to the amount of the mortgage lien was paid for the property, and there is no indication, either in the statement of facts or in the opinion of the court, but that the price thus paid was the full value of the property conveyed; while in the case at bar the plaintiff, while not disputing respondent's right to a lien as security for the amount of the mortgage debt and interest, alleges that the equity of the estate in said premises is of the value of four thousand dollars. In the absence of a special demurrer we must hold this to be an allegation that at the commencement of this action said premises were worth four thousand dollars more than the amount secured by the mortgage, with interest to that date.
Respondent also contends that the deed to him took effect when delivered, as of the date of the escrow, and that the agreement was, therefore, fully executed before this action was begun. But that does not conclude the plaintiff. In Russell v. Southard, 12 How. 139, it was held that, though a mortgagee in possession may take a release from the mortgagor, the transaction is to be carefully scrutinized, and if any unconscientious advantage was taken, the release will be set aside.
Conceding that the depositary may, upon the happening of the condition, deliver the deed held by him in escrow, notwithstanding the death of one of the parties to the escrow agreement, the transaction is not placed beyond the control of a court of equity if the circumstances of the case require its interposition.
It is said, however, by respondent, that the term "equity," when applied to mortgages in this state, describes nothing; and quotes Pomeroy's Equity Jurisprudence, section 1188, to the effect that it is an entire misuse of language to apply the name "equity of redemption" to the legal estate of the mortgagor. Sichler v. Look , 93 Cal. 600, is also cited, where it is said in substance that the clause usually inserted in decrees of foreclosure, "that the defendant be forever barred and foreclosed of and from all equity of redemption," etc., does not add to the effect of a sale under the decree beyond what it would have had if the provision had been omitted. But the learned justice who wrote the opinion refers to the matter as one of common practice, and says: "Its insertion is due to the conservatism of the profession, which hesitates to adopt a reform in procedure, and prefers to adhere to the forms which were used under a different system."
If the allegation contained in said fifth paragraph had been specially demurred to upon the ground of uncertainty or ambiguity, such demurrer should have been sustained; but we think, when tested by a general demurrer, that the allegation is a sufficient statement that the interest of the estate in the property described in the deed is of the value of four thousand dollars over and above the indebtedness of the estate to the defendant. It is alleged that the said deed constitutes a cloud upon the title of plaintiff and his right to subject said property to administration. The "equity," therefore, must refer to the interest which the estate would have had in the land subject to the mortgage; and, as the demurrer concedes the truth of this allegation, a cause of action was stated entitling the plaintiff to relief upon that ground, if no other.
Respondent contends, however, that the complaint is fatally defective because it contains no offer or tender, or any allegation of offer or tender, to pay the overdue mortgage indebtedness. They treat this as an action to quiet title, or as an action to redeem. Strictly speaking, it is neither. It alleges that a mortgage was given, that at the date of the deed and agreement a subsisting debt secured by the mortgage was due, unpaid, and enforceable under the mortgage, which was then, and still would have been, a valid lien upon the premises, alleges facts which show the invalidity of the deed, and prays that the said deed be canceled, or that it be declared a mortgage to secure any sum that may be found due from the intestate to defendant Davenport.
Plaintiff treats the lien as still subsisting. A bill in equity to redeem from a subsisting and enforceable mortgage lien would not lie, as the lien could be discharged by payment; but the defendant claims to have an absolute title to the land, and that the mortgage, which formerly subsisted, has been paid and discharged by the conveyance of March 1, 1895. If the decree prayed for in a given case would leave the defendant without remedy for the recovery of the money which would have been secured by the mortgage if a deed had not been subsequently given, it is clear that a court of equity would not grant it unless the plaintiff had tendered or offered to pay the money which he alleged the deed was given to secure, whether the debt was barred by the statute of limitations or not. But the decree here sought can have no such effect. The suit is brought, not to deprive the defendant of any of his just rights, but to determine the validity of the transaction by which the defendant claims what amounts to a forfeiture of the mortgaged property, and not to deprive him of a remedy whereby he may collect his debt. To impose upon the plaintiff the condition that he shall first tender payment, would give the defendant a benefit or advantage of great value from what is, upon the facts alleged, a transaction from which he should not be permitted to derive any benefit or advantage; that is, he could stand upon the apparent title conveyed by the deed without foreclosure, [46 P. 1065] for all time, knowing that his debtor cannot quiet his title against him without payment of the debt and interest, though barred by the statute, with the power of alienation at any time to an innocent purchaser; advantages which he did not and could not have had under the mortgage.
Nor is it true that the debtor who has given a deed absolute in form as security for the payment of his debt must, under all circumstances, tender payment before he can litigate the character of the instrument; as, for example, where the debt is not due, and the grantee asserts an absolute title, or is attempting to sell and convey to a stranger. A court of equity will not tie its hands by an unbending rule which would require it to impose inequitable terms, or do any injustice, in a given case falling within a general class though having peculiar or distinguishing features. There are sufficient facts appearing in the complaint, though not clearly stated, to show that the imposition of the condition of plaintiff's right to maintain this action, namely, that he must tender payment of the mortgage debt to the defendant, would result in a denial of justice.
Keniston died July 9th, plaintiff was appointed administrator July 23d, and this action was commenced July 30th, the deed to defendant Davenport having been delivered on the 24th.
It is alleged that the estate is largely indebted, and that a sale of the interest of the estate in the premises described in the deed is necessary in order to pay said indebtedness. Under such circumstances it would be inequitable to require a tender of the amount due as a condition upon the performance of which alone the action could be maintained, and a compliance with such condition would appear, from the facts stated, to be impossible. Certainly the money could not be raised upon the premises embraced in the deed, whatever its value, until it should be determined that the deed was itself only a mortgage.
We think the court erred in sustaining the demurrer, and that the judgment should be reversed, with leave to the plaintiff to amend his complaint if so advised.
For the reasons given in the foregoing opinion the judgment is reversed, with leave to the plaintiff to amend his complaint if so advised.