More On Equitable Mortgage & Usury (Florida)

This Florida Supreme Court case involved the issue of usury in the context of a civil lawsuit brought to have two deeds declared to be mortgages.

Robbins v. Blanc, 105 Fla. 625; 142 So. 223; (Fla. 1932)

This case involved a property owner filing suit to have two deeds declared mortgages; and to have one mortgage declared usurious to the extent that only interest is to be forfeited (ie. civil usury); the other to be declared usurious to the extent that both principal and interest was to be forfeited (ie. criminal usury).

The sole question presented is whether or not the property owner must offer in his bill to repay the sum received as the actual principal of a loan, together with legal interest thereon, when he files a bill for redemption from a usurious mortgage given to secure a greater sum than the loan. In this case, the lower court sustained a demurrer interposed by appellees (lender / legal title holder), defendants in the lower court, to the bill of complaint by the appellant (property owner / borrower), complainant in the lower court. The Florida Supreme Court reversed. The bill alleges in substance that the "lender" was holding title to properties as security for two loans.
On one of these loans it was alleged that $ 7500.00 was received and it would be repaid by payment of $8,000.00 in six months and $4000.00 in twelve months.

On the other transaction it was alleged that $ 4400.00 was received from the "lender", and it would be repaid by paying $5500.00 within two years, with 8% per annum interest on said sum.
Excerpts from the court's decision follows:

• "To support a bill for redemption from a mortgage, it is only necessary that complainant offer to pay all amounts legally due on the debt secured, in order to sustain such bill. If by reason of violation of the usury laws a part of the amount lent has become forfeited or otherwise not recoverable in law, it is wholly unessential to enable complainant to obtain relief, that he offer to pay amounts which under the law are not payable by him or recoverable from him."

• "To hold otherwise would permit the usury laws to be defeated and frustrated in their object, by the simple device of the usurer in exacting a deed in lieu of a mortgage to secure and make certain the payment of amounts which would otherwise be forfeited, or be rendered not recoverable from the borrower."

• "When it is once established that a mortgage exists, the equitable right of redemption attaches to the transaction as an inseparable incident. The right to redeem is an incident to every mortgage, or deed which is in law to be regarded as a mortgage, because given to secure the payment of money, and such right of redemption belongs to the mortgagor and those claiming under him. This right cannot be extinguished except by due process of law. Stovall v. Stokes, 94 Fla. 717, 115 Sou. Rep. 828; Quinn Plumbing Co., Inc. v. New Miami Shores Corp., 100 Fla. 413, 129 Sou. Rep. 690, 73 A.L.R. 600."

• "He who seeks equity must do equity, so it is an essential part of a bill to redeem a mortgage that it offers in express terms to pay the amount due, with costs. Horn v. Indianapolis Nat. Bk., 125 Ind. 381, 25 N.E. 558, 21 A.S.R. 231, note 9 L.R.A. 676. But when the bill does this, it is sufficient and it is not necessary that the complainant allege his willingness or ability to pay more than under the law he is legally and justly liable to pay, according to the nature of the transaction."

• "The case at bar is not controlled by what was said in Taylor v. Rawlins, 90 Fla. 621, 106 Sou. Rep. 424, since no indebtedness can become judicially collectible against a borrower by a lender in excess of what is permissible to be collected under the usury laws, where it appears that usury has been exacted on the original loan or in suit. This is true regardless of the form or device by which the debt is secured, evidenced or to be stablished. Therefore the borrower in a case like the present is under no legal or equitable obligation to offer in his bill of complaint to return the full amount of the money he has obtained from the lender, where it is made to appear that the transaction in its inception was tainted with usury. In such cases the borrower is only under the obligation to offer to repay the lender what, if anything, the usury statutes preserve to him as a legally recoverable in a court of equity."

• "When a bill of complaint is filed to redeem as mortgages conveyances absolute on their face, and it is further alleged that the loan secured by such mortgages is usurious, so that the principal sum and interest, or the interest only, is subject to forfeiture and should be forfeited under the Florida usury statutes, and the complainant in his bill offers to pay any and all sums the court may find to be justly due and owing from him to defendant, on such terms and conditions as the court may find to be proper, and couples the same with a further general allegation of an offer to do complete equity, it is error to sustain a general demurrer to such bill."

• "In any case where a bill of complaint seeks to avoid the effect of usury in a transaction attacked by such bill, an offer by the complainant to do equity is sufficient, without profert in curia or prior tender of any particular sum by complainant. The rights of each of the parties in such cases can be, and should be, taken in account and protected by the court in considering the case if the usury alleged is duly established. But this can be adequately taken care of in the final decree which settles the accounts and adjudicates the rights between the parties."

• "It follows that it was wholly unnecessary in the instant case for the complainant to have offered to return the actual sum of money he had received or to pay back any particular sum, or to offer to pay lawful interest thereon, as a condition precedent to the filing of his bill of complaint, or as a requisite to his merely asking for relief from the consequences of the alleged usury described in such bill."

• "Where usury has been exacted in violation of the criminal law, as well as the civil, as seems to be charged here, although it is not in terms directly alleged in the bill that the defendant wilfully and knowingly charged and accepted from complainant a sum of money greater than the sum of money loaned and an additional sum of money equal to twenty-five per cent upon the principal sum loaned, the state, as well as the parties to the transaction, may have an interest in the enforcement of the penalty. Such a transaction to come within [the criminal usury statute], would have to be carried out "wilfully and knowingly" in direct and inexcusable violation of the law."

• "There is nothing contrary to equity and good conscience in strictly enforcing a statute which prohibits the doing of certain acts "wilfully and knowingly" in violation of its provisions. There is consequently no good reason why a complainant in a suit in equity involving a charge of criminal usury under our statute should be under any greater disability as an actor seeking relief than he would be if he were a defendant in the same case, where the same state of facts was made to appear. In either situation the position of the complainant is that of defense -- because the defense is against the exaction of the usury whether the person defends himself as complainant or defendant.""

• The order sustaining the demurrer to the bill of complaint is reversed and the cause remanded for further proceedings consistent with this opinion."

