1. A deed of lands absolute in form, when executed as security
for a loan of money, will in equity be treated as a mortgage, and
evidence, written or oral, tending to show the real character of
the transaction is admissible.
2. 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.
3. A subsequent release of the equity of redemption to the
mortgagee must appear by a writing importing in terms a transfer of
the mortgagor's interest, or such facts be shown as will estop him
from asserting any interest in the premises, and it must be for an
adequate consideration.
4. In determining whether a transaction was intended to operate
as such release, the fact that the then value of the property was
greatly in excess of the amount paid and of that originally
secured, and the fact that the mortgagor retained possession and
subsequently enclosed and cultivated the land, are strong
circumstances tending to show that a release was not intended.
5. Where a deed, absolute in form, was made as security for a
loan, papers thereafter executed, which refer to the transaction as
one of purchase will be considered in connection with the deed, and
will not be regarded in a court of equity as any more conclusive of
a subsequent release than the form of the original instrument was
of a sale of the property.
This was a suit in equity, brought June 28, 1869, to redeem
certain real property in Washington City. The defense consisted in
an alleged release of the equity of redemption, to establish which,
in addition to the testimony of the parties, the defendant relied
principally upon the following papers:
"Whereas the undersigned, Samuel A. Peugh, of the City of
Washington in the District of Columbia, having heretofore sold and
conveyed to Henry S. Davis, of the said city, two certain squares
of ground in said city, the same being squares numbered nine
hundred and ten (910) and nine hundred and eleven (911) in the said
city, the said sale and conveyance having been by the said Peugh
made with full assurance and promise of a good and indefeasible
title in fee simple, though the said conveyance contains only a
special warranty, the said conveyance to said Davis bearing date on
the fourth day of March, A.D. 1857, and being recorded on the
seventh day of September, A.D. 1857."
"And whereas the title to the said squares so conveyed as
aforesaid to said Davis having been now questioned and disputed,
the said Peugh doth now, for himself, his heirs, executors, and
administrators,
Page 96 U. S. 333
promise, covenant, and agree to and with the said Henry S.
Davis, his heirs and assigns, in the manner following -- that is
that he, the said Samuel A. Peugh, and his heirs shall and will
warrant and forever defend the said squares of ground and
appurtenances as conveyed as aforesaid unto the said Henry S.
Davis, his heirs and assigns from and against the claims of all
persons whomsoever."
"And further that the said Peugh and his heirs executors and
administrators shall and will pay and refund to said Davis, his
heirs or assigns, all and singular the loss, costs, damage, and
expenses, including the consideration in said deed or conveyance,
which or to which the said Davis, his heirs or assigns, shall lose,
incur, pay, or be subject to, by reason of any claim or litigation
against or on account of said squares of ground, or either of
them."
'And for the full and faithful observance and performance of all
the covenants and agreements aforesaid, and for the payment of all
the sum or sums of money as therein provided, in the manner
prescribed as aforesaid, the said Samuel A. Peugh doth hereby bind
himself, his heirs, executors, and administrators, and each and
every of them, firmly by these presents.
'In testimony whereof, the said Samuel A. Peugh doth hereto so
set his hand and seal on this ninth day of February, in the year of
our Lord 1858.
"S. A. PEUGH [SEAL]"
"Signed, sealed, and delivered in the presence of"
"FRANCIS MOHUN"
"WM. H. WARD"
"WASHINGTON, D.C., Feb. 9, 1858"
"Received of Henry S. Davis $2,000, the same being in full for
the purchase of squares Nos. 910 and 911 in the City of
Washington."
"$2,000 S. A. PEUGH"
The other facts sufficiently appear in the opinion of the
Court.
The decree at special term dismissing the bill was at general
term affirmed, and the complainant appealed to this Court.
Page 96 U. S. 335
MR. JUSTICE FIELD delivered the opinion of the Court.
