Lawrence v. the Farmers' Loan and Trust Co.

*209 Gardiner, C. J.

If the deed executed by Champlin in 1824, was a mortgage, as the counsel for the complainant insists, the latter may claim the benefit of the rule “ that a court of chancery will not permit a creditor, by mortgage, to obtain a collateral or additional advantage through the necessities of the debtor, beyond the payment of principal, interest and costs; and that equity will let a man loose from his agreement, and even against his agreement admit him to redeem a mortgage.”

(Coote on Mor.

11, and case cited.)

I have quoted the strong language of an elementary writer, because it is borrowed from the cases and indicates the settled policy of the law in our own country and in England.

But I do not understand that a power of sale granted by the mortgagor, at the time when the mortgage is made, conflicts with this policy or the rules established by courts of equity. The object of the pledge is to secure a debt; to effect that purpose the right of disposition must exist some where, and be founded on the contract of the parties either express or implied. A judicial sale is but the enforcement of the contract; one mode of appropriating the mortgaged property to the satisfaction of the debt. The authority resulting from the contract which a court may exercise in behalf of one of the parties, the mortgagor may confer upon the mortgagee or a third person, it would seem, without any violation of principle. A power to dispose of the property io satisfy the debt for which it is pledged, is not collateral; but like the right of redemption, inheres in the subject. It is not in addition to the mortgage but a part of it, and the mode in which it may be exercised is as proper a subject of agreement prima facie, as the terms of the mortgage itself. Accordingly it has been held in England, notwithstanding the doubts of Lord Eldon, that such a power was valid.

(Croft v. Powell, Comyn R., 603;

Corder v. Morgan, 18

Vesey, 344;

Mathie v. Edwards, 2

Colyer R., 465, and same case before the chancellor.)

*210 Indeed it was conceded upon the argument that the power in this case would be sustained by the English courts, but that they would not permit it to be enforced whatever might be the stipulation of the parties, without notice to the mortgagor.

The right to create a power at the common law involved the right to regulate its exercise. This was the general rule. If powers of sale in mortgages formed an exception, it must be because the courts assumed to modify the contract of the parties by adding a condition which they thought unnecessary or burdensome. We have been referred to no case in which it has been determined that the parties were prohibited from contracting for a private sale of the mortgaged property, without notice to the mortgagor. Notice is frequently, perhaps generally required in the English conveyances.

(Coote on Mort., 124.) This, however, shows it to be the subject of stipulation, and the cases above cited strongly imply that notice may be waived by the agreement of the parties.

(Coote, 124 to 128.)

But the more difficult inquiry is as to the effect of our statutes, which assume to regulate the exercise of these powers, and to define and establish the rights to be acquired under them. Did the legislature intend to abolish the right of private sale in all cases of mortgages of real pro-property and confine the mortgagee to the remedy prescribed by the statute, or is that remedy cumulative leaving the rights of the mortgagee under the power of sale at the com monlaw unaffected in whole or in part ?

It is apparent from the act of 1774 that the legislature, or others to their knowledge, entertained doubts whether sales under powers of this description by the mere act of the) party to whom the power was granted, would extinguish the equity of redemption. It accordingly recites the inconvenience of allowing them to be impeached, and declares that the rights of bona fide purchasers shall not be defeated in favor of any person claiming a right of redemption in *211 equity with a proviso, saving the rights of prior mortgagees and creditors by judgment. The same provisions are found in the act of 1788, together with one for the acknowledgment and recording of the power ; and it further directed that “ every such sale” under a power contained in the mortgage should be at public auction after advertisement for the period therein provided. The system of regulation thus established was in force when this mortgage or trust deed was executed ; and as to all its essential features, has been continued to the present time. (1 R. S., 373 ; 2 R. S., 545.) The provisions of these statutes and their whole policy are incompatible with the right of the parties to regulate the mode of sale under powers of this description by then own contract. The statute adopts the power and assumes to regulate its exercise in a manner which its makers supposed would give effect to the mortgage security, while it guarded the mortgagor against oppression and protected the rights of other incumbrances. The right of the state thus to legislate even as to existing contracts is unquestionable, so long as the remedy substituted for that. provided by the parties was full and adequate. But the two remedies are not concurrent. The parties in this case, for example, have agreed that the sale may be private by which I understand a sale without notice. The statute declares that “ every sale” by virtue of such a power shall be public and after notice. That both cannot be operative as to the same power, is obvious. If, however, they are concurrent, the mortgagee may avail himself of the statute when for his advantage, which is thus, according to his election, made to supersede the conditions which the mortgagor annexed to the grant of the power, while the latter is not entitled as matter of right, either to the protection of his own grant or of the statute. He may be burthened with the expense of one proceeding and deprived of the benefit of the other at the option of the other party to the contract.