Robbins v. Blanc, 105 Fla. 625; 142 So. 223; (Fla. 1932)

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The following are excerpts relating generally to the usury issue and to the proposition that documents executed contemporaneously are to be read together in order to determine an give effect to the intention of the parties. The case is from a Federal appeals court involving issues of Florida law.

Conner Air Lines v. Aviation Credit Corp., 280 F.2d 895 (5th Cir. 1960)

• "Where there is an intent on the part of a lender to make a loan or to extend a maturity for a greater profit than is permitted by law, the transaction is tainted with usury even though it is cast in a form which was designed to give it a cloak of apparent legality. Courts do not permit the use of design or device to evade the purpose of the usury laws." Griffin v. Kelly, Fla., 92 So.2d 515; Beacham v. Carr, 122 Fla. 736; 166 So. 456.

• "Where other instruments are executed contemporaneously with a mortgage and as a part of the same transaction, the mortgage may be modified by the other instruments, and all documents are to be read together in order to determine and give effect to the intention of the parties." 59 C.J.S. Mortgages § 156, 208; Jackson v. Parker, 153 Fla. 622, 15 So.2d 451; Brumick v. Morris, 131 Fla. 46, 178 So. 564; Morrow v. Commonwealth Life Insurance Co., 118 Fla. 371, 159 So. 525.

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Equitable Mortgage Defense In Eviction/Ejectment Actions - Part 9

This is Part 8 of Equitable Mortgage Defense. Click here to see all posts on Equitable Mortgage Defense In Homeowner-Tenant Evictions.

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The following cases, a couple of old ones, and a couple of recent ones, come from the State of Florida and apply the law of equitable mortgage in a way so that in no case will the right of possession to property by a mortgagee be recognized in a Florida court until due foreclosure is had according to the forms of the law providing for foreclosure of mortgages. Obtaining possession via a tenant eviction or ejectment action when the legal title was received as security for a loan is legally impermissable.

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Walls v. Endel, 20 Fla. 86; (Fla. 1883)
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This case involved an action for ejectment by a title holder of property. The person in possession alleged that it was the owner of the property who had conveyed absolute title to the current title holder as security for the payment of money and that, therefore, the deed should be treated as a mortgage. The lower court refused to allow evidence that the arrangement between the parties should be treated as a mortgage.

In reversing the lower court, the Florida Supreme Court stated:

• "[T]he result of these facts is that the deed was given to secure the payment of money, and is therefore, by the rules of equity, only a mortgage, and the statute we have cited declares it to be a specific lien, and that the holder cannot have possession without due foreclosure, decree and sale; while the judgment at law would give possession without foreclosure and sale ... [I]f the plaintiff has only a specific lien on the property, though it is in form a deed in fee, it is not only inequitable but contrary to the plain words of the statute that he should obtain possession otherwise than by due foreclosure of the mortgage interest."

The Florida high court also cites a Wisconsin Supreme Court case, Kent vs. Agard, 24 Wis. 378, another eviction case, in support of its decision, in which it was said:

• "[T]he plaintiff should have been allowed to show by parol that the absolute deed was intended as a mere security and was consequently only a mortgage. That this may be done in some form of action is not contested. And I see no reason why it may not be done in an action to recover the possession of real estate. When the facts are proved such deed is a mortgage only, both in law and in equity. The rights of the mortgagor and mortgagee are precisely the same as though the defeasance were contained in the deed itself. The only difference is in the manner of proving the defeasance."

It also cites Saunders vs. Stewart, 7 Nev. 200, a Nevada high court case, where it was observed:

• "The doctrine is that such evidence is not received to contradict an instrument of writing, but to prove an equity superior thereto."

Walls v. Endel, 20 Fla. 86 (Fla. 1883)

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Folks v. Chesser, 106 Fla. 837; 145 So. 602; (Fla. 1932)

The Florida high court made the following observations in connection with an equitable mortgagee's right of possession to be obtained only after a mortgage foreclosure is had.

• "Our statute enacts a recognized rule of equity, that all deeds of conveyance conveying or selling property for the purpose, or with the intention, of securing the payment of money, shall be deemed and held as mortgages, and shall be subject to the same rules of foreclosure and the same regulations and restrictions as are prescribed by law in relation to mortgages." See Sections 5724-5725 C.G.L. 3836-3837 R.G.S.

• "Under these statutes, in no case will the right of possession to property by a mortgagee be recognized in a court of justice in this State, until due foreclosure is had according to the forms of the law providing for foreclosure of mortgages."

Folks v. Chesser, 106 Fla. 837; 145 So. 602; (Fla. 1932)

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Blanco v. Novoa, 854 So. 2d 672; (Fla. App. Ct. 3rd Dist.) 2003

This case dealt with an eviction action. The trial court granted a motion that, in effect, treated the subject transaction as a landlord-tenant relationship. In reversing, the Florida appellate court ruled that the relationship between the parties was a mortgagor-mortgagee relationship and, as such, the appropriate cause of action to seek possession for non-payment is a foreclosure proceeding, not an eviction action.

The facts of the case follow:

Novoa and his niece, Blanco, took joint title to a condominium. Novoa purchased the property with his own funds. Shortly after the purchase, Blanco and Novoa entered into an agreement whereby Blanco would take possession of the property and pay $ 740 per month to Novoa, as well as all condominium assessments and property taxes.

According to the text of the case:

• "The parties used a standard landlord-tenant lease form in which the monthly payments to Novoa were called "rent", Blanco was called the "lessee" and Novoa the "lessor."

• "However, the agreement also contained a clause that obligated Novoa to sell the property and Blanco to purchase the property for $ 89,831.56 in five years. Blanco was in possession of the condominium and made payments from November 1, 2000 until October 1, 2002."

• "[A] Quit Claim Deed was recorded which purportedly gave Blanco's half interest in the condominium to Novoa. Blanco claims not to have signed the document."

• "Blanco had not made any of the payments required by the agreement since November 1, 2002. On December 19, 2002, Blanco filed a complaint seeking to cancel the Quit Claim Deed, monetary damages for fraud in the execution of a Quit Claim Deed to real property, and specific performance of the contract for sale of the unit."

• "Novoa counterclaimed for breach of contract and eviction in March, 2003. Novoa then filed a motion to require Blanco to post rent with the registry of the court or be defaulted on the counterclaim for eviction."

