What follows below are excerpts from a number of Wisconsin Supreme Court case in which the court attempts to set forth what general rules of Wisconsin case law are to be applied when determining whether a deed given by a grantor to a grantee in exchange for money should be treated as an equitable mortgage, or whether the transaction should be treated as an outright sale.
Original text from court cases is broken up for ease of reading. Bold text is my emphasis.
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Kent v. Agard, 24 Wis. 378 (1869)
(Note: This case involved an ejectment action where the plaintiff, a person not in possession of the subject property, was claiming title to said property under the rights of a prior grantor of a deed to the property that was given as security for a debt to a prior grantee. The defendants in the case were in possession of the subject property and claimed title under the heirs of the deceased prior grantee of the deed received as security for the debt from the prior grantor.)
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1) "The plaintiff should have been allowed to show by parol that the absolute deed given by Cown [prior grantor] to Lasley [prior grantee] 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 can 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 a deed is a mortgage only, both at 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."
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Starks v. Redfield, 52 Wis. 349, 9 N.W. 168 (1881)
1) "In Carr v. Carr, 52 N.Y. 251, it was held that
- "in order to establish that a conveyance, absolute upon 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. Whenever property is transferred, no matter in what form or by what conveyance, as security for a debt, the transferee takes merely as mortgagee, and has no other rights or remedies than the law accords to mortgagees. Accordingly, held, that where D. contracted for the purchase of certain premises, and had made partial payments thereon, and plaintiff, at the request of D., advanced the balance of the purchase money, and as security for the sum so loaned took a conveyance from the vendor, D. taking possession of the premises and occupying them as his own, and making subsequent payments to plaintiff, the latter was simply a mortgagee, and could not maintain ejectment." "
2) "In the opinion of the court, ALLEN, J., said:
- "In truth, the consent of D. was to a conveyance to the plaintiff in such form only as to secure the payment of the advance; and, although he may have mistaken the law and his legal rights, the purpose being lawful, he has not lost his title as against the grantee seeking to make a fraudulent use of the grant." Page 261. "
3) "The case is in harmony with the decisions in this court."
Rogan v. Walker, 1 Wis. 527; Sweet v. Mitchell, 15 Wis. 641; Spencer v. Fredendall, 15 Wis. 666; Kent v. Agard, 24 Wis. 378; Wilcox v. Bates, 26 Wis. 465; Andrews v. Jenkins, 39 Wis. 476; Spear v. Evans, 51 Wis. 42, 8 N.W. 20.
4) "In Sweet v. Mitchell, a judgment creditor bid in the lands of his debtor upon the execution sale, with the verbal agreement to reconvey them to him on payment of a certain sum, which was advanced by a third person, who took the conveyance to himself upon a verbal agreement with the debtor that he would hold the land as security for what the debtor owed him; and it was held that parol proof of the facts was admissible to show that the transaction was a mortgage."
5) "In Spencer v. Fredendall, the latter purchased the former's homestead at a foreclosure sale, upon an oral agreement that he would hold it as security for the repayment of the money advanced by him; and it was held that, on payment by Spencer of the money advanced, he was entitled to a reconveyance."
6) "In Wilcox v. Bates, Naiden recovered judgment of foreclosure and sale against Wilcox, and on the foreclosure sale the lands were bid in by Bates and Harvey, in pursuance of a parol agreement between them and Wilcox that they would hold the title thus obtained as security for the money advanced on the purchase; and this court held the transaction to be merely that of a loan of money and security by way of mortgage."
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1) "Whether a given written instrument constitutes a conditional sale, a conveyance, or a mortgage, is a question which has often perplexed the courts."
2) "When the language of the instrument is
equivocal, the intention of the parties, as evinced by the whole transaction and the attending circumstances,
seems to be the true criterion."
Goodman v. Grierson, 2 Ball & Beatty 278; Williams v. Owen, 5 Mylne & Craig 306; Clark v. Henry, 2 Cow. 324; S. C., affirmed, 7 Johns. Ch. 43; Edrington v. Harper, 26 Ky. 353, 3 J.J. Marsh. 353; Hughes v. Sheaff, 19 Iowa 335; Cornell v. Hall, 22 Mich. 377; Rich v. Doane, 35 Vt. 124; Pitts v. Cable, 44 Ill. 103.
