Dozier v. Mitchell

Dozier v. Mitchell. Bill of Equity for Reformation of Mortgage; Cross-Bill for Redemption and Account. 1. Reformation of deed or mortgage. —A court of equity will reform a deed or mortgage, by correcting a mistake in the description of the land conveyed, when the mistake is clearly and satisfactorily proved, and it can be corrected without injury to an innocent purchaser. 2. Usury in mortgage. — A mortgage, given to secure an indebtedness of $438, for moneys.and necessaries advanced to enable the mortgagor to make a crop during the current year, and conveying his entire crop of cotton and corn raised daring the year, in addition to a tract of land, is not rendered usurious, by a stipulation binding the mortgagor to deliver twenty-two bales of cotton, for storage and sale at two and a halt per-cent, commissions, or, in default thereof, to pay, as liquidated damages, one month’s storage, at the usual rates, on the number of bales not delivered, and two and a half per-cent, on their market value ; the mortgagees being commission-merchants and warehouse-men, and the stipulation being in .their usual course of trade, and tending to promote their regular business. 3. Purchase by mortgagee, at sale under power. — When a mortgagee becomes himself the purchaser at a sale under a power contained in the mortgage, the transaction is voidable, at the option of the mortgagor, seasonably expressed ; and if the mortgagee re-sells at a profit, the mortgagor inay claim the beuefit of the advance price, thereby ratifying the transaction, or, at his election, disaffirm and set aside the sale entirely ; but the two remedies are antagonistic, and he can not pursue them both at the same time. 4. Redemption; charges, and laxes. — When a mortgagor seeks a redemption, he is required to pay the mortgage debt, with interest, and lawful charges, which include taxes paid by the mortgagée ; and when he asserts his right of redemption, as he may, against a sub-purchaser with notice, the advanced price paid on the re-sale does not enter into the account. 5. Same; rents ¡and profits —la stating the account between the mortgagor and mortgagee (or sub-purchaser with notice), uuderabill for redemption, the latter is chargeable, in ordinary cases, with the fair and reasonable rents and profits of the property during his possession, including therein a reasonable occupation rent for the portion of the premises held by himself, and such rents as he received from others, or failed to collect through fraud, willful default, or gross negligence ; but the rents are to be estimated upon the value of the property when he took possession, and not upon the increased value arising from improvements made by him. 6. Same; repairs, and waste. — The mortgagee in possession is bound to make all reasonable and necessary repairs, and is responsible for any loss or damage caused by his willful default or gross neglect iu this regard ; and also for voluntary waste committed by him, such as pulling down or improperly removing houses or buildings attached to the freehold. 7. Same; rents and improvements, as against sub-pui'chaser. — A. sub-purchaser who bought in good faith, though with notice, and held possession under color of title, is not chargeable, at the snit of the mortgagor seeking a redemption, with rent for more than one year before the commencement of the suit, by analogy to the statute which applies to actions at law (Code, § 2966); and he is entitled to compensation for improvements made, not exceeding the rents charged againsthim. 8. Same ; purchase a.t execution sale. — If the mortgagee, while in possession under his purchase at his own sale, also purchases the property at a sale under an execution in favor of officers of court, against the mortgagor, in which the lands were misdescribed, he can not claim a credit for the amount so paid, as an incumbrance. Appeal from the Chancery Court at Montgomery. Heard before the Hon. H. Austill. The original bill in this case was filed on the 25th March, 1876, by Andrew J. Dozier, against Thweat E. Mitchell, Lehman, Durr <& Co., and others; and sought principally tbe correction of a mistake in the description of a tract of land, as contained in a mortgage executed by said Thweat E. Mitchell to Lehman, Durr & Co., under whom tbe complainant claimed the land, and an injunction of an action at law brought against bim by said Mitchell and others for tbe land. The mortgage of said Mitchell to Lehman, Durr & Co., which was dated the 25th May, 1870, described the land as “containing three hundred and twenty acres, lying and being situate in Elmore county, known and described as the Thweat Mitchell Homestead place, being tbe north balf of section eighteen (18), township seventeen (17), range nineteen (19) ” ; and a copy of this mortgage was made an exhibit to tbe bill. Lehman, Durr & Co. sold tbe land under tbeir mortgage, on the 10th January, 1871, when John W. Durr, one of the partners in the firm, became the purchaser, at the price of $550; and they conveyed the land to him by deed dated the 16th June, 1871, in