• "The trial court granted the motion and ordered Blanco to deposit $ 5,180.00 into the court registry within fifteen days of the order or waive any defenses to the eviction. The deadline was twice extended to accommodate this appeal."

• "The trial court construed the agreement between Blanco and Novoa to be a lease and consequently applied the law governing landlords and tenants. For a tenant to contest an eviction action, any defense other than payment requires the tenant to deposit accrued rent and any rent which accrues during the pendency of the proceeding into the court registry." See 83.60(2), Fla. Stat. (2003).

• "The trial court erred by requiring Blanco to deposit payments into the court registry because Novoa and Blanco were not simply landlord and tenant, respectively, they shared an equal interest in the property. The agreement provided for monthly payments equal to ten percent interest with the payment of fees and taxes consistent with those a mortgagor would make. Blanco would buy out Novoa's interest in the condominium at the end of five years with a final balloon payment."

• "The Quit Claim Deed, if genuine, would make them landlord and tenant. However, if it is a forgery, the two are joint tenants. To impose the obligation to pay rent into the registry of the court is to decide the validity of the Quit Claim Deed and provide the remedy before the case is properly adjudicated in court."

• "Under section 697.01, Florida Statutes (2003), "[a]ll conveyances, obligations conditioned or defeasible, bills of sale or other instruments of writing conveying or selling property . . . for the purpose or with the intention of securing the payment of money . . . shall be deemed and held mortgages . . . ." In deciding whether a conveyance should be declared a mortgage under the statute "depends on the particular facts, and as the statute provides, is a question of the parties' intent." Valk v. J.E.M. Distribs., 700 So. 2d 416, 419 (Fla. 2d DCA 1997). "[E]quity will look at and take into consideration all the facts and circumstances surrounding the transaction and will decree an instrument to be a deed or mortgage according to the real intentions of the parties." Id. (alteration in original)."

• "The substance and not the form is what is critical. Here, the trial court erred by determining that the words "lease" and "rent" controlled when the parties clearly acted not as landlord and tenant, but rather as mortgagor and mortgagee."

• "Thus, the remedy available to Novoa in this case is that of a foreclosure proceeding."

Blanco v. Novoa, 854 So. 2d 672; (Fla. App. Ct. 3rd Dist.) 2003

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Editor's Note:

The trial judge in this case apparently had difficulty in "seeing through" the "labels" that were used in the documents and allowed him/herself to be controlled by the "labels" in the legal documents used in the transaction (ie. "lease" and "rent"). The Florida appeals court decision in this case represents a good, clear illustration as to how trial judges should interpret these types of documents in the context of an equitable mortgage claim.

In this case, the label "rent" was used in an attempt to disguise what, in substance, were the "mortgage payments" on an equitable mortgage. The term "lease" was used in attempting to disguise a legal document that, in substance, was not a lease at all, but rather, was more akin to a "promissory note" secured by an equitable mortgage.

Both this case and the next case illustrate one of the practical problems that foreclosure rescue victims may face when having their cases heard in court. That is, they may have a tough time convincing a busy trial court judge to take the time and make the effort to carefully examine the true substance of a sale leaseback, foreclosure rescue transaction and to correctly declare said transaction as being an equitable mortgage. It may be easier for a judge to simply read the documents, rule based on the form of the transaction and, if the foreclosure rescue victim disagrees with the ruling, extend the victim an "invitation" to take it up with an appeals court.

(I suspect, however, that as more of these cases get "reported", some trial judges may end up feeling "pressured into" making a correct ruling from the "get-go".)

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Minalla v. Equinamics Corp., (Fla. App. Ct., 3rd Dist.) March 21, 2007

A Florida appellate court ruled last month that a Miami-area foreclosure rescue operator cannot evict a homeowner who signed away title to her home in a "sale-leaseback-buyback option" arrangement until a determination is made as to who the true owner of the property is and effectively ruling that the Florida Residential Landlord Tenant Act is not applicable to such a transaction unless and until such a determination favorable to the operator is made.

The case involved a situation where, at some point after a financially strapped homeowner signed away the title to her home to a foreclosure rescue operator, the operator attempted to evict her. The homeowner asserted the defense that she was the true owner. The lower court ruled that, pursuant to the applicable provisions of the Florida Residential Landlord Tenant Act, she had to pay into the court registry the rent that was called for in the leaseback of her home while the court proceedings were pending. According to the appellate court, which subsequently reversed the lower court's decision (bold text is my emphasis):

• "[The homeowner] alleges she was tricked into conveying her home to Equinamics in a transaction which is impressed with characteristics of a sale, but in reality is a disguised loan secured by her home. If this is accurate, then Equinamics is not an owner of [the homeowner's] residence but rather a lender who must proceed to oust [her] via a foreclosure action."

The court then made this observation:

• "Based upon the facts of this case, it is apparent that the transaction by which Equinamics received title to the Minalla residence was not an ordinary real estate transaction. Likewise, the circumstances under which Minalla continued to remain on the property after she executed the special warranty deed to Equimanics was not possessed of the trappings of a usual landlord tenant relationship."

Ultimately, in reversing the lower court ruling to the contrary, the appellate court ruled as follows:

• "[T]here is a factual dispute in this case concerning who is the true owner of the property. Because the trial court's order requiring payments by Minalla of monies into the registry was made without conducting an evidentiary hearing concerning the nature of the transaction and who is the true owner of the residence, the court erred in imposing the payment requirement upon her."

(The homeowner is being represented by attorney James A. Bonfiglio, Boynton Beach, Florida.)

Minalla v. Equinamics Corp., (Fla. App. Ct., 3rd Dist.) March 21, 2007 (Court decision made available online courtesy of the Florida Third District Court of Appeal).

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Editor's Note:

To Florida attorneys, I again feel compelled to repeat an observation that I made elsewhere on this blog (at the end of Equitable Mortgage & Usury In Sale Buyback Deals In Florida) in connection with the binding effect of Florida appellate decisions on the Florida trial courts. That is, that unless the Florida Supreme Court rules otherwise, and absent a conflicting decision from a Florida appeals court from another district, the ruling in Minalla that the trial court erred in treating the transaction as a landlord-tenant arrangement "without conducting an evidentiary hearing concerning the nature of the transaction and who is the true owner of the residence" is binding not only on trial courts located within the Third District Court of Appeal, but is binding on all trial courts throughout the State of Florida.