3) "Thus, in Goodman v. Grierson, supra, Lord Chancellor MANNERS, in answer to the contention that the transaction could not be a mortgage because there was no bond collateral to the deed, nor any covenant to pay, said:
- "It is quite clear that if the intention were that it should be a mortgage, the absence of a covenant and collateral bond would not make it the less so. This was decided in King v. King, 3 P. Wms. 358, where Lord TALBOT said it did not vary the transaction, for that every mortgage implied a loan, and every loan implied a debt, for which the mortgagor's personal estate was liable; and although an action of covenant would not lie, still it might be a mortgage." "
4) "So Lord Chancellor COTTENHAM, in Williams v. Owen, supra, said:
- "That this court will treat a transaction as a mortgage, although it was made so as to bear the appearance of an absolute sale, if it appear that the parties intended it to be a mortgage, is no doubt, true; but it is equally clear that if the parties intended an absolute sale, a contemporaneous agreement for a repurchase, not acted upon, will not, of itself, entitle the vendor to redeem." "
5) "In Edrington v. Harper, supra, Chief Justice ROBERTSON, of Kentucky, said:
- "It is often very difficult to discriminate between mortgages and conditional sales. Every case must be determined by a consideration of its own peculiar circumstances. The intention of the parties is the only true and infallible test; that intention is to be collected from the condition or conduct of the parties, as well as from the face of the written contract." "
6) "This was substantially adopted by the supreme court of Iowa in Hughes v. Sheaff, supra, where Chief Justice WRIGHT added:
- "And hence the court must take into consideration the price, the circumstances, all the antecedent facts, the situation of the parties, and from these determine the true nature of the transaction. These differ, as we know, as the names of the parties differ, and they so influence the determination in each case that it is next to impossible to deduce from them any general, safe, and comprehensive rule." "
7) "In Cornell v. Hall, supra, it was held by the supreme court of Michigan that "the only safe criterion in determining controversies arising out of such transactions is the intention of the parties, to be ascertained by considering their situation and the surrounding facts, as well as their writings." "
8) "Where the language of the instrument is equivocal, and the relation of debtor and creditor is not created by the transaction and never existed, and the vendee takes and retains possession of the property, and its value is not perceptibly in excess of the consideration paid, and there is nothing to indicate an intent to transfer the property as a mere security, the transaction has usually been held to be a conditional sale."
Goodman v. Grierson, supra; Williams v. Owen, supra; Perry v. Meddowcroft, 4 Beav. 197; Conway v. Alexander, 11 U.S. 218, 7 Cranch 218, 3 L. Ed. 321; Holmes v. Grant, 8 Paige 243; Baker v. Thrasher, 4 Denio 493; Saxton v. Hitchcock, 47 Barb. 220; Hughes v. Sheaff, supra; Flagg v. Mann, 14 Pick. 467; Woodward v. Pickett, 8 Gray 617; Rich v. Doane, supra; West v. Hendrix, 28 Ala. 226; Pearson v. Seay, 35 Ala. 612; Logwood v. Hussey, 60 Ala. 417; Ford v. Irwin, 18 Cal. 117; Henley v. Hotaling, 41 Cal. 22; Slowey v. McMurray, 27 Mo. 113; McNamara v. Culver, 22 Kan. 661; Hoopes v. Bailey, 28 Miss. 328; Smith v. Crosby, 47 Wis. 160, 2 N.W. 104. But in several of these cases, as in McNamara v. Culver, it is held that "the test is the existence or non-existence of a debt. If, after the transaction, no debt remains, there is no mortgage, but only a conditional sale." "
9) "On the other hand, where the relation of debtor and creditor is created by the transaction, or previously existed, and by express language
or fair implication continues, and the
possession is retained by the vendor, and the
value of the property is greatly in excess of the consideration paid, the transaction has usually been held to be a mortgage.