which the lands were described as in the mortgage. On the 1st May, 1871, the lands were sold by the United States marshal, under an execution against said Thweat E. Mitchell, in favor of “ the officers of the court in bankruptcy,” and were bought at the sale by said John W. Dorr, to whom the marshal excuted a deed, a copy of which was made an exhibit to the bill; and in this deed, as shown by the exhibit, the lands were described as “the north half of section eighteen, township seventeen, range nineteen, situated in Montgomery county.” On the 1st February, 1872, Durr sold and conveyed the lands, by quit-claim deed, in consideration of $800, to the complainant, and delivered the possession to him; and this deed, which was also made an exhibit to the bill, described the lands as lying in range tiuenty. The bill alleged, that the lands were in fact situated in range tiuenty, and were misdescribed, by mistake, in the mortgage to Lehman, Durr & Co., the deed from them to John W. Durr, and the marshal’s deed to Durr; that the complainant bought in good faith, relying on Durr’s representations that he had a good title under the several conveyances above set out; that he did not discover the mistake in the deeds until long after his purchase, when Mitchell and his brother brought an action at law against him to recover the land; and that he had applied to Durr to have the mistake corrected, but had failed to procure a correction, and could not successfully defend the action at law until it was made. An answer was filed by Thweat E. Mitchell, admitting the alleged mistake in the description of the lands; and he prayed that his answer might be taken as a cross-bill, that an account might be taken of the mortgage debt, and ttyat he be let in to redeem. He alleged that the mortgage was more than paid, excluding the usurious interest which Lehman, Durr & Co. had charged against him, and offered to pay any balance that might be found against him ; alleged, also, that Durr and Dozier, during their possession of the iands, had committed waste, by pulling down buildings, permitting fences to be destroyed, and failure to cultivate the lands properly ; and he insisted that they should be charged with the waste thus committed, and also with the annual rents of the property, which were alleged to be worth $500. Dozier answered the cross-bill, denying the charges of waste; alleging that he had fertilized the lands, and had erected valuable and permanent improvements, and that the lands had no rental value, except in consequence of the improvements made and erected by him. Decrees pro confesso, on the cross-bill, were taken against Lehman, Durr & Co., and John W. Durr. The mortgage to Lehman, Durr & Co. was signed by said Thweat E. Mitchell and his wife, and recited an indebtedness by them to Lehman, Durr & Co., as evidenced by a promissory note, a copy of which was set out in the mortgage, in these words: “ Montgomery, Ala., May 25, 1870. On the first day of September next, we promise to pay Lehman, Durr & Co., at their office in the city of Montgomery, the sum of four hundred and thirty-eight dollars ($438), with interest from date; hereby declaring, that said [sum] was obtained from said Lehman, Durr & Co. bona fide, as an advance, for the purpose of making a crop, and that without such advance it would not be in our power to procure the necessary teams, provisions, and farming implements to make a. crop.” The mortgage then proceeds, thus : “ And whereas, also, in consideration of the promise and agreement hereinafter made by the said Lehman, Durr & Co., we have promised and agreed, and do hereby promise and agree, with the said Lehman, Durr & Co., to deliver to them, between the first day of August and the 30th day of September, at their warehouse in the city of Montgomery, twenty-two bales of cotton, of the average weight of 500 lbs., and the average quality of ‘ low middlings,’ for storage at the usual rates in the city of Montgomery, and for sale at two and a half percent. on the amount of sales ; in consideration of which said promise and agreement, so made by us, the said Lehman, Durr & Co. have promised and agreed, and do hereby promise and agree, to provide and furnish good storage for the cotton so delivered, and to sell said cotton for the commission aforesaid ; and we also, in consideration of the promise and agreement aforesaid made by the said Lehman, Durr & Co., do further promise and agree that, in default of delivery to them of said twenty-two bales of cotton, of the average weight and quality as herein agreed on, or any part of the same, 'to pay the said Lehman, Durr & Co., on the first day of October next, as liquidated damages, the usual rates of storage in said city of Montgomery, for one month, on the number of bales so failed to be delivered, and also an amount equal to two and a half per-cent, on the value of said cotton so failed to be delivered, in said city of Montgomery, on the 30th day of September next. Now therefore, in order to secure the payment of said note or writing, the delivery of said cotton for