(See the comment to this effect in the Florida Supreme Court case in Pardo v. State, 596 So. 2d 665 (Fla. 1992). ("[T]he district court erred in commenting that decisions of other district courts of appeal were not binding on the trial court. This Court has stated that the decisions of the district courts of appeal represent the law of Florida unless and until they are overruled by this Court. Thus, in the absence of interdistrict conflict, district court decisions bind all Florida trial courts." [citations and internal quotations omitted]).

I will hasten to add that the Florida Supreme Court has already addressed the "landlord-tenant" vs. "mortgagee-mortgagor" issue that exists in an eviction/ejectment action when an equitable mortgage claim or defense is raised. See Walls v. Endel, supra, and Folks v. Chesser, supra. However, I realize that there may be some judges and attorneys who may be reluctant to rely on cases that are approximately 125 years old (Walls) and 75 years old (Folks).

For those who choose to disregard the above-cited Florida Supreme Court decisions, you can cite the brand new appellate decision in Minalla as to the "landlord-tenant" vs. "mortgagee-mortgagor" issue; and then cite Pardo (and the cases cited therein) as to the binding effect of a decision of one Florida appellate court on all trial courts throughout Florida.

With all this being said, I hope that (some) Florida trial judges will be less likely to disregard the substance of these sale-leaseback-repurchase option, foreclosure rescue deals, and make rulings consistent with all of the aforementioned cases.

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With regard to the binding effect that Florida's intermediate appellate court decisions have on the Federal Courts deciding issues of Florida state law, see Binding Effect Of State Court Decisions On Federal Courts On State Law Issues.

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General Jurisdiction Courts vs. Limited Jurisdiction Courts

In the above cases, the jurisdiction of the lower courts to hear tenant eviction/ejectment actions was not raised as an issue. It appears that the lower courts in these cases were all courts of general jurisdiction, and accordingly, had jurisdiction to hear both the eviction/ejectment actions and the equitable mortgage issue, which affects the title to property.

In a case where the equitable mortgage issue was raised as a defense in an eviction action where the lower Florida court hearing the case was a court of limited jurisdiction (a "County Court", as opposed to a "Circuit Court"), and in which the court had no jurisdiction to make rulings affecting the title to property, see Hewitt v. State, 101 Fla. 807; 135 So. 130; (Fla. 1931), and the comments on that case at Using Equitable Mortgage Defense Against Eviction In A Foreclosure Rescue Situation. emdefense Florida equitable mortgage alpha

Equitable Mortgage Doctrine In Florida

What follows below are excerpts from a number of Florida court cases, presented in chronological order, addressing issues to be considered in applying the equitable mortgage doctrine in Florida. (Bold text is my emphasis).

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Lindsay v. Matthews, 17 Fla. 575 (Fla. 1880)

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The Florida high court made these observations relating to the application of the equitable mortgage doctrine in Florida:

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1) "In Pierce vs. Robinson, 13 Cal. 116, Field, J., said:

• Parol evidence is admissible in equity to show that a deed absolute upon its face was intended as a mortgage, and the restriction of the evidence to cases of fraud, accident, or mistake, in the creation of the instrument, is unsound in principle and unsupported by authority. * *

• As the equity upon which the courts act arises from the real character of the transaction, it is of no consequence in what manner this character is established, whether by deed or other writing, or by parol. Whether the instrument, it not being apparent on its face, is to be regarded as a mortgage, depends upon the circumstances under which it was made, and the relations subsisting between the parties. Evidence of these circumstances and relations is admitted, not for the purpose of contradicting or varying the deed, but to establish an equity superior to its terms."

2) "This is the rule now quite universally held by the courts of equity. A very large number of cases are cited in Hare and Wallace's notes to Thornbrough vs. Baker, in Leading Cases in Equity, (4 Am. Ed.) page 1983, et seq., which sustain it. But this case does not rest upon parol evidence, to show the character of the conveyance. "Where the instruments are of even date on their face, and where, being in terms a conveyance and a contract to reconvey on payment of the money passing between them, they are, in legal contemplation, a mortgage." Harper's Appeal, 14 P. F. Smith 315."

3) "The same court in Carr vs. Carr, 52 N.Y. 251, holds that

• in order to establish that a conveyance, absolute on its face, was intended as a mortgage, and to give it effect as such, it is not material that the conveyance should be made by the debtor, or by him in whom the equity of redemption is claimed to exist."

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First National Bank of Florida v. Ashmead, 23 Fla. 379; 2 So. 657; (Fla. 1887)

The Florida high court made these observations relating to the application of the equitable mortgage doctrine in Florida:

• "Our statute provides that all instruments of writing made for the purpose of securing the payment of money, whether such instruments be from the debtor to the creditor, or from the debtor to some third person in trust for the creditor, shall be deemed mortgages, and be subject to the same rules of foreclosure, restrictions and forms as are or may be prescribed by law in relation to mortgages; and that a mortgage shall be held in our courts to be a specific lien on property for a specific object." McClellan's Digest, pp. 765, 766.

• "Independent of this statute, even parol evidence is admissible in equity to show that a deed of conveyance, absolute upon its face, was intended as a mortgage, and where it is shown that such a conveyance has been executed to secure the payment of money, equity will treat it as a mortgage."

• "The court looks beyond the terms of the instrument to the real transaction, or what was intended to be effected by the parties, and any evidence, whether written or oral, tending to show this, is admissible."

• "The admission of oral testimony for such purpose is not a violation of the rule which precludes such admission for the purpose of varying or contradicting the terms of a written instrument; that rule has reference to the language of which the instrument is the repository, but this permits an inquiry into the objects of the parties in executing and receiving the instrument, and equity exercises its jurisdiction to carry out such object and to prevent fraud and imposition, and to promote justice." Peugh vs. Davis, 96 U. S., 336; Pearce vs. Robinson, 13 Cal., 116.