Clark v. Henry, supra; Roach v. Cosine, 9 Wend. 227; Murray v. Walker, 31 N.Y. 399; Horn v. Keteltas, 46 N.Y. 605; Carr v. Carr, 52 N.Y. 251; Russell v. Southard, 53 U.S. 139, 12 HOW 139, 13 L. Ed. 927; Villa v. Rodriguez, 79 U.S. 323, 12 Wall. 323, 20 L. Ed. 406; Cornell v. Hall, supra; Cooper v. Brock, 41 Mich. 488, 2 N.W. 660; Rice v. Rice, 4 Pick. 349; Eaton v. Green, 22 Pick. 526; Murphy v. Calley, 1 Allen 107; Gifford v. Ford, 5 Vt. 532; Blodgett v. Blodgett, 48 Vt. 32; Pearson v. Seay, 38 Ala. 643; Wilson v. Giddings, 28 Ohio St. 554; Plato v. Roe, 14 Wis. 453; Wilcox v. Bates, 26 Wis. 465; Ragan v. Simpson, 27 Wis. 355; Musgat v. Pumpelly, 46 Wis. 660, 1 N.W. 410; Starks v. Redfield, 52 Wis. 349, 9 N.W. 168.
10) "In
Russell v. Southard, supra, Mr. Justice CURTIS said:
- "The deed and memorandum certainly import a sale,"
and yet from all the evidence in that case they were held to constitute a mere security, and hence a mortgage."
11) "In Wilson v. Giddings, supra, the fact that the grantor continued in possession, controlling, using, and improving the property as his own, and receiving and using the rents and profits thereof as his own, and paying the taxes thereon, were regarded as significant."
12) "Once a mortgage, always a mortgage, is the rule generally recognized in the cases. So the want of a personal agreement by the borrower to repay the money is not conclusive that the conveyance was not intended as a mortgage, but merely a circumstance to be considered with the other evidence in the case. This was held in Horn v. Keteltas, supra."
13) "Many other cases might be cited to the same effect. The difficulty of discriminating between mortgages and conditional sales grows out of the fact that either through a misapprehension of the law by one or both of the parties, or a design on the part of one or both to conceal the real purpose of the transaction, it is often found to be mixed and confused, and hence containing some of the incidents of a mortgage, and also of a conditional sale."
14) "As a way out of this difficulty, courts have generally held the transaction to be a mortgage in all doubtful cases, because the ends of justice are the more apt to be attained, and fraud and oppression more likely to be prevented, by such a construction.
Russell v. Southard, supra; Edrington v. Harper, supra; Hughes v. Sheaff, supra; Cornell v. Hall, supra; Rich v. Doane, supra."
15) "From a careful examination of the authorities cited, it would seem that the precise language employed in the writing is not always conclusive. Courts of equity more readily yield to the real nature of the transaction, as shown by all the evidence and circumstances in the case, including the relative situation, and the precedent, accompanying, and subsequent acts of the parties."
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Hoile v. Bailey, 58 Wis. 434, 17 N.W. 322 (1883)
1) "It is well settled that where the owner of the equity of redemption procures another to advance money and bid in his property on sheriff's sale, and take the title thereof for the benefit of such owner, with the understanding that he will reconvey the same to such owner on repayment of the money so advanced and interest, the transaction in equity constitutes a mortgage."
Sweet v. Mitchell, 15 Wis. 641; Spencer v. Fredendall, 15 Wis. 666; Wilcox v. Bates, 26 Wis. 465.
2) "The same principle has been applied to a case where lands were purchased from a third person for the use and benefit of one in possession." Starks v. Redfield, 52 Wis. 349, 9 N.W. 168.
3) "Whenever property is transferred, no matter in what form or by what conveyance, as the mere security for a debt, the transferee takes merely as a mortgagee, and has no other rights or remedies than the law accords to mortgagees." Id., 352.
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Scheiber v. Le Claire, 66 Wis. 579, 586, 29 N.W. 570 (1886)
Re: Equitable Mortgage Doctrine and Usury.
(Editorial Note: This case involved an endeavor between two people where one party - "the investor" - put up all the money to acquire land and took title to the entire property. The other party agreed to pay back all of the investor's money, with interest. Upon fully reimbursing investor for his entire cash outlay, plus interest, second party would be entitled to receive a conveyance of 2/3 of the subject land, with the investor reserving unto himself a 1/3 interest. In addition, the second party received from the investor an option to buy the other 1/3 for an additional amount, over and above what second party was to pay for the other 2/3 portion of the land, plus interest. The court proceeded to treat both transactions as equitable mortgages (ie. secured loans), and upon so finding, ultimately ruled that the entire arrangement violated the Wisconsin usury laws then in effect. For the specfic details, please refer to the case.)