storage and sale, as herein agreed upon, the payment of said stipulated damages, in case of default made therein by us ; and also to secure the payment of' any future indebtedness, due and owing by us to the said Lehman, Durr & Co., whether for future advances, supplies of bagging, rope and ties, the payment of bills and drafts accepted for our accommodation or otherwise, — all of said indebtedness, however, to be due and owing to the said Lehman, Durr & Go. by the 1st day of September next; we do hereby grant, bargain and sell,” &c., “the entire crop of cotton and corn which may be made and grown during the present year, on the plantation in Elmore county, known as the Tliweat Mitchell place, which we are cultivating the present year; also, three hundred acres of land,” describing it as above stated. The mortgage contained a power of sale, if default should be made in the payment of the note, the delivery of the cotton, or payment of the stipulated damages, &c. On final hearing, on pleadings and proof, the chancellor expressed “ grave doubts as to whether the original bill contains equity; ” citing Haley v. Bagley, (87 Mo. 363), and Schioickerath v. Cooksey (53 Mo. 75); but he declined to dismiss the bill-for the want of equity, as the question had not been raised, and the alleged mistake was admitted by Mitchell, the complainant in the cross-bill. He held, also, that the cross-bill contained equity, and that Mitchell was entitled to a redemption and account; and having rendered a decree reforming the mortgage, but refusing any relief as to the alleged mistake in the marshal’s deed to Durr, he ordered a reference to the register to state an account, under the following instructions : “The register will ascertain how much of the debt described in the mortgage was for cash, or supplies furnished to Mitchell by Lehman, Durr & Go., and will charge Mitchell interest on such sum. He will not consider damages for Mitchell’s failure to deliver cotton. He will allow complainant credit for taxes paid by him, and for the cost of necessary repairs, and the cost of -valuable and permanent improvements put upon the land by him before the action at law was commenced to eject him, allowing interest on such expenditures. On the other side, he will charge complainant with the value of all improvements removed by him, if any such have been removed, and with the value of improvements which he has allowed to become worthless for want of repairs ; and with any damages to the place, which have resulted from gross- negligence on his part; and with interest on such sums. He will ascertain, also, the value of the annual occupation rent, when the same was occupied by the complainant, and the amount of rent received by complainant, or which he might have received by diligence, when the land was leased by him to others. He will apply the annual rents, first, to the payment of interest due on the mortgage, and other sums due to complainant, and next to the satisfaction of the principal so due.” From this decree Dozier appeals, and here makes the following assignments of error: 1. The court erred in holding that the mortgagor was entitled to an account. 2. In directing the register, in the statement of the account, not to consider damages resulting from Mitchell’s failure to deliver cotton. 3. In directing that the complainant should be charged with the value of any improvements which he allowed to become worthless for want of repairs. 4. In failing to instruct the register, in the statement of the account, to ascertain the amount of the mortgage debt according to the contract between the parties as expressed in the mortgage. 5. In failing to limit the complainant’s liability to account for rents and profits to a period not exceeding one year before the filing of the cross-bill, upon which said account was ordered. 6. In directing an account of rents and profits, without limit as to time, against the complainant, who held adversely, and in good faith. 7. In directing the register to charge the complainant with the value of the occupation rent of the premises during the time they were occupied by him. 8. In directing the register to charge the complainant with the value of the rent he might have received by diligence, when the premises were leased by him to others. 9. In directing the register to charge the complainant with the full value of such rents, without limitation of the value exclusive of any permanent improvements that might have been made by him. 10. In directing the register to charge the complainant with interest on the value of the improvements which had become worthless for want of repairs, of which had been removed by him, and on the amount of damage to the place resulting from gross negligence. 