Pollak v. Millsap

Appellants filed a bill to effect the equity of redemption of property alleged to be subject to an equitable mortgage. The trial court sustained demurrer to the bill, and dismissed it for want of equity.

The facts which appellants claim create such an equitable mortgage are alleged in substance as follows:

They borrowed money from one Kirtley, and executed a mortgage on the land involved in this suit to secure the debt. The debt was not paid when due, and the mortgage was foreclosed, the mortgagee being the purchaser. A few days before the expiration of two years in which to redeem, appellants borrowed, from Judge Joel B. Brown, the amount necessary to effect such redemption, and executed a note to secure him, due twelve months after date, which recited the foreclosure of the mortgage, and that the purpose of the loan was to redeem the property, and that, as security for the debt to Judge Brown, there was deposited in the bank in escrow a deed from the purchaser to him and E. C. Kinney, one of the appellees, to be held by the bank "until the debt is paid," and upon failure to pay the debt at maturity, to deliver same to the grantee. The deed was executed and delivered in escrow. Judge Brown conveyed to appellee Kinney, by deed dated the day before the date of the former deed. When the debt matured it was not paid, but the bill alleges that on the next day appellants tendered the amount of the note to the bank, which was refused, alleging a delivery of the deed; that appellants then made demand upon said Kinney for redemption, and offered to pay him the amount of the note and accrued interest, which he declined, and claimed that appellants had lost the right of redemption; that said Kinney has conveyed the land to appellee Millsap for a consideration equal to many times the amount of the debt; that said Millsap "had actual notice, or was charged with notice" of appellants' rights in the premises. They offer to do equity, and pray that the transaction with Brown be held an equitable mortgage; and that, upon appellants doing equity, the property be conveyed to them; and for general relief.

The respondents, Kinney and Millsap, separately demurred for want of equity, and that the charge of notice was the conclusion of the pleader without a statement of the facts.

As to Kinney, we think that being a grantee in the deed with Judge Brown, notice is sufficiently shown by that fact.

The allegation of notice as to Millsap is not sufficient. This court has held insufficient such an allegation as made in the bill. Bank of Luverne v. Birmingham F. Co., 143 Ala. 153,39 So. 126. In that case the allegation was that the bank "was charged with notice of the trust." It was held that, with such averment, the bill was without equity, and the cause reversed, and decree rendered dismissing it. The bill in the instant case alleges that Millsap paid only part cash and that the balance of the purchase price of $11,000 was deferred and secured by a mortgage on the property, one installment not due until after the bill was filed. As to said amount of deferred payment unpaid when the bill was filed, Millsap is not an innocent purchaser, and his equities may be adjusted, upon full relief being granted by the court below.

The chief argument of counsel is based upon the contention of appellees that the transaction between appellants and Judge Brown was not an equitable mortgage, nor a trust in the nature of such mortgage, but was, in effect, a conditional sale, and the condition not having been complied with, the rights of appellants terminated with such breach; whereas appellants contend that it was an equitable mortgage, or a trust in the nature thereof, and subject to the equity of redemption not barred by a failure to pay the debt at maturity. This question is fully discussed in briefs of counsel. There have been several cases in Alabama on the subject, and principles which govern the question seem to be settled. The authorities which upon first view seem to support appellees are Downing v. Woodstock Iron Co., 93 Ala. 262, 9 So. 177; Moseley v. Moseley,86 Ala. 289, 5 So. 732; Micou v. Ashurst, 155 Ala. 607. An examination of these cases will show they do not apply to the facts of this case.

In the Downing Case, supra, the facts made by the bill are substantially, in effect, the facts upon which the equity of this bill is founded, except that there was no writing showing the relation of the parties. The bill in that case alleged that Downing (having the right of redemption) borrowed the money from the Woodstock company, which, to secure the payment, took a deed, and agreed to give Downing all the time he wanted. The bill was filed eleven years thereafter to redeem. The court in that case did not hold that the bill did not have equity, but held that the proof did not sustain the allegations, and did not prove a loan of money to be secured by a deed as a mortgage, but that the agreement was that Downing should have two years in which to redeem it. The opinion, however, does conclude that it would seem that though the testimony should prove the allegations, complainant was not entitled to relief as Downing had no title to mortgage, and quotes Judge Brickell as holding that under such circumstances it is not a mortgage, but may be a trust.