*212 It is impossible to suppose that the legislature contemplated this result. The law has always looked upon the mortgagor* as the one who might, by his necessities, be driven to an improvident contract, and for that reason requiring protection. That the legislature, with full knowledge upon this subject, should enact a law for the exclusive benefit of the stronger party, is an anomaly that is not countenanced by its provisions or any subsequent authority.

Again, if the legal remedy is cumulative, the law practically would be useless. A mortgagee would seldom submit to the delay and inconvenience of pursuing the minute provisions of the statute when he could avoid both by proceeding under the power. The learned judge whose opinion is before us, assumes that full effect can be given to the statute by applying it to two classes of cases : First, where the power refers to the statute ; and second, where it is general to sell on default of payment according to the provisions of the mortgage. The two classes, in fact, constitute but one since both depend upon the intent of the grantor of the power, the only difference being that in the first the intent is expressed, and in the other implied.

According to this view the statute remedy is neither cumulative or concurrent; it becomes operative only when it forms a part of the power granted by a reference to its provisions either express or implied. It furnishes a form of proceeding which the parties to the mortgage may adopt as they might any other formula, or depart from at pleasure. With all respect, I cannot but think that this construction in effect nullifies the law by making the regulations of the parties as to the remedy, paramount to those of the legislature upon the same subject. Another answer is found in the language of the various statutes to which reference has been made. Neither the act of 1813 or the Revised Statutes is limited to any one class of powers of this description, nor is the effect of this provision made dependent upon the recognition of the grantor of the power. The act of 1830, *213 which was in force when the premises in question in this suit were sold, in terms embraces “ every mortgage containing a power to the mortgagee or any other person to sell the mortgaged premises upon default made in any con dition,” &c. (2 R. S., 545.) And lastly, the absence of all authority for the doctrine I have considered, is strong presumptive evidence against it. There is no adjudication sustaining it; and in all the cases presented in our courts, 1 cannot discover that it has ever been claimed that a foreclosure under the statute void for irregularity, might be sustained by showing that it was consistent with the conditions annexed to the exercise of the power of sale by the parties. (1 Caine’s Cases in Error, 14; 7 J. Ch.

R., 15; 4 Paige, 58 .)

My opinion, therefore, is that the statute was designed to include, and in terms does extend to all sales made in virtue of powers for that purpose contained in mortgages, except those directed by order of some judicial tribunal;

and that the party availing himself of the power must consequently conform to the requirements of the statute in order to bar the equity of redemption.

The only remaining question is as to the character of the instrument in which the power in this case is found. It is claimed that it is not technically a mortgage. It is in form a trust deed. It however recites an agreement for the payment of money advanced or to be advanced to the cestui que trust by the corporation to which it was executed and for which his. bond had been given, and that a conveyance should be made of the premises to the company upon certain trusts as security for such payment. Those trusts were that the.debtor should occupy the premises until default made by him in the payment, &c.; second, upon such payment, the company to hold the land upon such trusts as the.debtor should direct, and if no directions were given upon trust to convey to him or his heirs; and lastly, in case of default in payment of said bond upon trust, to sell the land at auction *214 or private sale for cash or on credit, and to convey' the fee to the purchaser and apply the proceeds in payment of the debt and pay the surplus to the debtor or his heirs. Here are all the essentials of a mortgage. The rights of the parties secured by the ordinary instrument being designated in this case as trusts for their benefit respectively. In the common mortgage the fee is in terms conveyed to the mortgagee, subject to a defeasance upon the performance of the stipulated condition. In this instrument the fee is conveyed as ancillary to the trust which was to secure the payment specified; upon the performance of this duty by the cestui que trust, the trust would be extinguished by its own limitation, the object for which it was created being accomplished. If a reconveyance was necessary, which is doubtful, it would not alter the character of the security. In Eaton v. Whiting ( 3 Pick., 484 ), and Fox v. Channing ( 1 Rand., 306 ),. the conveyances were upon express trust, similar to those in this deed and they were held to be mortgages ( 7 Wend., 248 ; 6 Dana, 473 ; Coote on Mort., 3d ed., 54, 55, note a ; 3 Hill, 100.)