• "Our statute and the decisions of this court upon it fully establish the rule in favor of such admissibility." Lindsay vs. Matthews, 17 Fla., 585; Shear vs. Robinson, 18 Fla., 379; Franklin vs. Ayer, 22 Fla., 654.

• "Parol evidence is admissible to connect papers, which, together, constitute a deed and defeasance or mortgage, and to show that an instrument bearing a subsequent date to the deed was either executed at the same time, or that its terms and substance were in fact agreed upon at the same time, and, though subsequently reduced to writing, constitute a part of the same transaction with the deed." Franklin vs. Ayer, supra; Jones on Mortgages, § 248.

• "When the instruments connect themselves and show that the purpose was to secure the payment of money, no parol proof is necessary, even if it can be said to be admissible." Franklin vs. Ayer, supra, and 31 Penn. St., 131, 295.

• "In Lindsay vs. Matthews, supra, where the deed was not from the debtor, it was held that the words "whether such instruments of writing be from the debtor to the creditor or from the debtor to some third person," in our statute, are descriptive of certain instruments embraced within the act, but that such words do not affect its application to any instrument conveying property for the purpose of securing the payment of money."

• "The doctrine of Carr vs. Carr, 52 N.Y., 251, is that whenever property is transferred, no matter in what form or by what conveyance as a security for a debt, the transferee takes merely as mortgagee, and has no other rights or remedies than the law accords to mortgages." See also Hooper's Appeal, 64 Penn. St., 315.

• "It is settled that in this State a mortgage does not convey the legal title of land out of the mortgagor, but only creates a specific lien on the property." McMahan vs. Russell, 17 Fla., 698; Berlack vs. Halle, 21 Fla., 236; Franklin vs. Ayer, et al., 22 Fla., 654. See also Brinkman vs. Jones, 44 Wis., 498.

• "This is no less true where the method of mortgaging is an absolute deed of conveyance, made either to the creditor or a third person, with the defeasance resting simply upon verbal proof or upon written evidence connecting itself with the deed or capable of being so connected by oral evidence, than it is as to an ordinary formal mortgage.""

• Any other view would practically ignore the statute."

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Equitable Building and Loan v. King, 48 Fla. 252; 37 So. 181; (Fla. 1904)

The Florida high court made these observations relating to the application of the equitable mortgage doctrine in Florida:

• "[A] deed absolute made for the purpose or with the intention of securing the payment of money is to be deemed merely a mortgage, and under repeated decisions of this court it may be enforced as a mortgage for the debt it was intended to secure, though no mention of the debt is made in the instrument itself, and the evidence of the debt rests in other writings or in parol only."

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Hull v. Burr, 58 Fla. 432; 50 So. 754; (Fla. 1909)

The Florida high court made these observations relating to the application of the equitable mortgage doctrine in Florida:

• "[I]n case of doubt the transaction will be held a mortgage."

• "Gross inadequacy of the consideration is another test which may be applied in determining whether a transaction was intended as a mortgage or an absolute or conditional sale, especially when coupled with the financial embarrassment of the grantor." See 1 Jones on Mortgages, § 329; 27 Cyc. 972 and 1014; Russell v. Southard, 12 Howard (U.S.) 139. We would also refer generally to the discussion and reasoning in Flagg v. Mann, 9 Fed. Cas. No. 4847, which case was approvingly cited by this court in Stockton v. National Bank of Jacksonville, 45 Fla. 590, text 900, 34 South. Rep. 897, text 900; Campbell v. Dearborn, 109 Mass. 130, text 138 et seq.; Hassam v. Barrett, 115 Mass, 256; Plummer v. Ilse, 41 Wash. 5, 82 Pac. Rep. 1009.

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Connor v. Connor, 59 Fla. 467; 52 So. 727; (Fla. 1910)

The Florida high court made these observations relating to the application of the equitable mortgage doctrine in Florida:

• "Under the rules of the common law the right of redemption is inherent in every transaction having the essential features of a mortgage. this right is a highly favored equity and unless it is released to the mortgagee for a consideration, free from fraud and oppression, or in some way waived or lost or barred, it can be cut off only by foreclosure."

• "A deed absolute on its face may by parol evidence be shown to be a mortgage, and in cases of doubt the instrument should be held to be a mortgage. DeBartlett v. DeWilson, 52 Fla. 497, 42 south. Rep. 189; Hull v. Burr, 58 Fla. 432, 50 South Rep. 754; Franklin v. Ayer, 22 Fla. 654.""

• An instrument must be deemed and held a mortgage, whatever may be its form, if, taken alone or in connection with the surrounding facts and attendant circumstances, it appears to have been given for the purpose or with the intention of securing the payment of money, and the mere absence of terms of defeasance cannot determine whether it is a mortgage or not."

• "While an express provision that a contract to reconvey is not to be regarded as an evidence that the conveyance was intended as a mortgage may be of controlling force if it is consistent with the entire transaction, yet if it is not in harmony with all the facts and circumstances showing the intention of the parties, the express provision that it is intended to be a sale and not a mortgage does not determine the matter."

• "If an instrument is a mortgage when executed its character does not afterwards change for once a mortgage always a mortgage is a maxim of the law."

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Stovall v. Stokes, 94 Fla. 717; 115 So. 828; (Fla. 1927)

In holding that a deed was a mortgage, the Florida Supreme Court cited or quoted, with approval, decisions of the U.S. Supreme Court, its own prior precedent, and cases from other states, in setting forth considerations to be taken into account when deciding whether an absolute deed is a mortgage, or whether it is to be respected as an absolute conveyance.

1) Quoting from Alexander v. Rodriguez (aka Villa v. Rodriguez), 79 U.S. 323, 12 Wall. 323, 339, 20 L. Ed. 406 (1870) (available online courtesy of Justia - US Supreme Court Center):

• "To give validity to a sale by a mortgagor to a mortgagee it must be shown that the conduct of the mortgagee was in all things fair and frank and that he paid for the property what it was worth ... He must take no advantage of the fears or poverty of the other party; that the mortgagor knowingly surrendered and never intended to reclaim is of no consequence, if there is vice in the transaction."