This is a suit in equity to redeem certain property, consisting
of two squares of land in the City of Washington from an alleged
mortgage of the complainant. The facts out of which it arises are
briefly these:
In March, 1857, the complainant, Samuel A. Peugh, borrowed from
the defendant, Henry S. Davis, the sum of $2,000, payable in sixty
days, with interest at the rate of three and three-fourths percent
a month, and executed as security for its payment a deed of the two
squares. This deed was absolute in form, purporting to be made upon
a sale of the property for the consideration of the $2,000, and
contained a special covenant against the acts of the grantor and
parties claiming under him. This loan was paid at its maturity, and
the deed returned to the grantor.
In May following, the complainant borrowed another sum from the
defendant, amounting to $1,500, payable in sixty days, with the
same rate of interest, and as security for its payment redelivered
to him the same deed. Upon this sum the interest was paid up to the
6th of September following. The principal not being paid, the
defendant placed the deed on record on the 7th of that month. In
January, 1858, a party claiming the squares under a tax title
brought two suits in ejectment for their recovery. The defendant
thereupon demanded payment of his loan, as he had previously done,
but without success.
On the 9th of February following, the complainant obtained from
the defendant the further sum of $500, and thereupon executed to
him an instrument under seal which recited that he had previously
sold and conveyed to the defendant the squares in question; that
the sale and conveyance were made with the assurance and promise of
a good and indefeasible title in fee simple; and that the title was
now disputed. It contained a general covenant warranting the title
against all parties
Page 96 U. S. 336
and a special covenant to pay and refund to the defendant the
costs and expenses, including the consideration of the deed, to
which he might be subjected by reason of any claim or litigation on
account of the premises. Accompanying this instrument and bearing
the same date, the complainant gave the defendant a receipt for
$2,000, purporting to be in full for the purchase of the land.
The question presented for determination is whether these
instruments, taken in connection with the testimony of the parties,
had the effect of releasing the complainant's equity of redemption.
It is insisted by him that the $500 advanced at the time was an
additional loan, and that the redelivered deed was security for the
$2,000, as it had previously been for the $1,500. It is claimed by
the defendant that this money was paid for a release of the equity
of redemption which the complainant offered to sell for that sum,
and at the same time to warrant the title of the property and
indemnify the defendant against loss from the then pending
litigation.
It is an established doctrine that a court of equity will treat
a deed absolute in form as a mortgage when it is executed as
security for a loan of money. That court looks beyond the terms of
the instrument to the real transaction, and when that is shown to
be one of security, and not of sale, it will give effect to the
actual contract of the parties. As the equity upon which the court
acts in such cases arises from the real character of the
transaction, any evidence, written or oral, tending to show this is
admissible. The rule which excludes parol testimony to contradict
or vary a written instrument has reference to the language used by
the parties. That cannot be qualified or varied from its natural
import, but must speak for itself. The rule does not forbid an
inquiry into the object of the parties in executing and receiving
the instrument. Thus it may be shown that a deed was made to
defraud creditors, or to give a preference, or to secure a loan, or
for any other object not apparent on its face. The object of
parties in such cases will be considered by a court of equity; it
constitutes a ground for the exercise of its jurisdiction, which
will always be asserted to prevent fraud or oppression and to
promote justice.
Hughes v.
Edwards, 9 Wheat. 489;
Russell v.
Southard,
Page 96 U. S. 337
12 How. 139;
Taylor v. Luther, 2 Sumn. 228;
Pierce
v. Robinson, 13 Cal. 116.
It is also an established doctrine that an equity of redemption
is inseparably connected with a mortgage -- that is to say, so long
as the instrument is one of security, the borrower has in a court
of equity a right to redeem the property upon payment of the loan.
This right cannot be waived or abandoned by any stipulation of the
parties made at the time, even if embodied in the mortgage. This is
a doctrine from which a court of equity never deviates. Its
maintenance is deemed essential to the protection of the debtor,
who, under pressing necessities, will often submit to ruinous
conditions, expecting or hoping to be able to repay the loan at its
maturity and thus prevent the conditions from being enforced and
the property sacrificed.
