L made and delivered to W his promissory note for $1,300 payable
in ninety days, and a deed of a tract of land absolute on its face.
It was orally agreed between them that the deed was executed as
security for the payment of the note, and that, if the note was not
paid at maturity, W was authorized to sell the land. The note not
being paid at maturity, W, with the knowledge and assent of L, sold
and conveyed the land to T and applied the proceeds to the payment
of the debt. After the completion of the contract and execution of
the deed, but before its delivery to T, a creditor of L who had
recovered judgment against him levied on this tract of land to
satisfy the judgment, and caused it to be sold. The purchaser at
the sheriff's sale, after receiving his deed, filed a bill in
equity against the heirs and devisees of T praying to be admitted
to redeem the land on payment of the note.
Held:
(1) That the transaction was in equity a mortgage.
(2) That parol evidence was admissible to show when the power of
sale in the mortgage became absolute.
(3) That W had an absolute power of sale when the conveyance was
made to T, the execution of which carried the land free from the
mortgage.
Bill in equity to redeem from a mortgage. The case is stated in
the opinion of the Court.
Page 117 U. S. 680
MR. JUSTICE WOODS delivered the opinion of the Court.
The appellants filed the bill in the circuit court. The
following facts are shown by the record:
One Alvin N. Lancaster being the owner in fee simple of certain
lands in Worth, Nodaway, and Atchison Counties in the State of
Missouri, conveyed them on September 15, 1875, to Edward L. Wells
by deed absolute on its face. At the time the deed was executed,
Lancaster made and delivered to Wells his promissory note for
$1,300, payable in ninety days. There was at the time a verbal
understanding between them that the deed was made as security for
the payment of the note and that if the note was not paid at
maturity, Wells should have the right to sell the land to whom he
pleased. The note was not paid at maturity. Wells pressed Lancaster
for payment, and on his failure to pay, about January 5, 1876,
contracted to sell the lands to George C. Tallman, and executed to
him a quitclaim deed of that date therefor, which, however, was not
delivered until January 20, 1876.
On January 15, 1876, the plaintiffs in this suit began, by
attachment, in the Circuit Court of Worth County, Missouri, an
action against Lancaster in which the lands in controversy were
seized, and on October 24, 1876, they recovered judgment against
him for $895. On February 21, 1878, executions were issued on the
judgment to the sheriffs of the counties where the lands lay, and
the lands were sold by virtue thereof and purchased by the
plaintiffs, to whom deeds therefor were made. George C. Tallman,
the vendee of Wells, died on May 5, 1880, and the defendants in the
present suit were his devisees of the lands above mentioned.
Afterwards, on January 31, 1882, the plaintiffs filed the bill in
this case, in which they alleged that the deed of Lancaster to
Wells was in effect a mortgage, executed to secure the note made by
the former to the latter. They tendered to the defendants the
amount due on the note, with
Page 117 U. S. 681
all the taxes paid by the latter on the lands, and prayed for a
decree permitting them, as purchasers of Lancaster's equity of
redemption, to redeem the lands, and for general relief.
The defendants answered that at the time George C. Tallman
purchased the lands, and at the time of the delivery of said deed,
which they averred to be on January 5, 1876, he had no notice of
any claim of the plaintiffs against Lancaster, or that the title of
Wells to the lands in controversy was other or different from the
absolute title which the deed from Lancaster to him purported to
convey, and that Tallman intended to purchase, and did purchase,
the absolute title thereto, for which he paid a full and valuable
consideration.
On final hearing, the circuit court dismissed the bill, and the
plaintiffs appealed.
There is no conflict in the testimony or disagreement between
the parties touching the terms on which Lancaster conveyed the
lands in controversy to Wells. Lancaster, Wells, and one Jordan,
who acted as agent for Wells in the transaction, all give the same
account. The deed was executed to secure the payment of the note
made by Lancaster to Wells for $1,300, due in ninety days, with the
distinct agreement that if the note was not paid when due Wells
should be authorized to sell the land. No other account is given of
this transaction by any witnesses.