The stipulation in this deed that the company would, after payment, hold the premises subject to such trusts as Champlin should direct or reconvey the same, is only indicative of the intention of the parties that the cestui que trust was in that event to become at least in. equity, the absolute owner of the land.

Jenkin v. Row (11 Law and Equity R., 298), and Sampson v. Pattison (1 Hare, 533), tc which we are referred, do not decide that the deeds in those cases were not mortgages entitling the mortgagors to redeem.

In the first case the vice-chancellor said it was not a ' mortgage in the usual form, and in both it was held that the complainants had precluded themselves by the form of the trust from insisting upon a strict foreclosure, and that payment must be obtained in the manner pointed out by the security, namely, by sale. The cases proceed upon the ground that the mortgagee may limit his right by contract *215 at pleasure; and when he stipulates to sell, in order to realize his money, and the mortgagor insists upon the stipulation, he is precluded from asking a strict foreclosure although entitled to a decree for sale in pursuance of the trust.

1 suppose a mortgagee may waive the right to invoke the aid of a court of equity for a strict foreclosure against the mortgagor in England or in this state. Courts have not as yet deemed him incompetent to surrender an advantage which the law would otherwise afford him, although they disregard the contracts of the mortgagor in restriction of his right to redeem.

I am therefore of opinion that the trust deed in question, although not in the usual form, is still a mortgage securing to the mortgagor the right of redemption, and that the sale being private and without notice, did not extinguish that right which still subsists, and may be enforced by the complainant.

The judgment of the superior court should be reversed with liberty to tire defendants to withdraw their demurrer and answer the complaint if they shall be so advised.

Crippen, J.

It seems to me that no doubt can exist but that the conveyance by Bailey & Champlin to the company was nothing more or less than a mortgage. It was given to secure the payment of a debt due from Champlin to the company, and also any future indebtedness on the part of Champlin to the company. On the payment of the indebtedness, the property was to he reconveyed to Champlin or his heirs, or held in trust for him. In case of default the company was authorized to sell and convey, &c., and return the surplus money, if any should arise from such sale.

The instrument in fact contained every material element of an ordinary mortgage on real estate, with the addition of a power to dispose of the property at private sale. I have *215a no doubt that the instrument was a mortgage, and must be so regarded in reference to the rights of the parties to this action.

The next question in the case is whether the sale and conveyance of the property to Hamilton by the company cuts off the right of redemption on the part of the heirs of Champlin. The sale was a private one, without notice to the heirs.

The right of redemption exists in every case of a mortgage, and cannot be barred, except by release or foreclosure or by lapse of time.

It should he remembered that the conveyance to the company nowhere expressly authorizes a sale of the premises without notice. The sale was authorized to be made either publicly or privately, but no authority is given to make the same without notice, and this I think could not be done.

In my opinion, the plaintiffs have a right to redeem the property upon equitable principles. Nothing exists to bar this right.

They were entitled to notice from the company of the contract of sale, before its consummation, in order that they might, if they chose to do so, pay up the amount due on the mortgage, and keep the property. If Hamilton took the conveyance without such notice, he did so subject to the right of redemption in the heirs of Champlin.

I think the judgment should be reversed, and judgment for plaintiffs on the demurrer, with leave to defendants to answer, on payment of the costs of the demurrer and of the appeal.

Judgment reversed.