MACAULEY v. SMITH

MACAULEY v. SMITH. N. Y. Court of Appeals, Second Division; May, 1892. [Rev’g 32 State Rep, 745 ; s. c., 10 N. Y. Supp. 578.] 1. Mortgages; absoltite deed.] A written agreement provided for the execution and delivery of a warranty deed “ in consideration of and for the purpose of securing a loan” made by the grantee to the grantor, and that the deed should be “ security for the said loan, for a term not exceeding one year ” and upon repayment the grantee should reconvey to the grantor.. Held, that under such agreement an obligation on the part of the grantor to repay the grantee was to be inferred, especially in view of the repeated statements that the money advanced was a loan, and that the deed given in accordance with such agreement must, therefore, be regarded as a mortgage. 2. Attachment; mortgagor's interest s;ibject to seizure.] The legal title does not pass by deed absolute on its face but which is in fact a mortgage, but remains in the grantor. The grantor’s interest, therefore, notwithstanding such deed, is subject to attachment. So held, although it is nécessary for the attaching creditor after he has obtained judgment to maintain an action in aid of his execution to strip from the grantor’s legal title the obstruction created by the deed. 3. Eqtiity.] The so-called “ equity of redemption” under a mortgage of real property, is now a legal estate, even though the mortgage consists oí a deed absolute on its face, shown only by extrinsic evidence to have been given as security. 4. Recording deeds; purchaser in good faith.] The grantor in a deed which was in fact a mortgage conveyed the property to a person having no knowledge that the deed was a mortgage. Held, that the whole of the purchase money, not having been paid, such person could not set up the defense of bona fide purchaser in an action by a judgment creditor of the mortgagor to reach the property conveyed, and that he was only entitled to protection to the extent of his payments innocently made. Appeal from a judgment of the General Term of the fifth department affirming a judgment of the Special Term of Monroe County dismissing the complaint after a trial on the merits. The action was brought by Antoinette Macauley against Robert H. Smith and others to have certain conveyances of real estate by warranty deeds declared to be mortgages, .and to have the real estate adjudged to be subject to the lien of a certain judgment recovered by the plaintiff against the grantor in such deeds, and an execution issued thereon. The action in which the judgment was entered was for the recovery of money only, and was commenced in August, 1879, by this plaintiff against Lucilia Tracy by publication of a summons against the defendant therein as a non-resident, and an attachment was at the same time issued against her property, which was in form levied upon the real estate in question. Judgment by default was' entered in that action in July, 1883, and an execution issued thereon to the sheriff of the county where the property was situated, which execution has since been held by the sheriff. On and prior to the 6th •day of July, 1871, Lucilia Tracy was the owner and in possession of two parcels of real estate on Alexander street, in the city of Rochester, upon one of which par-eels there were two mortgages of $5,000 and $2,000 respectively. On the 5th day of July, 1871, she entered into an agreement in writing with the defendants, Robert H. Smith and Calvin Tracy, and one Slocum Howland, since deceased, (who is represented in this action by the defendants William and Emily Howland, as his executors,) whereby, in consideration of and for the purpose of securing a loan of $8,240, she agreed to execute and deliver to-them a good and sufficient warranty deed of both parcels, of land above mentioned, and the agreement proceeds as-follows : “ And the said Howland, Smith, and Tracy, in consideration of, and before the execution and delivery of, said deed, hereby agree to advance the said sum of $8,240-(in a manner specified) to the said Lucilia Tracy. It is-also hereby agreed, by and between the parties hereto,, that the said deed is to be and is a security for said loan for a term not exceeding one year from the date of said ' deed, which is to be hereafter executed ; and that upon the repayment of said sum of $8,240, with interest, within or at the expiration of said one year, by the said Lucilia Tracy,, her heirs, executors, administrators, or assigns, the said-. Howland, Smith, and Tracy, their and each of their heirs, executors, administrators, or assigns, are to reconvey said premises so conveyed to said Lucilia Tracy, her heirs,, executors, administrators, and assigns, free from all incumbrances or liens thereon, except such as exist and are-liens or