1) "It is well settled that
- "whenever property is transferred, no matter in what form or by what conveyance, as the mere security for a debt, the transferee takes merely as a mortgagee, and has no other rights or remedies than the law accords to mortgagees." Hoile v. Bailey, 58 Wis. 434, 17 N.W. 322; Starks v. Redfield, 52 Wis. 349, 9 N.W. 168, and cases there cited; Howe v. Carpenter, 49 Wis. 697, 6 N.W. 357."
2) "Accordingly it has often been held by this court, in the cases there referred to, that where the owner of the equity of redemption procures another to advance money, and bid in his property on sheriff's sale, and take the title thereof in his own name, with the understanding that he will reconvey the same to such original owner on repayment of the money so advanced and interest, the transaction is in equity a mortgage. The same principle has been applied where the lands had been purchased from a third person for the use and benefit of one in possession, with an understanding that they should be reconveyed on payment of the purchase price. Ibid."
3) "In Rockwell v. Humphrey, supra, the authorities are classified, showing that, whenever the language of the instrument is equivocal, the question is always one of intention; and numerous cases are cited, both English and American, to the point that
- "the want of a personal agreement by the borrower to repay the money is not conclusive that the conveyance was not intended as a mortgage, but merely a circumstance to be considered with the other evidence in the case." "
4) "It is there said that
- "where the relation of debtor and creditor is created by the transaction, or previously existed and by express language or fair implication continues, and the possession is retained by the vendor, and the value of the property is greatly in excess of the consideration paid, the transaction has usually been held to be a mortgage." "
5) "Here, as we have seen, the relation of debtor and creditor was created."
6) "The estimated value of the land was greatly in excess of the purchase price paid."
7) "The defendant, in effect, went into the possession. The plaintiff was not only to have one third of all the land, but his money back, with interest, after the end of the year."
8) "But it is unnecessary to discuss questions of law which, in a long series of cases, commencing in 1 Wis., have been discussed so often and so fully by the different members of this court as to leave nothing unsaid on the subject."
9) "We must hold that each of the transactions stated was, in legal effect, to secure the repayment of the moneys advanced by the plaintiff, and hence an equitable mortgage. Such being the nature of the contracts which the plaintiff made with the defendant, we must now consider the legal consequences which must necessarily follow."
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Hunter v. Maanum, 78 Wis. 656; 48 N.W. 51; (Wis. 1891)
See Equitable Mortgage Cases - Wisconsin - Part 2
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Phelan v. Fitzpatrick, 84 Wis. 240, 54 N.W. 614 (Wis. 1893)
1) "It is well settled that whenever property is transferred, no matter in what form or by what conveyance, as mere security for a debt, whether from the debtor or from some other person at his request, the person to whom the transfer is made takes merely as a mortgagee, and has no other rights or remedies than the law accords to mortgagees." Scheiber v. Le Claire, 66 Wis. 579, 29 N.W. 570.
2) "And so, also, where the owner of the equity of redemption procures another to advance money to bid in his property on sheriff's sale, and take a title thereof for the benefit of such owner, with the understanding that he will reconvey the same to him on repayment of the money so advanced, the transaction, in equity, constitutes a mortgage." Hoile v. Bailey, 58 Wis. 434, 17 N.W. 322; Swift v. State L. Co. 71 Wis. 476, 37 N.W. 441.
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Kunert v. Strong, 103 Wis. 70, 79 N.W. 32 (1899)
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1) "It is true that a deed absolute in form may be shown to have been executed as a mere security for a debt, and will then be construed as a mortgage; and it is also true that, where the relation of mortgagor and mortgagee is shown to have once existed, the courts will scrutinize closely any transaction between the parties by which the absolute title has been transferred to the mortgagee, and the equity of redemption extinguished, to see that advantage has not been taken of the necessities of the debtor, and that the transaction was based upon a sufficient consideration."
