Equitable Mortgage Doctrine In Virginia: Part 3
1) "In the case of Robertson v. Campbell & Wheeler, 6 Va. 421, 2 Call 421, Pendleton, J., said:
- "It is often a nice and difficult question to draw the line between mortgages and conditional sales. But the great desideratum which this court has made the ground of their decision, is, whether the purpose of the parties was to treat of a purchase, the value of the commodity contemplated, and the price fixed; or whether the object was a loan of money, and a security or pledge for the repayment intended.""
2) "This rule, laid down by Judge Pendleton, has been adopted in several cases decided by this court. See King v. Newman, 16 Va. 40, 2 Munf. 40; Moss v. Green, 37 Va. 251, 10 Leigh 251; 2 Rob. Prac. (old ed.) 51, and cases there cited."
3) "Tried by these criteria and the authorities above cited, it is plain, that, (except as to the small tract of thirty or forty acres, ...) the transaction between the parties must be treated, as to the main tract, as a mortgage, and not as a conditional sale."
4) "As to this part of the land, there was no negotiation as to the price. Nothing was said as to its value. The negotiation was for a loan of money; and it is so treated by the plaintiff [purchaser] in his bill. [...] The defendant, in his answer, says that he applied to plaintiff to borrow the money to pay [a third party] for the land purchased of him; and that the only terms upon which the plaintiff [purchaser] would agree to lend respondent [seller], was upon the terms set forth in the covenant filed with the bill."
5) "It is thus clear that the transaction between the parties was a borrowing and lending of money, and not for a sale of the land, except as to the small quantity above referred to."
6) "The only object of the negotiation was a loan of money, and security for its repayment. In such cases the contract will be treated as a mortgage, and not a sale."
7) "Such is the unwillingness of courts of equity to sustain forfeitures and limit the right of redemption, that it will never be done, in a case where it appears that the first object of the party was to borrow money and not to sell property."
Snavely v. Pickle, 70 Va. 27, 29 Gratt. 27 (Va. 1877)
1) "The general rule, that parol evidence is inadmissible to contradict or substantially vary the legal import of a written instrument, in its application to particular cases, is subject to many qualifications or exceptions, real or apparent, now as well established as the rule itself."
2) "Some of the more prominent of these are stated and explained by Judge Allen in a well considered opinion delivered in the case of Towner v. Lucas' Ex'r, 13 Gratt. 705; and amongst the rest, he mentions the exception, if exception it be, that parties to a deed may, by oral evidence, prove that a deed, absolute on its face, was intended to be a mortgage or security for a debt. Whether this be a real exception, or merely apparent and reconcilable with the general rule, as the judge seems to think it is, on whatever ground it rests, it is certainly well established."
3) "There is a well defined distinction between a mortgage and a conditional or defeasible sale, but it is often very difficult to determine whether a particular transaction amounts to the one or the other; and, after all, each case must be decided upon its own circumstances, and in doubtful cases the courts incline to construe the transaction to be a mortgage rather than a conditional sale." Russell v. Southard, 53 U.S. 139; Earp v. Boothe, 24 Gratt. 368, 374, et seq.
4) "[W]henever and as soon as a mortgage is created by the act of parties, equity at once annexes inseparably a right of redemption, independent of and paramount to the will of the parties. It is not meant, however, that after a mortgage has been once created, the mortgagee may not become the purchaser from the mortgagor of his equity of redemption. He may become such purchaser, thus combining the legal and equitable estates, and his purchase will be valid, if, under the jealous scrutiny of a court of equity, it is shown to be for an adequate consideration, that no undue advantage has been taken of the necessities of the mortgagor, and that it is in all respects fair."
5) "It is essential to a mortgage, that there should be a debt to be secured. It may be antecedent to, or created contemporaneously with the mortgage."
6) "The absence of a written obligation is sometimes adverted to as tending to show that a conditional or defeasible sale, and not a mortgage, was intended. This circumstance is certainly entitled to some weight, but alone has no great significance."
7) "The negotiations between the parties have always been much looked to and regarded as important in determining whether they contemplated a mortgage or sale." Earp v. Boothe, supra.
8) "There is another circumstance in this case which has always been regarded as very potent to show that a mortgage was intended and not a sale; and that is, the great disproportion between the value of the land and the amount of money advanced." Russell v. Southard, supra; 2 Minor's Institutes, 306, and cases there cited.
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(Note for Statute of Limitations fans: This case contains a discussion on the time limitation within which an action to redeem an equitable mortgage may be brought (ie. statute of limitations, laches). In this case, the party that successfully asserted that the subject transaction was an equitable mortgage was also successful in overcoming the fact that there was a 30+ year period that passed between the time of the equitable mortgage transaction and the time this case was heard and decided.
Inasmuch as this is an 1877 case, it could very well be that there may be current statutes governing the time within which a redemption can be attempted, thereby making the discussion in the case obsolete. But, then again, maybe not. The discussion is in the case, for anyone interested.)