incumbrances upon said premises at the time of the conveyance thereof as aforesaid by the said Lucilia Tracy.” “ And, in case the said sum of $8,240 shall not be repaid during or at the expiration of one year as aforesaid, then it is understood and agreed that the said deed, so as aforesaid to be executed by 'the said Lucilia Tracy, is to> becomfe and be a deed absolute, and the said Howland,. Smith, and Tracy, or their heirs or assigns, are to become and be the owners thereof in fee simple absolute.” Accordingly, on the following day, Mrs. Tracy executed and delivered to the other parties to the agreement deeds of the two parcels of land, containing the usual covenants of warranty, which were on the same day duly recorded in-the clerk’s office of Monroe county, in and by one of which deeds the grantees, as part consideration of the conveyance, assumed the payment of the two mortgages, above mentioned, but did not covenant to pay them.,. The loan was not repaid, and in December, 1872, the grantor remained in possession of the premises for about two years after the date of the deeds, and then quit and surrendered possession of the premises to the grantees, who remained in possession thereof, by tenants or otherwise, until the 1st of January, 1875, when they sold and conveyed the same to the defendant the New York Baptist Union for Ministerial Education, which has ever since been in possession of the premises, claiming title thereto. The debts for which plaintiff obtained judgment against Lucilia Tracy were contracted prior to January 1, 1872. The agreement of July 5, 1871, was never recorded, and the defendant, the Baptist Union, had no notice thereof at the time of its purchase of the property. It is conceded on the part of the plaintiff that her judgment against the grantor in the deeds above mentioned is of no force or effect, for the purposes of this action, unless as a judgment in rem, by virture of a levy of the attachment upon the property in question (Code Civ. Pro. § 707). The General Term in affirming the judgment dismissing the complaint, held that the agreement did not make the deed a mortgage, because it left it optional to grantor whether to repay the money advanced ; and also held that the grantors rights, whatever they may have been, were of an equitable character, and could only be established by a resort to equity, and until they were so established she had no legal title or interest in or to the property conveyed which was subject to attachment. [Reported in 32 State Rep. 745 ; s. c., 10 N. Y. Supp. 578.] John Van Voorhis, for appellant. Rollin Tracy, for respondents. See note at the end of this case. [MAJORITY — Landon, J.] Landon, J. The agreement, which antedated the deeds by one day, and expressed their intent and purpose, should be read in connection with them. Thus read, the deeds are shown to have been given by Lucilia Tracy to Howland, Smith, and Tracy," for the purpose of securing, and in consideration of, said loan of $8,240,” made by the grantees to the grantor ; and “ that the said deed ... is a security for said loan for a term not exceeding one year from the date of said deed, . . . and that upon the repayment of said sum of $8,240, with interest, within or at the expiration of one year, by the said Lucilia, . . . the said Howland, Smith, and Tracy, are to reconvey said premises to said Lucilia ; . . . and, in case said sum of $8,240 shall not be repaid during or at the expiration of one year as aforesaid, then it is understood and agreed that the said deed. . . is to become and be a deed absolute, and the said Howland, Smith and Tracy are to become and be the owners in fee simple absolute.” The deeds are thus clearly shown to have been intended as mortgages. This conclusion is also inferable from the facts. The premises at the date of the deeds were worth $30,000. The judgments against the premises were, by the terms of the agreement, to be paid from the money loaned, and presumably were either paid or their amount retained by the grantees from the $8,240. The amount of the outstanding mortgages against the premises was $7,000. It is not presumable that Lucilia Tracy intended to sell property worth $30,000 for $15,240. The grantor remained in possession of the premises for about two years after the delivery of the deeds. She was embarrassed and straitened for money. Stress is laid by the defendants upon the fact that the grantor did not expressly covenant to repay the money. The cases are to the effect that this is one of several circumstánces to be considered (Horn v. Keteltas, 46 N. Y.605; Morris v. Budlong, 78 N. Y. 543,552; Brown v. Dewey, 1 Sandf. Ch. 56); and here it is to be considered in connection with the repeated statement that the money to be advanced by the grantees is a loan, and