• "Where confidential relations exist between a debtor and a creditor and a conveyance is made by the debtor to the creditor it will be treated as a mortgage for the consideration of the deed as a debt; and this is the construction in equity of such a transaction. But the creditor may by affirmative proof rebut this presumptive case by showing that actual negotiations for sale took place and a valid and fair sale for adequate or reasonable price was made and that no advantage was taken of the needy circumstances of the debtor."

2) Quoting from Russell v. Southard, 53 U.S. 139, 12 How. 139, 13 L. Ed. 927 (1851) (case available online courtesy of Justia & Oyez - US Supreme Court Center):

• "It is the doctrine of this Court that when it is alleged and proved that a loan on security was really intended and the defendant sets up the loan as a payment of purchase money, and the conveyance as a sale, both fraud and vice in the consideration are sufficiently averred and proved to require a court of equity to hold the transaction to be a mortgage ... The fact that the real transaction between the parties was a borrowing and lending will, whenever, or however, it may appear, show that a deed absolute on its face was intended as a security for money; and whenever it can be ascertained to be a security for money it is only a mortgage, however artfully it may be disguised."

3) Citing its own prior precedent in Conner v. Conner, 59 Fla. 467, 52 Sou. 727, the Florida high court stated:

• "A deed absolute on its face may by parol evidence be shown to be a mortgage, and in cases of doubt the instrument should be held to be a mortgage. DeBartlett v. Wilson, 52 Fla. 497, 42 South. Rep. 189; Hull v. Burr, 58 Fla. 432, 50 South. Rep. 754; Franklin v. Ayer, 22 Fla. 654 ... An instrument must be deemed and held a mortgage, whatever may be its form, if, taken alone or in connection with the surrounding facts and attendant circumstances, it appears to have been given for the purpose or with the intention of securing the payment of money, and the mere absence of terms of defeasance cannot determine whether it is a mortgage or not."

4) Quoting from Skeels v. Blanchard, the Supreme Court of Vermont, 81 Atlantic 913:

• "When it is once established that a mortgage exists, the equitable right of redemption attaches to the transaction as an inseparable incident. No contemporaneous understanding, however formally expressed or artfully concealed, will be permitted to deprive the debtor of this right. It can be defeated only by a subsequent agreement upon a further consideration."

5) Quoting from Lynch v. Lynch, a California appellate court case, reported 135 Pacific 1101:

• "Inadequacy of consideration, where shown, is an element which is always given great weight by courts of equity in determining whether a transaction involving the transfer of valuable property by one to another is unconscientious or constructively fraudulent or perhaps as tending to prove actual fraud. Indeed, it has always been looked upon by such courts as sufficient to create a strong suspicion that the transaction has not been characterized by good faith in the party securing benefits thereby and to cast upon him the burden of making it perfectly clear that it was in all respects honest and fair and just to the grantor. And where to the circumstances of inadequacy of consideration is added the circumstance that the parties to the transaction stand in a confidential relation toward each other or are so connected in blood as that the presumption arises that such a relation exists between them ( Nobles v. Hutton, 7 Cal. App. 14, 23, 93 Pac. 289, and cases therein cited), a case for the invalidation of the contract or transaction is, in the eyes of a court of equity, well-nigh complete."

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McKinney v. Gainey, 96 Fla. 547; 118 So. 917; (Fla. 1928)

• "The question, whether a deed which is absolute in form is to be taken as a mortgage, depends upon the intention of the parties in regard to it at the time of execution. This may be ascertained from the paper itself, or the instrument in connection with contemporaneous writings or agreements concerning the subject matter, or by the aid of extraneous evidence which will determine the question. Holmberg v. Hardee, 108 So. R. 211; 27 Cyc. 1007. The attitude of the parties relative to the conveyance after its execution may also be considered." Holmberg v. Hardee supra.

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Howard v. Goodspeed, 101 Fla. 699, 135 So. 294 (Fla. 1931)

(This case added to the compilation on 12-16-07)

In this case, the property conveyed by the owner thereof in exchange for a loan was:

• not real estate conveyed by a deed, absolute in form (which is typically the situation in most of these equitable mortgage cases), but rather,
• a mortgage note by the holder thereof and which was conveyed by an assignment of mortgage, absolute in form.

The decision in this case supports the proposition that when a conveyance of property, absolute in form, is made in exchange for money intended to be a loan, the analysis of whether the transaction is a "true sale" or a "loan" is the same, irrespective that the property conveyed is something other than real property.

In ruling that the arrangement in this case was a loan, and not a true sale, the court made these observations (bold text is my emphasis):

• There would seem to be no doubt that an assignment of mortgage, though absolute in form, if given for the purpose or with the intention of securing the payment of money, is governed by the same regulations, restraints and powers as are recognized in relation to deeds of conveyance, bills of sale and other instruments of writing given for the purpose or with the intention of securing the payment of money. Section 5724 C.G.L., 3836 R.G.S., Hull v. Burr, 50 So. 754, 58 Fla. 432.

• An assignment of mortgage, absolute in form, may be shown by parol evidence not to be a sale, but only collateral security for a loan of money, to the same extent that a deed of conveyance, absolute in form, may be shown by parol evidence not to have been a conveyance, but security only for the repayment of a sum of money. Jones on Mortgages (8th Ed.) par. 407, page 508. Upon a like principle transfer of a life insurance policy as security for a debt has been treated as subject to redemption. Pittman vs. Milton, 69 Fla. 304; 68 So. 658.

• The rule is well established that where a conveyance of property is absolute upon its face, the burden of showing that it was, when executed, intended to be a mortgage to secure the payment of money is upon the grantor. Elliott v. Conner, 63 Fla. 408, 58 So. 241.

• But as said in that case:
  "If there be a doubt as to the real purpose for which the deed was executed by Mrs. Connor, and therefore uncertainty as to whether it is a conveyance or a mortgage, the instrument under the circumstances of this case should pursuant to the statute be deemed and held a mortgage, since the payment of all of C. E. Connor's indebtedness to Elliott would apparently do complete justice to Elliott, and Mrs. Conner should have the benefit of her own property after the indebtedness she desired to secure is paid in full."

• In the case of Pittman v. Milton, supra, it was stated in the twelfth head note:
  "If there be a reasonable doubt as to whether a transfer of property is a mortgage or an absolute assignment, the doubt should be resolved in favor of its being a mortgage, when there was an existing debt."