A subsequent release of the equity of redemption may undoubtedly
be made to the mortgagee. There is nothing in the policy of the law
which forbids the transfer to him of the debtor's interest. The
transaction will, however, be closely scrutinized so as to prevent
any oppression of the debtor. Especially is this necessary, as was
said on one occasion by this Court, when the creditor has shown
himself ready and skillful to take advantage of the necessities of
the borrower.
Russell v. Southard, supra. Without citing
the authorities, it may be stated as conclusions from them that a
release to the mortgagee will not be inferred from equivocal
circumstances and loose expressions. 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 an adequate
consideration -- that is to say it must 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.
If now we apply these views to the question before us, it will
not be difficult of solution. It is admitted that the deed of the
complainant was executed as security for the loan obtained by him
from the defendant. It is therefore to be treated as a mortgage, as
much so as if it contained a condition
Page 96 U. S. 338
that the estate should revert to the grantor upon payment of the
loan. There is no satisfactory evidence that the equity of
redemption was ever released. The testimony of the parties is
directly in conflict, both being equally positive -- the one that
the advance of $500 in February, 1858, was an additional loan and
the other, that it was made in purchase of the mortgagor's interest
in the property. The testimony of the defendant with reference to
other matters connected with the loan is, in several essential
particulars, successfully contradicted. His denial of having
received the installments of interest prior to September, 1857, and
his hesitation when paid checks for the amounts with his
endorsement were produced, show that his recollection cannot always
be trusted.
Aside from the defective recollection of the creditor, there are
several circumstances tending to support the statement of the
mortgagor. One of them is that the value of the property at the
time of the alleged release was greatly in excess of the amount
previously secured with the additional $500. Several witnesses
resident at the time in Washington, dealers in real property and
familiar with that in controversy and similar property in its
vicinity, place its value at treble that amount. Some of them place
a still higher estimate upon it. It is not in accordance with the
usual course of parties, when no fraud is practiced upon them and
they are free in their action, to surrender their interest in
property at a price so manifestly inadequate. The tax title existed
when the deed was executed, and it was not then considered of any
validity. The experienced searcher who examined the records
pronounced it worthless, and so it subsequently proved.
Another circumstance corroborative of the statement of the
mortgagor is that he retained possession of the property after the
time of the alleged release, enclosed it, and either cultivated it
or let it for cultivation until the enclosure was destroyed by
soldiers at the commencement of the war in 1861. Subsequently he
leased one of the squares and the tenant erected a building upon
it. The defendant did not enter into possession until 1865. These
acts of the mortgagor justify the conclusion that he never supposed
that his interest in the property was gone, whatever the mortgagee
may have thought.
Page 96 U. S. 339
Parties do not usually enclose and cultivate property in which
they have no interest.
The instrument executed on the 9th of February, 1858, and the
accompanying receipt, upon which the defendant chiefly relies, do
not change the original character of the transaction. That
instrument contains only a general warranty of the title conveyed
by the original deed, with a special covenant to indemnify the
grantee against loss from the then pending litigation. It recites
that the deed was executed upon a contract of sale, contrary to the
admitted fact that it was given as security for a loan. The receipt
of the $2,000, purporting to be the purchase money for the
premises, is to be construed with the instrument and taken as
having reference to the consideration upon which the deed had been
executed. That being absolute in terms, purporting on its face to
be made upon a sale of the property, the other papers referring to
it were drawn so as to conform with those terms. They are no more
conclusive of any actual sale of the mortgagor's interest than the
original deed. The absence in the instrument of a formal transfer
of that interest leads to the conclusion that no such transfer was
intended.
We are of opinion that the complainant never conveyed his
interest in the property in controversy except as security for the
loan, and that his deed is a subsisting security. He has therefore
a right to redeem the property from the mortgage. In estimating the
amount due upon the loan, interest only at the rate of six percent
per annum will be allowed. The extortionate interest stipulated was
forbidden by statute, and would in a short period have devoured the
whole estate. The defendant should be charged with a reasonable sum
for the use and occupation of the premises from the time he took
possession in 1865, and allowed for the taxes paid and other
necessary expenses incurred by him.
The decree of the Supreme Court of the District must be reversed
and the cause remanded for further proceedings in accordance with
this opinion, and it is
So ordered.