that “ said deed-is a security for said loan, for a term of not exceeding one year,” and that upon repayment the grantees should reconvey to the grantor. It is plain that repayment of the loan was contemplated. Nothing is said of the repayment of purchase money, and there is nothing in the agreement indicating that the money advanced by the ¡grantees was purchase money, except that, in case said sum of $8,240 (previously termed a loan) should not be repaid at the expiration of one year, “ then it is understood and agreed that the said deed is to become and be a deed absolutethus clearly indicating that at the date of the transaction said sum was not purchase money, and said deed was not a deed absolute, but was to become so, in case of non-payment of the loan. Clearly, upon the undisputed facts, the deeds were a mortgage to secure the money loaned, and the trial court erred "in refusing the plaintiff’s "request so to find. The agreement that the non-payment of the loan within the time specified should convert the mortgage into an absolute deed did not have that effect. The agreement to turn a mortgage into an absolute deed, in case of default, is one that finds no favor in equity. The maxim, “ once a mortgage always a mortgage,”governs the case (Horn v. Keteltas, supra; Murray v. Walker, 31 N.Y. 400; Carr v. Carr, 52 Id. 251; Remsen v. Hay, 2 Edw. Ch. 535 ; Clark v. Henry, 2 Cow. 324; Morris v. Nixon, 1 How. (U. S.) 118 ; Villa v. Rodriguez, 12 Wall. 323 ; 4 Kent Comm. 143). Since the deeds were a mortgage, the title did not pass to the grantees, but remained in Lucilia Tracy (Barry v. Hamburg-Bremen Fire Ins. Co., 110 N. Y. 1; 17 N. E. Rep. 405 ; Thorn v. Sutherland, 123 N. Y. 236,25 N. E. Rep. 362 ; Shattuck v. Bascom, 105 N. Y. 39, 46; 12 N. E. Rep. 283). The levy under the plaintiff’s attachment was therefore upon Mrs. Tracy’s land, to which she had the legal title. It was not merely an attempted levy upon her equitable right to obtain title. As against Howland, Smith, and Tracy, the levy was valid, and the judgment and execution which followed the attachment became a specific lien upon the land itself, and the land could be sold upon execution. Howland, Smith and Tracy conveyed the premises, before the attachment was issued, to the defendant, the New York Baptist Union for Ministerial Education. This-defendant, by its answer, admits that $3,000 of the purchase money, with the interest from January 1, 1883, remains unpaid, and that $1,550 of the principal of one of mortgages upon the premises given by Mrs. Tracy also remains unpaid. This defendant, in order to maintain the defense that it is a bona fide purchaser without notice of plaintiff’s rights, must have paid all the purchase money (Sargent v. Eureka Spund Apparatus Co., 46 Hun, 19 Harris v. Norton, 16 Barb. 264; Jewett v. Palmer, 7 Johns. Ch. 65 ; Jackson v. Cadwell, 1 Cow. 622; Boone v. Chiles, 10 Pet. 177; Patten v. Moore, 32 N. H. 382). In equity it has not completed its purchase, but, to the extent of its-payments innocently made before notice of plaintiff’s claim, is entitled to protection. It may therefore retire from the transaction without actual loss, and without further impairing the rights of the plaintiff. The action is in aid of plaintiff’s execution. Its object is not to re’ach any equitable assets of Mrs. Tracy, but to strip from her legal title to the premises in question the obstructions created by the deeds by which such title, apparently, but not in fact, passed from her to Howland, Smith and Tracy, and from them to the Baptist Union; and thus to show that the lien acquired by plaintiff’s-attachment of the premises, and perfected by her judgment and execution, was valid, and therefore may now be enforced free from the obstructions which seemed to defeat it. Such an action is within the equitable jurisdiction of the court (Beck v. Burdett, 1 Paige, 305; Heye v. Bolles, 33 How. Pr. 266; Rinchey v. Stryker, 28 N. Y. 45 ; Frost v. Mott, 34 Id. 253). Thurber v. Blanck (50 N. Y. 80) does not hold otherwise, but does hold that the attachment, to be effective, must operate upon legal rights,— the precise position of the plaintiff here. The judgment should be reversed, and a new trial granted, costs to abide the event. All the judges concurred. Note on how far rights of action can be regarded as-REAL OR PERSONAL PROPERTY WHICH IS SUBJECT TO AN ATTACHMENT. In respect to causes of action, the Code only specifically provides for the attachment of causes of action upon contract (§ 648). This does not prevent the attachment of tangible real or personal property of the debtor of which another person has possession in violation of the debtor’s right. Thus, although the debtor would have to bring some-action, as replevin, ejectment, or an equitable action