In the case of Moseley v. Moseley, supra, appellee purchased a lot, and paid one half the purchase price, and made an arrangement with appellant to pay the balance, and take a deed from the seller. He did so and took the deed. Appellee contended that the deed was to secure repayment, and sought a redemption. Appellant contended it was an absolute sale. The court quotes from Micou v. Ashurst, supra. It was held that appellee did not execute a deed as a mortgage; that the repayment of the debt would not revest the title in appellee, for he had no title to revest; and that the deed was not made as security for a debt of the grantor therein, and should not be held to be a mortgage; but the remedy was for specific performance in the nature of a trust, but that, the transaction being in parol, the court would not enforce it as a trust, and the bill did not show the elements of a constructive trust, there being no fraud or wrongdoing alleged. The case of Micou v. Ashurst, supra, written by Chief Justice Brickell, is to the same effect. This principle is approved in Parmer v. Parmer,88 Ala. 545, 7 So. 657; Butts v. Cooper, 152 Ala. 375, 44 So. 616.

The Downing Case, supra, also emphasizes the fact that the party complaining had no property which passed by the transaction, and which is essential to a mortgage, whereas in the Parmer Case, supra, he had a perfect equity. It is also said that, his only right being a statutory right of redemption, it was not property and not subject to sale and transfer. Such right is now assignable, and was so when this transaction occurred. Sec. 5746, Code of 1907. Whether such right being thereby made assignable created an interest in the property so as to bring it within the principle mentioned in the Parmer Case, supra is not necessary to decide at this time.

It must be remembered that appellants executed a note to Judge Brown for a definite sum due at a fixed date, and expressly secured it by a deposit of the deed in the bank in escrow. The transaction was in writing as alleged.

In the case of Hall v. M. M. R. Co., 58 Ala. 10, the court adopts the following language from Jones on Mortgages: "There are as many kinds of equitable mortgages, as there are varieties of ways in which parties may contract for security, by pledging some interest in lands. Whatever the form of the contract may be, if it is intended thereby to create a security, it is an equitable mortgage" — unless it is a legal one. This language is quoted in Woodruff v. Adair, 131 Ala. 530,545, 32 So. 515, 519, with the additional statement that "if the transaction resolve itself into a security, whatever * * * be its form, it is in equity a mortgage."

Another early and leading case on the subject is Newlin v. McAfee, 64 Ala. 357, written by Chief Justice Brickell. It is said: "The form of the agreement is not material; operative words of conveyance are not essential to the creation of a charge, or trust, which a court of equity will enforce as a mortgage. It is the intention of the parties to charge particular property, rights of property, or credits, with the payment of debts, which the court will regard. When that intention is deducible from their agreement, the court will give effect to it." This is quoted with approval in the case of Lewis v. Davis, 198 Ala. 81, 85, 73 So. 419, 421.

In the case of Nelson v. Kelly, 91 Ala. 569, 8 So. 690, in an opinion by Judge Clopton, the court states the principles as applicable, when the owner of a lot had allowed it to be sold for taxes, and applied to complainant to advance the money, which he did, taking a conveyance of the lot. The tax sale was void, and complainant took no title from the tax purchaser. On his bill the court held the owner estopped to deny the title so acquired by complainant, but as the owner had an interest in it, the transaction was held an equitable mortgage. The court makes the following comment:

"Notwithstanding, by the terms of the contract, the lot was to become the absolute property of the complainant, in case of default in repayment of the sum advanced during the current year, the requirements of equity do not extend so far. It may be said generally, that when a person, having the legal or equitable title to property, procures another to make an advance upon it and take a conveyance, either from the debtor or another, under an agreement that he shall have the property upon repaying the money advanced, the transaction will, in equity, constitute a mortgage. In such case, the party making the advance acquires title to be held as security. Parmer v. Parmer, 88 Ala. 545 [7 So. 657]. As complainant acquired no title, interest or estate, legal or equitable, by the mere operation of the conveyance from Freeman, who had none to convey, the transaction can not be regarded strictly a mortgage. Nevertheless, by the co-operative effect of the conveyance and the inducement and agreement under which it was procured, he acquired a claim or right to hold the conveyance as security, which the defendants will not be permitted to defeat by the assertion of their legal title. Such transaction so far partakes of the nature of an equitable lien or mortgage, that equity will not specifically enforce the stipulation that the lot shall become the absolute property of complainant, but will allow defendants the right to redeem. In such case, the court will observe and apply, by analogy, the principle, that a mortgage being an instrument of security, the equity of redemption cannot be waived or abandoned by any contemporaneous stipulation of the parties. Peugh v. Davis, 96 U.S. 332 [24 L.Ed. 775]; Fields v. Helms, 82 Ala. 449 [3 So. 106]."