Go here for other posts on this blog citing Russell v. Southard, 53 U.S. 139 (1851).
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Edwards v. Wall, 79 Va. 321 (Va. 1884)
"It is well settled that a conveyance of land, absolute on its face, may be shown in equity by extrinsic and parol evidence to be, in reality, a mortgage as between the original parties and those deriving title under the grantee, who are not bona fide purchasers for value and without notice. But the presumption, of course, always is that the deed is what on its face it purports to be, and to repel this presumption the evidence must be clear, unequivocal, and convincing." 3 Pom. Eq. 175, § 1196; Phelps v. Seely, 22 Gratt. 573; Snavely v. Pickle, et als., 29 Gratt. 27, and cases cited.
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Tuggle v. Berkeley, 101 Va. 83, 43 S.E. 199 (Va. 1903)
See Equitable Mortgage Doctrine In Virginia - Part 1 for a separate post on this case.
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(Note: This case involves a house that the homeowner lost in a foreclosure sale. The ownership of the home went to the winning bidder - the homeowner's brother-in-law.
However, the homeowner claimed that her brother-in-law purchased the house and lot for her under a prior agreement that he would do so, advance the purchase price for her and take the legal title to himself to secure the repayment of the sum so advanced. The third party purchaser denied that there was any such agreement, and claimed that he purchased and paid for the property for himself.
Under the facts of this case, the lower court ruled, and the Virginia Supreme Court affirmed, that there was an arrangement in advance of the public sale, and accordingly, the third party purchaser's interest in the house that he purchased was ruled to be a mortgage.)
With respect to the equitable mortgage doctrine, the court stated - bold text is my emphasis:
1) "It is well settled in equity, that although a deed is absolute on its face it may be shown by oral evidence that it was intended as a mortgage, and that such evidence is not restricted to cases of fraud, accident or mistake." See Snavely v. Pickle, 70 Va. 27, 29 Gratt. 27; Note to Thornbrough v. Baker, White & Tudor's Lead. Case. in Eq. (4th ed.), Vol. 2, Pt. 2, 1983-1985, and cases cited.
2) "The presumption is that a deed absolute on its face is what it purports to be, and while oral evidence is admissible to show that it is a mortgage, it must be clear and convincing." Snavely v. Pickle, supra; 3 Pom. Eq. Jur. (3rd ed.), sec. 1196.
3) "Whether such an instrument is to be regarded as a mortgage depends upon the circumstances under which it was made, the relations and negotiations between the parties."
In this case, the court lower decreed that a certain deed, absolute upon its face, was a mortgage. The Virginia high court affirmed the lower court ruling.
With respect to the equitable mortgage doctrine, the court stated:
- "In Bachrach v. Bachrach, 111 Va. 232, 68 S.E. 985, it is said: "A deed, although absolute on its face, may be shown by oral evidence to have been intended as a mortgage; and such evidence is not restricted to cases of fraud, accident or mistake. The presumption, however, is that a deed absolute on its face is what it purports to be, and the oral evidence offered for the purpose of showing that it is a mortgage must be clear and convincing. Whether it is to be regarded as a mortgage depends upon the circumstances under which it was made, and the relations and negotiations between the parties.""
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The facts of the case are as follows:
1) Randolph & wife owned three tracts of land.
2) They executed a deed of trust on one tract to one, Batchelder, to secure a debt for $350 in 1885.
3) Fifteen years later (in 1900), they found themselves unable to keep up the payments on the one tract and, further, were seven years in arrears on the real estate taxes and were in danger of losing the one tract.
4) Batchelder agreed to pay up all the back taxes and "take up" the $350 note on the one tract in exchange for a transaction involving all three tracts.
5) Batchelder and his attorney subsequently brought to Randolph & wife, a deed conveying all three tracts to Batchelder for $807.66, which was signed by them. It appears that Randoplh & wife believed the paper being presented was another deed of trust, securing the debt for Batchelder's advances for the real estate taxes and the existing $350 note.
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The following factors were cited as weighing in favor of the 1900 deed by husband and wife to Batchelder to be a mortgage:
a) A witness present at the time of the deed signing testified that she heard wife ask Batchelder if he had the "deed of trust" for her to sign, to which he replied, "Yes, madam" - thereby indicating that the Randolph & wife were of the belief that they were signing a security agreement, and not conveying absolute title.