The deed from Lancaster to Wells was therefore in effect a
mortgage, for it is settled that an absolute deed intended by the
parties as a security for a debt is in equity a mortgage.
Hughes v.
Edwards, 9 Wheat. 489;
Sprigg
v. Bank of Mount Pleasant, 14 Pet. 201;
Morris v.
Nixon, 1 How. 118;
Peugh v. Davis,
96 U. S. 332;
Teal v. Walker, 111 U. S. 242;
Brant v. Robertson, 16 Mo. 129;
Worley v. Dryden,
57 Mo. 226;
O'Neill v. Capelle, 62 Mo. 202. It is also
settled that evidence, written or oral, may be admitted to show the
real character of the transaction.
Russell v.
Southard, 12 How. 139;
Babcock v.
Wyman, 19 How. 289;
Peugh v. Davis, ubi supra;
Brick v. Brick, 98 U. S. 514.
There being no dispute, therefore, in relation to the terms of
the agreement between Lancaster and Wells on which the
Page 117 U. S. 682
deed of the former to the latter was executed and delivered, it
is to be read in equity precisely as if the agreement were set out
therein, and is to be considered a mortgage to secure the payment
of the note made by Lancaster to Wells according to its tenor, with
power to Wells in default of payment to sell the mortgaged
premises.
This condition must be taken as a whole; no part of it can be
rejected. The authority to Wells to sell the premises, in default
of payment of the note, was just as much an element in the
condition as the right of Lancaster to a reconveyance upon payment
of the note. The right of Wells to sell the premises in default of
payment was a right of property which he had bought and paid for,
which could not be impaired by an attachment levied on the property
by Lancaster's creditors. Their attachment was as much subject to
the right of Wells to sell in default of payment of the note as it
would have been to his right to foreclose a mortgage made in the
usual form. After the attachment was levied Wells exercised the
right to sell. He sold, as the record abundantly shows, with the
knowledge and concurrence of Lancaster. The property brought enough
to pay the debt, and no more. It is not disputed that the sale was
fair and
bona fide. It therefore cut up by the roots all
title of Lancaster, and all claim of the plaintiffs acquired by
their attachment upon the lands in question, and left neither in
them nor Lancaster any right to redeem. The vendee of Wells stands
upon the same ground as if he had bought the premises at a
foreclosure sale, and his title is indefeasible.
This conclusion does not depend upon the fact whether or not
Tallman purchased with or without notice of the verbal condition
under which the deed from Lancaster to Wells was executed. The
rights of Lancaster, and those claiming under him, are not
strengthened by the fact that the condition was a verbal one. They
are in no better position than if the condition had been
incorporated in the deed and put upon the public records, thereby
giving constructive notice to all the world. In the latter case, it
is clear that Wells, having power to sell, could sell to whomsoever
he chose. Therefore, whether
Page 117 U. S. 683
the vendee had notice of the condition would be immaterial. But
the proof in the record that Tallman had no knowledge or notice of
the condition, and that when he bought he supposed the deed was
what it purported to be, an absolute conveyance, is clear and
positive.
The case therefore in all its elements, falls within the rule
laid down by the Supreme Court of Missouri in
Wilson v.
Drumrite, 21 Mo. 325. In that case, a deed absolute on its
face was executed by Wilson to Drumrite, but was in fact given as a
security for a debt. There was a verbal agreement between Wilson
and Drumrite that the latter should reconvey if the debt was paid
when due. In case of default, Drumrite was authorized to sell the
land to enforce payment of his debt. Wilson failed to pay the debt
when due, and Drumrite sold part of the land to a purchaser without
notice. The court, laying stress upon the fact that the vendee had
no notice of the condition, held that the sale was valid, but that
Drumrite must account to Wilson for the land sold, and must
reconvey the residue.
In the present case, even under the rule laid down by the
Supreme Court of Missouri, there is no right of redemption.
Upon the whole record, therefore, the decree of the circuit
court dismissing the bill was right.
Decree affirmed.