11. In excluding from the account the amount paid for the land at the sale by the United States marshal, and the interest thereon. Troy & Tompkins, for appellants. — The purchase by Durr, at the sale under the mortgage, was only voidable; and the sale will not be set aside, as against Dozier, who purchased from Durr in good faith, and for valuable consideration. Dexter v. Shepard, 117 Mass. 480; Burns et al. v. Thayer, 115 Mass. 89. If Mitchell is entitled to redeem at all, as against Dozier, he should be required to repay the sum paid by the latter to Durr, with interest. If he claims the benefit of the re-sale by Durr, as he may (Cunningham v. Rogers, 14 Ala. 147), this is an affirmance of the sale, and he can not at the same time redeem by simply paying the mortgage debt, with interest. The stipulation in the mortgage for the payment of liquidated damages, on account of the failure to deliver the cotton, was supported by a sufficient consideration, and is valid. — Pollard v. Baylor, 6 Munf. 433 ; MeQehee v. Walker, 15 Ala. 183; Erwin & Williams v. Erwin, 25 Ala. 236. Tbe mortgage is not usurious on its face, and tbe court erred in excluding the stipulated damages from tbe account. — • Cockle v. Flack, 93 U. S. 344; Suydam v. Westfelt, 4 Hill, 211; Pollard v. Baylor, 6 Munf. 433; Seymour v. Mervin, 11 Barbour, 80-85. Even if there was usury in tbe contract, tbe sale under tbe mortgage amounted to a payment, and it can not be set up. — Perkins v. Conant, 29 Illinois, 184. The complainant was not, in any event, liable for rents not collected, unless the loss resulted from willful default and gross negligence. — 4 Kent’s Com. § 166; 2 Jones on Mortgages, § 1123; Hogan v. Stone & Co., 1 Ala. 496. The rents must be estimated on tbe value of the property in tbe condition in which it was when the complainant took possession of it, and not on tbe increased value arising from tbe improvements made by him. — Bell v. Mayor, 10 Paige, 49 ; 4 Kent, § 166. Tbe complainant could not be charged with tbe value of buildings which have become worthless from tbe natural effect of age and decay. — Hughes v. Williams, 12 Yesey, 495 ; Dexter v. Arnold, 2 Sumner, 108. Gunter & Blakey, contra. — Tbe decree gives tbe complainant all be asked in bis bill — a reformation of tbe mortgage, so that be could defeat tbe action at law; and be can not complain because be was required to do equity, in accordance with a fundamental principle on which a court of equity grants relief. — Denby v. Mellgreto, 58 Ala. 147. When tbe court entertains jurisdiction of such a bill, tbe whole matter is opened, and tbe defendant may set up any rights be has. — Provost v. JRobman, 21 Iowa, 419; Blodgett v. Hobart, 18 Yermont, 414; Calkins v. Calkins, 3 Barbour, 306 ; 20 N. Y. 148. To reform tbe mortgage simply, under the facts disclosed, would work great injustice to tbe rights of tbe mortgagor. — Schwickerath v- Cooksey, 53 Mo. 75 ; Haley v. Bagley, 37 Mo. 363 ; 18 Yermont, 414; 6 Ohio St. 459. Tbe cross-bill was-, in effect, a bill to redeem; and Mitchell bad the right, under it, to set up usury in tbe mortgage debt. — 2 Lead. Cases in Equity, 4th Amer. ed., 1954. The mortgage shows usury on its face, and the charge of usury is admitted by tbe decrees pro confesso against the mortgagees. Dozier claims under tbe mortgagees, by quit-claim deed, and with notice of tbe mortgage; and be occupies no better position than tbe mortgagees would. If tbe stipulation for tbe payment of liquidated damages is to be regarded only as a penalty, a court of equity could grant relief against it. — 2 L. Cas. Eq. 1954. Tbe liability of a mortgagee in possession for rents, is well established. — Poivell v. Williams, 14 Ala. 476; 2 Lead. Cas, Eq. 1979, 4th Amer. ed. So, also, of bis liability for waste committed or suffered. — Sandon v. Hooper, 6 Beavan, 246; 2 L. 0. Eq. 1980. The complainant was not an adverse holder, and can not claim the benefit of the statute which limits the liability of adverse holders for rents in an action at law. — Code, §§ 2966, 2951. [MAJORITY — SOMEEV1LLE, J.] SOMEEV1LLE, J. — It is settled law, that where the proof of mistake is clear and satisfactory, as to a misdescription of land conveyed by deed or mortgage, equity will reform the instrument, so as to correct the mistake, where it can be done without injury to an innocent purchaser without notice. — Mills v. Lockwood, 42 Ill. 111. Tested by the principle established in Uhlfelder v. Carter’s Adm’r, at the last term (64 Ala. 527), the mortgage given by Mitchell to Lehman, Durr & Co., was not usurious, and the chancellor erred in ordering the register to exclude from the account to be taken by him the amount, designated as liquidated 'damages, to which the mortgagees became entitled by Mitchell’s failure to deliver the cotton agreed by him to be delivered under the terms of the mortgage. The question of usury is one of intent, and is to be determined by the substance and effect, rather than by the mere form of the contract. The onus is upon the party seeking to impeach the transaction, to prove the guilty intent, and to show that the contract is really a mere loan, assuming the form of a device for the cover of usury. — 7 Wait’s Actions & Def. p. 622, § 14. The stipulation made in this case, for commissions and storage on the cotton agreed to be delivered by the mortgagor to the mortgagees, Lehman, Durr & Co., was, under the circumstances, lawful and