2) "But this does not mean that the parties may not, by fair agreement, thus extinguish the mortgage, and substitute therefor a simple option to purchase. The intention of the parties is the real criterion as to the true nature of the transaction."
3) "If no unconscionable advantage is taken, and the debt is released in consideration of the conveyance of the property, the fact that there is a contract to reconvey upon certain conditions, there being no obligation on the part of the former mortgagor to perform the conditions, does not constitute the transaction a mortgage. 1 Pingree, Mortgages, §§ 92, 96."
4) "In such case, the question whether the mortgage relation still continues will be determined from a consideration of all the evidence in the case which throws light on the intention of the parties, and the fact that the debt is extinguished upon a fair and adequate consideration will be a very strong, though not always a conclusive, circumstance against the theory of a still existing mortgage. 1 Pingree, Mortgages, § 96; Smith v. Crosby, 47 Wis. 160; Rockwell v. Humphrey, 57 Wis. 410, and cases cited in opinion; Horn v. Keteltas, 46 N.Y. 605.
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Smith v. Pfluger, 126 Wis. 253, 105 N.W. 476 (1905)
1) "The mere form of an instrument cuts but very little figure in respect to whether it is enforceable as a mortgage or not upon its character being called in question in a legal or equitable action, as those terms are used under our system."
2) "The purpose of the instrument is the controlling feature under all circumstances. If that is security and the facts of the matter are established in any action involving the subject, the instrument is treated as a mortgage and nothing else."
Starks v. Redfield, 52 Wis. 349, 9 N.W. 168; Hoile v. Bailey, 58 Wis. 434, 17 N.W. 322; Schriber v. LeClair, 66 Wis. 579, 29 N.W. 570, 889; McCormick v. Herndon, 86 Wis. 449, 56 N.W. 1097; Schierl v. Newburg, 102 Wis. 552, 78 N.W. 761; Cumps v. Kiyo, 104 Wis. 656, 80 N.W. 937.
3) "In the majority of instances here and elsewhere, which have been reported in the published reports, where the rule permitting admission of parol evidence to show that an instrument purporting on its face to be an absolute deed or bill of sale, to have been intended by the parties thereto to be a mortgage, the law in that regard was applied in cases formerly cognizable only in courts of equity and expressions were used well calculated to mislead one stopping short of a thorough study of the subject into the belief that a court of equity only can give effect to the true purpose of the instrument. The contrary has been established here by a long line of decisions."
4) "The following are but a few of them:
Kent v. Agard, 24 Wis. 378; Andrews v. Jenkins, 39 Wis. 476; Brinkman v. Jones, 44 Wis. 498; Howe v. Carpenter, 49 Wis. 697, 6 N.W. 357; Dobbs v. Kellogg, 53 Wis. 448, 10 N.W. 623; Manufacturers' Bank v. Rugee, 59 Wis. 221, 18 N.W. 251; Lamson v. Moffat, 61 Wis. 153, 21 N.W. 62; Gettelman v. Commercial Union Assur. Co. 97 Wis. 237, 72 N.W. 627; McCormick v. Herndon, supra; Jordan v. Estate of Warner, 107 Wis. 539, 550, 83 N.W. 946."
5) "In Howe v. Carpenter, supra, the court laid down the rule thus:
- "Under the repeated decisions of this court . . . it is held that . . . no matter what the nature of the conveyance may be, which is given . . . as security . . . when the evidence, either written or parol, establishes the fact that the relation of mortgagor and mortgagee exists between the parties, the right of the former is limited to a mere mortgage interest." "
6) "In Kent v. Agard, supra, the point was made that equity jurisdiction only was competent to give effect to a written instrument as a mortgage contrary to its letter, and the court speaking by Mr. Justice PAINE said:
- "I see no reason why" the real character of the instrument intended as a mortgage cannot be shown regardless of its letter "in an action to recover possession of real estate. When the facts are proved, such a deed is a mortgage only, both at 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." "
7) "There are authorities, it is true, making a distinction in regard to the rule under discussion as between a conveyance of land and one of personalty, but no such distinction is recognized here ( Manufacturers' Bank v. Rugee, supra), nor by courts generally. Herman, Chattel Mortgages, § 21, and cases cited in the note."