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Pineapple Orange Co. v. White, 113 Fla. 774, 152 So. 863 (Fla. 1934)

(This case added to the compilation on 12-16-07)

Among other points, the court in this case addressed the following:

1. In a situation where, if after analyzing all the facts and circumstances that surround a transaction, there is still doubt as to whether an absolute conveyance in exchange for money is a true sale, or merely a secured loan, the courts will lean toward recharacterizing the transaction as a secured loan, and
2. Regarding the use of parol evidence to recharacterize the form of a transaction, (a) parol evidence is clearly inadmissible to contradict the terms of the writings, if to do so would destroy their necessary character as a mortgage, and (b) parol evidence is always admissible to contradict the terms of the writings, if to do so would result in the determination that the actual character of the instruments constitute a mortgage.

The court made the following observations in this regard (bold text is my emphasis):

To determine the controlling question in this case we must look to the contract and gather the intent of the parties at the time same was made. Mr. Pomeroy in his work on Equity Jurisprudence, 3rd Ed., Section 1195, says:

• "Whether any particular transaction does thus amount to a mortgage or to a sale with a contract of repurchase, must, to a large extent, depend upon its own special circumstances; for the question finally turns, in all cases, upon the real intention of the parties as shown upon the face of the writings, or as disclosed by extrinsic evidence. A general criterion, however, has been established by an overwhelming concensus of authorities, which furnishes a sufficient test in the great majority of cases; and whenever the application of this test still leaves a doubt the American courts, from obvious motives of policy, have generally leaned in favor of the mortgage. This criterion is the continued existence of a debt or liability between the parties, so that the conveyance is in reality intended as a security for the debt or indemnity against the liability. If there is an indebtedness or liability between the parties, either a debt existing prior to the conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other cause, and this debt is still left subsisting, not being discharged or satisfied by the conveyance, but the grantor is regarded as still owing and bound to pay it at some future time, so that the payment stipulated for in the agreement to reconvey is in reality the payment of this existing debt, then the whole transaction amounts to a mortgage, whatever language the parties may have used, and whatever stipulations they may have inserted in the instruments. On the contrary, if no such relation whatsoever of debtor and creditor is left subsisting, then the transaction is not a mortgage, but a mere sale and contract of repurchase. The writings may show on their face that the relation of debtor and creditor still continues, and that its existence and consequences are contemplated by the parties; or they may entirely fail to show any such fact and may consist simply of an absolute conveyance and of a naked agreement to reconvey. While in the former case parol evidence is clearly inadmissible to contradict the terms of the writings, and to destroy their necessary character as a mortgage, in the latter case extrinsic parol evidence is always admissible to show the real situation of the parties, the existence of a debt, their intention to secure payment of that debt, and the actual character of the instruments as constituting a mortgage." See also Holmberg, et al., v. Hardee, et al., 90 Fla. 787, 108 Sou. 211.

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Gross v. Hammond, 123 Fla. 471; 167 So. 373 (Fla. 1936)

The transaction involved in this case was a "friendly foreclosure" where it was agreed in advance of a foreclosure sale, that the foreclosing mortgagee would reconvey title to the owner-mortgagor once the sale was complete. The transaction was treated, in essence, as a conveyance of title by a grantor in default on an existing mortgage to the grantee-mortgagee, with a concurrent agreement that upon the payment of the amount of the mortgage debt, the grantee-mortgagee in that deed would reconvey the property to the grantor. In ruling that the transaction was to be treated as a mortgage, the court quoted from its prior decision in Stovall v. Stokes, 94 Fla. 717, 115 Sou. 282:

• "A deed absolute on its face may by parol evidence be shown to be a mortgage, and in cases of doubt the instrument should be held to be a mortgage."

• "An instrument must be deemed and held a mortgage, whatever may be its form, if, taken alone or in connection with the surrounding facts and attendant circumstances, it appears to have been given for the purpose or with the intention of securing the payment of money, and the mere absence of terms of defeasance cannot determine whether it is a mortgage or not."

• "When it is once established that a mortgage exists the equitable right of redemption attaches to the transaction as an inseparable incident. No contemporaneous understanding, however, formally expressed or artfully concealed, will be permitted to deprive the debtor of this right. It can be defeated only by a subsequent agreement upon a further consideration."

• "The right of a mortgagee to become the purchaser of the equity is unquestioned, but the relations of the parties are such that the transaction will be carefully scrutinized."

• "A conveyance of mortgaged premises by the mortgagor to the mortgagee will be regarded as a mere change in the form of the security, unless it clearly and unequivocally appears that both parties intended that it should operate as a bar to the equity of the redemption."

• "The rule which requires more than a preponderance of evidence to establish an absolute deed as a mortgage cannot be applied to a deed covering premises already mortgaged by the grantor to the grantee without overruling a long established rule pertaining to the equity of redemption."

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Brumick v. Morris, 178 So. 564 (Fla. 1938)

The Florida high court made these observations relating to the application of the equitable mortgage doctrine in Florida:

• "An important, if not a controlling guide in determining the intention of the parties is the purpose sought to be accomplished by them. Purpose is usually an unerring indication of intention."

• "Under our statute, an attempted agreement between the parties that an instrument shall not operate as a mortgage but as an absolute conveyance, when wholly inconsistent with the surrounding facts and attendant circumstances, does not make absolute a conveyance given 'for the purpose or with the intention of securing the payment of money,' whatever may be the form of the conveyance, and the mere absence of defeasance does not alone determine the matter. Pittman v. Milton, 69 Fla. 304, 68 South. Rep. 658; Connor v. Connor, 59 Fla. 467, 52 South. Rep. 727; Willy-Gabbett Co. v. Williams, 53 Fla. 872, 42 South. Rep. 910; Hull v. Burr, 58 Fla. 432, 50 South. Rep. 754. If, in view of all the circumstances, the transaction resolves itself into security for payment of money, it is a mortgage." Elliott v. Connor, 63 Fla. 408, 58 South. Rep. 241, 11 C.J. 406.