bona fide, and therefore free from usurious taint. The mortgagees were engaged in the commission business, and were also ware-housemen. The stipulation in question was in their usual course of trade, and tended to promote their regular business. The money loaned was advanced to make a crop for the current year, and it is evident that the actual delivery of the cotton was contemplated. In these particulars, this case is entirely dissimilar to that of Uhlfelder v. Carter’s Adm’r, supra, and its validity is fully sustained by the authorities. Cockle v. Flack, 93 U. S. (3 Otto), 344; Matthews v. Eve, 70 N. Y. 239 (S. C., 26 Amer. Rep. 583); Grubb v. Brooke, 47 Penn. 485. Durr, being one of the mortgagees, could not purchase the trust estate at his own sale, without the consent of the mortgagor. The transaction was voidable, at the option of the mortgagor, seasonably expressed. It could be either ratified or disaffirmed. — 2 Brick. Dig. p. 500, §§ 156-166. So, likewise, of the re-sale by Durr to the appellant, Dozier, which was effected at a profit on the original purchase. Mitchell could either hold Durr to account as a trustee, as making the re-sale for his benefit, and thus have it ratified, so as to claim the profit or advanced price ; or he could ask for the sale to be disaffirmed and set aside entirely. He must have pursued either the one or the other of these alternative courses, which were antagonistic, and he could not pursue both simultaneously. — Cunningham’s Adm'r v. Rogers, 14 Ala. 147; Brackenridge v. Holland, 2 Blackf. (Ind.) 377; S. C. 20 Amer. Dec. 123. The mortgagor, Mitchell, had the right to redeem only by the payment of the entire mortgage debt, with lawful interest and charges. The re-sale by Durr to Dozier, under such circumstances as to charge the latter with notice of existing equities, could not defeat or embarrass this right. The profits paid by Dozier to Durr do not enter into the question of redemption. — 2 Jones on Mortg. §§ 1070, 1038, 1075; Glidden v. Andrews, 14 Ala. 733. But the taxes paid by the mortgagee on the mortgaged premises are properly included in such charges. — 2 Jones Mort. § 1134. In taking the account between the mortgagor and the mortgagees, or any purchaser from them with notice, the latter would, in ordinary cases, be accountable for fair and reasonable rents and profits of the mortgaged estate from the time of actually entering possession. This would include such rents as they may have received from others, or failed to collect by fraud, willful default, or gross negligence ; also, a reasonable occupation rent for any portion of the premises held by them under the mortgage. — Powell v. Williams, 14 Ala. 476; 3 Lead. Cas. Eq. (Hare & Wall.), * 891-892 ; 2 Jones Mort. § § 1123-24 ; Barron, Meade & Co. v. Paulling, 38 Ala. 292. The mortgagee in possession is bound to make all reasonable and necessary repairs, and is responsible for any loss or damage occasioned by his willful default, ot gross neglect in this regard. He is also liable to account for voluntary waste, or such as is actually committed by him while personally in possession. — 2 Jones on Mortg. §§ 1123, 1126. This would, of course, include the pulling down or improper removal of houses or buildings attached to the freehold. Sandon v. Hooper, 6 Beav. 246; 3 Lead. Cas. Eq. (Hare & Wall.) * 892; Guthrie v. Kahle, 46 Penn. St. 331. In estimating the rents, they are not to be charged upon the increased value of the property arising from improvements, but upon the estate as it was when it came into the hands of the mortgagees prior to such improvements. — 4 Kent’s Com. p. 166; Bell v. The Mayor, &c., 10 Paige, 49; 2 Jones Mort. § 1127. This case is, however, governed by section 2966 of the present Code of 1876, which provides, that “ persons holding-possession under color of title, in good faith, are not responsible for damages or rent for more than one year before the commencement of" suit.” Although strictly applicable to suits at law, it has been applied, by analogy, to cases in the nature of equitable ejectment, like the present. Dozier purchased from Durr in good faith, and held possession under color of title. Hence, he is not chargeable with rent for more than one year before the commencement of the suit. — Dudley v. Witter, 46 Ala. 664. And he was entitled to compensation for improvements made, but not beyond the rents charged against him. — Ormond v. Martin, 37 Ala. 598; Horton v. Sledge, 28 Ala. 478; 2 Jones Mortg. § 1128. There was no error in disallowing the amount paid by the mortgagees for the purchase of the land made at the United States marshal’s sale. The levy upon the lands so fatally misdescribed them as to convey no title, and the rule of caveat emptor applied. To allow this amount thus paid as an incumbrance, would be tantamount to effecting a collateral reformation of the marshal’s deed, without proper pleadings in a case seeking such relief. The decree of the chancellor is reversed, and the cause remanded, that the account may be taken in accordance with the principles announced in this opinion.