8) "It should be said, perhaps, that there is ample authority sustaining the general proposition contended for by counsel for appellant. See Jones, Chattel Mortgages (4th ed.) § 21; 20 Am. & Eng. Ency. of Law (2d ed.) 935-949. But the contrary has so long prevailed here and has been so frequently and so recently treated at length in our decisions that there is little need of going astray in respect to the matter. In Jordan v. Estate of Warner, supra, the subject was treated thus:
- "The great weight of authority in this country, where the subject is not regulated by statute, including that of the supreme court of the United States, is that, whatever form a conveyance of real estate may take, it may be shown in equity, by parol, to be a mortgage, if that was its purpose in fact; and in Code states, where what were formerly actions at law and suits in equity are triable in the same court, the distinctions between them having been abolished, the true character of a conveyance, absolute in form, given as a mortgage, may be shown by evidence aliunde, including parol evidence, whether the question be raised by a direct action for equitable relief or be incidental to legal relief. . . . An examination of [the cases decided by this court] will show that no discrimination is made between legal and equitable actions as to the jurisdiction of the court." "
9) The doctrine that the giving effect to an instrument according to the intention of the parties thereto, which in form is an absolute conveyance, though intended as security, is a subject of equitable cognizance only, originated in the supposed difficulty of dealing in courts of law with the matter, because of the statute of frauds and the rule that a written instrument cannot be contradicted or varied by parol. Equity courts dealt with the matter upon various pretexts common to such jurisdictions, viz.: that a defeasance was omitted by fraud or mistake or mutual confidence and that proof of the real nature of the transaction was necessary to prevent fraud; that in such cases neither the statute of frauds nor the rule against varying a written instrument by parol stood in the way. In some legal opinions expressions may be found which might well lead one to suppose that the doctrine permitting parol evidence regardless of the forum or form of action in such cases is a partial abrogation of one of the most familiar and important rules of evidence. Such expressions are unfortunate and misleading. This court in speaking on that subject in Jordan v. Estate of Warner, supra, said:
- "The rule is not inconsistent with the statute of frauds nor the principle that a written contract cannot be varied by parol; though statements to the contrary are sometimes found in the books, including some of the decisions of this court. It recognizes and gives effect to two very familiar elementary principles of evidence, namely, parol evidence may be resorted to to prevent the inequitable or fraudulent use of a written instrument; and, a written instrument, made in part execution of an entire verbal contract and covering some essential part of it, does not preclude showing the entire contract by a resort to parol evidence." "
10) "That is the only logical basis for treating, by the aid of parol evidence, an instrument according to the purpose mutually intended regardless of the letter of the paper."
11) "
It is confusing to read commonly in legal opinions that a written contract cannot be varied or contradicted by parol evidence, and to read in exceptional instances the contrary, the conflicting expressions being made without such qualifications as to indicate clearly the sense in which they were intended. Where ambiguity in a contract exists, which is developed by applying the paper to the subject dealt with, proof of the circumstances under which it was made to enable the court to construe it as the parties intended, or proof by parol of that part of an entire contract which in partial execution was in the other features reduced to writing, should not be denominated variances or contradictions of the agreement."
12) "Construction often involves variation or contradiction of the strict letter, but not of the real contract itself, as expressed in the paper when viewed in the light of all the circumstances of its origin. The words "varied or contradicted" in the treatment of this subject in Lippincott v. Lawrie, 119 Wis. 573, 97 N.W. 179, referred to the letter of the contract not to the meaning thereof reasonably determinable therefrom in the light of all the facts."
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Lynch v. Ryan, 132 Wis. 271, 111 N.W. 707, 112 N.W. 427 (1907)
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1) "Where the relation of mortgagor and mortgagee of real estate has been once established between two parties, and it is claimed that by a subsequent deed of the premises by the mortgagor to the mortgagee the equity of redemption has been extinguished and the mortgagee has become the absolute owner of the premises, it must be clearly shown that the conveyance or release was voluntary on the part of the mortgagor, was based on an adequate consideration, was untainted by fraud, and that no advantage was taken of the debtor's necessities to drive a hard bargain."
2) "Such transactions will be closely scrutinized, and if the proof be clear and satisfactory that the requirements above named have been observed the transaction will be sustained, otherwise not."