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Marcus v. Hill, 142 Fla. 306; 195 So. 170; (Fla. 1939)

The Florida high court made these observations relating to the application of the equitable mortgage doctrine in Florida:

• "This Court has construed the above statute many times and in effect has held that an instrument given for the purpose or with the intention of securing the payment of money is a mortgage, Equitable Building & Loan Assn. v. King, 48 Fla. 252, 37 So. 181; Bartlett v. De Wilson, 52 Fla. 497, 42 So. 189; Elliott v. Connor, 63 Fla. 408, 58 So. 241; Tilman v. Niemira, 113 Fla. 774, 152 So. 863, and if an instrument is a mortgage when executed its character does not change, for once a mortgage always a mortgage is a maxim of law." Connor v. Connor, 59 Fla. 467, 52 So. 727; Elliot v. Connor, supra; Pittman v. Milton, 69 Fla. 304, 68 So. 658; Stovall v. Stokes, 94 Fla. 717, 115 So. 828.

• "Thus, it only becomes necessary for us to ascertain from the evidence the intention of the parties at the time the deed absolute in form was executed and delivered to defendant. In doing so the Court may take into consideration the paper itself, or the instrument in connection with contemporaneous writings or agreements concerning the subject matter, or by the aid of extraneous evidence which will determine the decision of the question. The attitude of the parties relative to the conveyance after its execution may also be considered." Holmberg v. Hardee, 90 Fla. 787, 108 So. 211; Stovall v. Stokes, supra; Brumick v. Morris, 131 Fla. 46, 178 So. 564.

• "The rule is well settled that where a conveyance of property is absolute on its face, the burden of showing that it was when executed intended to be a mortgage is upon the grantor." Elliott v. Connor, 63 Fla. 408, 58 So. 241; Mitchell v. Mason, 65 Fla. 208, 61 So. 579; Stovall v. Stokes, 94 Fla. 717, 115 So. 828; Howard v. Godspead, 101 Fla. 699, 135 So. 294; Brumick v. Morris, 131 Fla. 46, 178 So. 564.

• "However, only a preponderance of evidence is required to establish that an absolute deed of mortgaged premises to a mortgagee is a mortgage, Stovall v. Stokes, supra, and
  in cases of doubt as to whether the parties intended the transaction to be an absolute conveyance or a mortgage the instrument will be held a mortgage." Connor v. Connor, 59 Fla. 467, 52 So. 727; Hull v. Burr, 58 Fla. 432, 50 So. 754; Stovall v. Stokes, supra.

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Rosenthal v. Le May, 72 So. 2d 289 (Fla. 1954)

• "Whether a transaction is in fact a sale or a mortgage depends upon the intention of both parties as shown by all the surrounding circumstances." Holmberg v. Hardee, 90 Fla. 787, 108 So. 211.

• "In making this determination the attitude of the parties relative to the conveyance after its execution may be considered, Holmberg v. Hardee, supra, and an express writing that a transaction is a sale is not controlling unless consistent with the entire picture. Compare Connor v. Connor, 59 Fla. 467, 52 So. 727, where we held a deed to be a mortgage notwithstanding express writings otherwise, with Brumick v. Morris, 131 Fla. 46, 178 So. 564, where we held the transaction a sale in accordance with language of written instruments."

• "Inadequacy of price also may be considered but the presence of that factor does not per se constitute a ground to avoid the transaction." Chaires v. Brady, 10 Fla. 133. "An owner has a right to make a conditional sale at a reduced price and where his intention to do that is clear such action is binding upon him." See Brumick v. Morris, supra.

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McLendon v. Davis, 131 So. 2d 765; (Fla. App. Ct., 3rd Dist. 1961)

• "Ultimately the issue to be determined is the intention of the parties. This is done by considering the entire transaction and the circumstances, not merely the agreement and instrument of conveyance itself." Connor v. Connor, 59 Fla. 467, 52 So. 727; Gross v. Hammond, 123 Fla. 471, 167 So. 373; Markell v. Hilpert, 140 Fla. 842, 192 So. 392. See Holmberg v. Hardee, 90 Fla. 787, 108 So. 211; Rosenthal v. LeMay, Fla.1954, 72 So.2d 289, 44 A.L.R.2d 336; Thomas v. Thomas, Fla.1957, 96 So.2d 771;

• "[a]nd in cases of doubt, the deed should be construed to be a mortgage." Connor v. Connor, supra; Stovall v. Stokes, 94 Fla. 717, 115 So. 828; Marcus v. Hull, 142 Fla. 306, 195 So. 170; and Thomas v. Thomas, supra.

• "An element that must be considered is the distressed circumstances of the appellant as well as the existing relationship of debtor and creditor." See Stovall v. Stokes, supra. "In addition, the inadequacy of price is a relative circumstance." See Markell v. Hilpert, supra.

• "In applying the rule in doubtful cases, the law will resolve the doubt as to the intent of the parties in the light of the advantage the creditor always has over the debtor whose property he holds, and will give the debtor the benefit of the doubt and hold his equity of redemption to be still existing. Certainly complete justice is done because the creditor's advances are secured by the debtor's property and the debtor has the opportunity of full redemption by payment."

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Barr v. Schlarb, 314 So. 2d 609; (Fla. App. Ct., 1st Dist. 1975)

In discussing Florida's equitable mortgage statute, Section 697.01, the court observed:

• "Florida courts have liberally interpreted the foregoing statute. ( Torreyson v. Dutton, Sup.Ct. Fla.1940, 145 Fla. 169, 198 So. 796) When in doubt, courts have leaned in favor of construing the deed as a mortgage and have taken into consideration the entire transaction and circumstances in addition to the agreement and instrument of conveyance itself. ( McLendon v. Davis, Fla.App.3rd 1961, 131 So.2d 765) Although it is the grantor who has the initial burden of proof in showing that a conveyance of property that is absolute on its face was intended to be a mortgage when executed ( Howard v. Goodspeed, Sup.Ct. Fla.1931, 101 Fla. 699, 135 So. 294), the grantor satisfies this burden by meeting the preponderance of evidence test. (Marcus v. Hull, 1940, 142 Fla. 306, 195 So. 170) "

(This excerpt added 4-25-07) Florida equitable mortgage alpha