The fact that the security was the deposit of a deed in escrow, and not the immediate vesting of the title, does not destroy the transaction as being a trust in the nature of an equitable mortgage. That was but a method of attempting to abridge the equity of redemption by a contemporaneous transaction. The debtor cannot divest himself of the equity of redemption by any stipulation, or in any manner contemporaneously with the creation of the relation of debtor and creditor. Nelson v. Kelly, supra, page 575, of 91 Ala.; Fields v. Helms, 82 Ala. 449, 3 So. 106.

In the recent case of Moss v. Winston (Ala.)118 So. 739,¹ the facts were that the alleged lender of money had agreed with the borrower that he would advance the money for the redemption of land and take the title in the name of the borrower, but that he violated that agreement to the extent that he took title in his own name, and it was held that a resulting trust in favor of the borrower followed. The opinion is based upon the following cases: Bates v. Kelly, 80 Ala. 142; Hodges v. Verner, 100 Ala. 612, 615, 13 So. 679; Milner v. Stanford, 102 Ala. 277, 280, 14 So. 644; Jordan v. Garner,101 Ala. 411, 13 So. 678. These cases seem to be in conflict with Moseley v. Moseley, supra, and Hughes v. Letcher, 168 Ala. 314,52 So. 914, as to the nature of the trust growing out of such a situation.

In order to establish a resulting trust, certainly the complainant, claiming the trust, must have furnished the funds for the purchase. The theory of the cases last cited is that when complainant procures a loan of the funds from respondent, such funds belong to complainant, although provided by respondent; and that when title is taken in respondent as security for the loan, the respondent is held to receive the title in trust, and as complainant provided the funds it is a resulting trust in the nature of a mortgage, and the statute of frauds does not apply. We are of the opinion that such theory of a resulting trust is the correct one, notwithstanding the statements to the contrary as expressed in the cases of Moseley v. Moseley, supra, and Hughes v. Letcher, supra, and they are to that extent here modified.

The note expressly stipulates that the deed is security for the debt. This means that the title represented by the deed shall be so regarded. If it is not in legal effect an equitable mortgage, because the debtor did not own the property or a mortgagable interest in it, and payment of the debt could not revest the title in the debtor, this court will decree as it has consistently asserted that relief may be had in equity as for the enforcement of a trust in the nature of an equitable mortgage when not violative of the statute of frauds. The case of Waller v. Jones, 107 Ala. 331, 341, 18 So. 277, is not directly in point because confidential relations existed between the parties.

The relation of the parties is fully shown by the note given to the grantee, and delivered along with the deed or prior thereto. It shows that the deed was taken as security for a debt for borrowed money.

The borrower had a right of redemption which was a valuable right. The effect was to create a new relation between appellants and Judge Brown, to wit, the creation of a new debt with a new security, the right to redeem from which could not be abridged by contemporaneous agreements; and all was free from the statute of frauds. The relief sought by complainants, specifically set forth in the prayer, is consistent with their equitable rights.

They offer to do equity, upon which they seek a conveyance of the property, and general relief. This was sufficient as a prayer for the declaration of a trust in the nature of an equitable mortgage, whether so phrased or not. The phraseology is immaterial. Appropriate relief was available on the facts resulting from the general prayer, if the special prayer was not exactly appropriate.

We hold the bill should not have been dismissed on demurrer, and the cause is reversed and remanded.

Reversed and remanded.

ANDERSON, C. J., and GARDNER and BOULDIN, JJ., concur.

¹ 218 Ala. 364.