3) "In doubtful cases the courts incline to hold that the mortgage relation still exists. These propositions are very well established. Rockwell v. Humphrey, 57 Wis. 410, 15 N.W. 394; Kunert v. Strong, 103 Wis. 70, 79 N.W. 32."
4) "It is manifest that, where no part of the debt is discharged at the time of the conveyance or release, the change in the relationship of the parties is one in name only and not in substance. A mortgagor cannot gratuitously release his right to redeem or bar himself from exercising it by any agreement, whether made contemporaneously with the mortgage or subsequently thereto. 2 Jones, Mortg. (5th ed.) §§ 1038-1046."
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.Young v. Miner, 141 Wis. 501, 124 N.W. 660 (1910)
1) The rules of law governing the relations between mortgagor and mortgagee with reference to acquisition of mortgaged land by the latter have been long settled and were last announced by this court in Lynch v. Ryan, supra, where it was said that in order to support such a transfer and terminate the pre-existing right of redemption by payment of the debt,
- "it must be clearly shown that the conveyance or release was voluntary on the part of the mortgagor, was based upon an adequate consideration, was untainted by fraud, and that no advantage was taken of the debtor's necessities to drive a hard bargain. . . . In doubtful cases the courts incline to hold that the mortgage relation still exists."
2) The reason of this rule is obvious. When one gives a lien upon his land to another as security for a debt, public policy does not permit him in advance to agree to any forfeiture of his right of redemption otherwise than in the manner prescribed by statute, namely, that of a judgment declaring the amount due and, after a year for redemption, directing the premises to be sold to raise the money due to pay such debt.
3) The creditor's right is to his money, not to the land. But, in common experience, the man reduced to the necessity of borrowing money upon mortgage security is often, if not commonly, in a situation where oppression is easy, and where a serious temptation is offered to the mortgage creditor to avail himself of the opportunity to secure the entire land without according the protection of a public sale to assure an adequate price.
4) The rule tersely stated in Lynch v. Ryan is supported by many decided cases in Wisconsin, a few of which here cited present situations of much analogy to that disclosed by the present record.
Rockwell v. Humphrey, 57 Wis. 410, 15 N.W. 394; Hunter v. Maanum, 78 Wis. 656, 48 N.W. 51; Schierl v. Newburg, 102 Wis. 552, 556, 78 N.W. 761.
5) The result is that we fail to find any preponderance of evidence to prove the elements essential to the validity and effectiveness of the deed. Indeed, we are clear that the present evidence discloses a lack of adequate consideration and complete fairness.
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Coates v. Marsden, 142 Wis. 106, 124 N.W. 1057 (1910)
This principle in no way interferes with the well-understood principles that such transactions will be closely scrutinized by the court, that it must appear that the consideration of the transfer was adequate and that no advantage was taken of the debtor's necessities to drive a hard bargain, and that in doubtful cases the courts incline to hold that the mortgage relation still exists. Lynch v. Ryan, 132 Wis. 271, 111 N.W. 707, 112 N.W. 427.
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Schroeder v. Arcade Theater Co., 175 Wis. 79, 184 N.W. 542 (Wi. 1921)
1) It has been held in this state that the title remains in the mortgagor, and the mortgagee holds the mortgage as such, as mere security for the debt. So stringent is this rule that it has often been held by this court that a deed in fee simple absolute, given merely to secure a debt, with a parol defeasance, is nothing more nor less than a mortgage, leaving the title in the grantor and giving to the grantee a mere security for his debt, to be enforced like an ordinary mortgage
( Scheiber v. Le Claire, 66 Wis. 579, 586, 29 N.W. 570, 889; Wis. Cent. R. Co. v. Wis. River L. Co. 71 Wis. 94, 36 N.W. 837; Central Trust Co. v. Burton, 74 Wis. 329, 43 N.W. 141);
also that the right of the mortgagee who has got peaceable possession of the premises after condition broken, to retain them until his debt is paid, is founded upon his equitable right to be paid without being put to the cost of a suit, and not upon any title in him. Brinkman v. Jones, 44 Wis. 498, 512.