(Batchelder's attorney, a notary public, on the contrary, testified that he was present and heard no such conversation; and that if he had heard it he would not have certified the acknowledgment without being careful to explain the nature of the transaction to the parties signing the deed.)
b) There was proof that the land, at the time of the sale, was worth not less than $ 1,500 or $ 2,000, and that it has greatly increased in value, and at the time of the lower court decree was worth from $10,000 to $15,000 (ie. "great disproportion between the value of the land and the amount of money advanced" - see Snavely v. Pickle, 70 Va. 27, 29 Gratt. 27 (Va. 1877)),c) the consideration named in the deed is within a few cents of the amount of the debt due under the deed of trust, together with the taxes and interest delinquent upon the land,
d) Randolph & wife remained in undisturbed possession of the property,
e) they exercised all the rights of ownership with respect to it, not only occupying it, but selling timber from it,
f) offering to sell and negotiating for the sale, with the knowledge of Batchelder, the grantee, of portions of the land, and
g) Randolph was shown to have been in very feeble health at the time of the transaction with Batchelder.
Eggleston v. Eggleston, 127 Va. 334, 103 S.E. 603 (Va. 1920)
1) "The presumption in cases of this kind is that a conveyance is what it purports to be upon its face, and in order to prove that a deed absolute in form is in fact merely a mortgage, clear and convincing proof is required."
2) "But it is equally well settled that what appears to be an absolute conveyance may in equity be shown by sufficient parol evidence to be only a security for a debt. This proposition, as Judge Whittle said in Holladay v. Willis, 101 Va. 274, 278, 43 S.E. 616, 617, "is too well settled to require either discussion or citation of authority to sustain it.""
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Magee v. Key, 168 Va. 361, 191 S.E. 520 (Va. 1937)
See Equitable Mortgage Doctrine In Virginia - Part 2 for separate post on this case.
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Pretlow v. Hopkins, 182 Va. 826, 30 S.E.2d 557 (Va. 1944)
1) "The doctrine that a conveyance of land, absolute on its face, may in equity be shown by extrinsic parol evidence to be a mortgage is, of course, too well settled to require either discussion or the citation of authority to sustain it. But it is equally well settled that the presumption in such cases always is that the deed is what on its face it purports to be; and, in order to repel that presumption, the evidence must be clear, unequivocal and convincing." 3 Pom. Eq., sec. 1196; Phelps v. Seely, 22 Gratt. 573; Snavely v. Pickle, 29 Gratt. 27; Edwards v. Wall, 79 Va. 321." Holladay v. Willis, 101 Va. 274, 278, 43 S.E. 616.
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.
Below is the court's recitation of some of the principles of the equitable mortgage doctrine in Virginia. In this case, after an examination of all the detailed facts of the case, the court ruled that a deed, absolute on its face, with contemporaneous agreement or option for re-purchase by grantors, was a mortgage.
1) "Whether the transaction was a conditional sale or mortgage must be determined upon a consideration of the written instruments, read in the light of the circumstances which surrounded the contracting parties and their disclosed intentions, acts and conduct prior to, at the time of, and subsequent to the execution thereof."
2) "Before discussing the evidence it may be well to advert to certain well settled principles. In Virginia, and in most of the courts of this country, it is allowable "to prove by parol that a conveyance, absolute on its face, was in fact intended only as a security for money; that is, as a mortgage, with the inevitable concomitant of an equity of redemption"". Minor's Institutes, Vol. 2 (4th Ed.) page 336.
3) "It is essential to a mortgage that there be a debt to be secured and an equity of redemption. The character of the transaction is fixed by the intent of the parties at the time the transaction is entered into. The burden of proof normally rests upon the party who alleges that a deed, absolute on its face, is in fact a mortgage, and the evidence in support thereof must be clear, credible and convincing." Snavely v. Pickle, 29 Gratt. (70 Va.) 34; Tuggle v. Berkeley, 101 Va. 83, 43 S.E. 199; Eggleston v. Eggleston, 127 Va. 334, 103 S.E. 603; Magee v. Key, 168 Va. 361, 191 S.E. 520; Pretlow v. Hopkins, 182 Va. 826, 30 S.E.2d 557 ; Annotation L.R.A. 1916B, page 18 et seq.; 90 A.L.R., page 953 et seq.; 36 Am. Jur., Mortgages, Section 136 et seq.
4) "Dean Ribble succinctly states the general rule in his admirable revision of Minor on Real Property (2d ed.) Vol. 1, Sec. 580, as follows:
- "As a conditional sale has no equity of redemption incident to it, the attempt is not unfrequently made to give what is really in purpose and intent a mortgage, the aspect of a conditional sale; and as the terms in which they are conceived are very similar, it is usually requisite to resort to parol evidence, extrinsic to the deed creating the estate, to determine the true character of the transaction. If, upon the whole investigation, it shall appear that a security for money was intended, it is a mortgage, whatever may be its terms; and it will be remembered that to a mortgage the right of redemption is inseparably annexed. And if, on the other hand, it shall, upon the whole, appear that it was a conditional sale, the performance of the condition punctually at the time can not be dispensed with. But doubtful cases are generally declared to be mortgages.""
5) "The presumption arising where the grantee [the buyer] is in possession that the deed constitutes a sale is a mere presumption and may be repelled by circumstances sufficient to satisfy the mind that a mortgage was intended." Snavely v. Pickle, supra.
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