to-recover the enjoyment of the property, his creditor may by attachment seize the personal property or obtain a lien on the real property and set up his debtor’s ownership and right to possession as a defense of his seizure. The result is, that tangible personal property or a legal interest therein is subject to attachment, whether the property is in the debtor's possession or control, or not. A chose in action on contract, capable of manual delivery,, is subject to attachment. The debtor’s equitable rights of action, and the creditor’s equitable rights of action to reach property, which the-debtor has precluded himself from reclaiming by making a fraudulent conveyance, must be asserted either by an action under Code Civ. Pro. § 655, or by a creditor’s suit after-judgment. See notes in 23 Abb. N. C. 9 ; 16 Id. 20, 59. Notes of Cases. 1. Thurber v. Blanck, 50 N. Y. 80. A creditor cannot attach chose in action which has been fraudulently assigned by his debtor. But the non-attachability does not result merely from the character of a chose in action, but because it is a chose in action which has been assigned. If it were tangible property it could be attached notwithstanding the fraudulent assignment. If it were a chose in action, still belonging to the debtor, it could be attached notwithstanding it might be in the possession of others. The court say : “ Debts and dioses in action are to be regarded as legal assets under the attachment laws whenever that process acts directly upon the. legal title, but whenever they are so situated as to require the-exer cise of the equitable powers of the court to place them in that situation, they must be treated, as they always were, as equitable assets •only.” 2. Anthony v. Wood, 96 N. Y. 180. A levy by virtue of an .attachment upon a promissory note creates no lien thereon, where the debtor has parted with his legal title, although with an intent to -defraud his creditors. The court, in holding that the changes in the provisions of -Code Civ. Pro. § 649, had not changed the former law, say: “ Where the property sought to be attached is capable of manual delivery, including a bond, promissory note or other instrument for the payment of money, the levy is to be made by taking the same into the sheriff’s actual custody. This provision changed merely the mode of making the levy, but in no respect altered the inherent character of the property sought to be attached.....The,note is not turned into a chattel by the new provision.” 3. Hess v. Hess, 117 N. Y. 306. Goods and chattels fraudulently assigned by a debtor to hinder, delay and defraud creditors, are attachable in the hands of the assignee, in an action against the debtor by a creditor 'defrauded by the assignment. The rule which prevents levy under similar circumstances upon equitable assets or choses in action, proceeds upon peculiar grounds, not applicable to chattels of which there can be a manual tradition. 4. McAllaster v. Bailey, 127 N. Y. 583. Money in the hands of an assignee for the benefit of creditors, the avails of the property assigned, is not subject to levy under an attachment issued in an action against the assignor, and a sheriff making such levy is liable ior conversion. [Here the debtor had no legal title, and no equitable title, but only an equitable interest in the enforcement of the trust he had •created, and in a possible surplus after the payment of debts, etc.] 5. Backus v. Kimball, 27 Abb. N. C. 361. The right to an unpaid legacy, to be paid out of the proceeds of the sale of real estate devised in trust for that purpose to an executor, may be .attached as personal property incapable of manual delivery. [This was put upon the ground that the debtor, as legatee, had a legal right of action against the executor.] 6. Higgins v. McConnell, 56 Hun, 277; s. c. 9 N. Y. Supp. 588; 30 State Rep. 958. Held, that as the Code of Civil Procedure, § 644, provides that an attachment can be levied only on property not exempt from execution ; and section 1253 provides that the interest of a person holding a contract for the purchase of real property cannot be levied upon by execution, the equitable interest in real property of a person holding a contract is not. therefore, subject to an attachment, notwithstanding section 645 provides that the real property which may be levied on by attachment includes any interest in real property, either vested or not vested, which is capable, of being aliened. 7. Sage v. Cartwright, 9 N. Y. 49. The equitable interest of one in.possession of land under a contract of purchase cannot be sold under an execution. 8. Mechanics’ & T. Bank v. Dakin, 51 N. Y. 519. The fraudulent assignment of a bond and mortgage by a debtor will not prevent its attachment by a creditor. Compare Case 1, above.