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M. C. Gehl Co. v. Brahm, 177 Wis. 222; 187 N.W. 1011; (Wis. 1922)
1) "Any conveyance of land absolute on its face, without anything in its terms to indicate that it is otherwise than an absolute conveyance, and without any accompanying written defeasance, contract of repurchase, or other agreement, may, in equity, by means of extrinsic and parol evidence, be shown to be in reality a mortgage. . . . The principle which underlies this doctrine is the fruitful source of many other equitable rules: that it would be a virtual fraud for the grantee to insist upon the deed as an absolute conveyance of the title, which had been intentionally given to him, and which he had knowingly accepted, merely as a security, and therefore in reality as a mortgage." 3 Pomeroy, Eq. Jur. (4th ed.) § 1196."
2) "This doctrine so clearly laid down by the author quoted has been in substance approved not only by the courts of last resort in nearly all of the jurisdictions in this country, but has been repeatedly declared and approved by this court."
See Polly v. Gumney, 157 Wis. 362, 147 N.W. 356; Smith v. Pfluger, 126 Wis. 253, 105 N.W. 476; Schneider v. Reed, 123 Wis. 488, 101 N.W. 682; Beebe v. Wis. M. L. Co. 117 Wis. 328, 93 N.W. 1103."
3) "In a case of this kind, however, where a conveyance is absolute in form, a presumption exists that it is absolute in fact, and such presumption can only be overcome by evidence which is clear, unequivocal, and convincing. 3 Pomeroy, Eq. Jur. (4th ed.) § 1196, and cases there cited."
4) "What is said in 27 Cyc. on page 979, under the subject "Advance of purchase money for vendee's benefit," is strictly applicable here:
- If a person who has contracted for the purchase of land procures another to loan him the money necessary to make the payments, or to advance it to him, and has the deed made to the latter, with an agreement that he will convey the title to the former on repayment of the amount advanced, the transaction will amount to an equitable mortgage if it was the understanding and intention of the parties that the one should become debtor to the other for the money advanced, and that the land should be held merely as security for this debt. If this was their contract, the form in which they may have cast the agreement is immaterial. It is not necessary that the agreement to reconvey should be under seal, or even that it should be in writing; a mere oral agreement will be sufficient in equity."
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Gutschenritter v. Hosterman, 201 Wis. 558; 230 N.W. 610; (Wis. 1930)
1) "The trial judge filed an opinion in which he expressed the view that the rule laid down in Lynch v. Ryan, 132 Wis. 271, 111 N.W. 707, 112 N.W. 427, followed in Young v. Miner, 141 Wis. 501, 124 N.W. 660, was applicable to and governed the situation. The rule which he applied is tersely stated in Lynch v. Ryan, as follows:
- "Where the relation of mortgagor and mortgagee of real estate has been once established between two parties, and it is claimed that by a subsequent deed of the premises by the mortgagor to the mortgagee the equity of redemption has been extinguished and the mortgagee has become the absolute owner of the premises, it must be clearly shown that the conveyance or release was voluntary on the part of the mortgagor, was based on an adequate consideration, was untainted by fraud, and that no advantage was taken of the debtor's necessities to drive a hard bargain. Such transactions will be closely scrutinized, and if the proof be clear and satisfactory that the requirements above named have been observed the transaction will be sustained, otherwise not. In doubtful cases the courts incline to hold that the mortgage relation still exists. These propositions are very well established. (Citing cases.) It is manifest that, where no part of the debt is discharged at the time of the conveyance or release, the change in the relationship of the parties is one in name only and not in substance. A mortgagor cannot gratuitously release his right to redeem or bar himself from exercising it by any agreement, whether made contemporaneously with the mortgage or subsequently thereto." "
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Paul v. Smith, 215 Wis. 613, 255 N.W. 919 (1934)
1) "The question of the validity of a deed of the mortgaged premises, which was given by a mortgagor to the mortgagee in settlement and in discharge of the mortgage indebtedness, has been considered by this court in a number of cases."
Smith v. Crosby, 47 Wis. 160, 2 N.W. 104; Rockwell v. Humphrey, 57 Wis. 410, 15 N.W. 394; Kunert v. Strong, 103 Wis. 70, 79 N.W. 32; Lynch v. Ryan, 132 Wis. 271, 111 N.W. 707, 112 N.W. 427; Young v. Miner, 141 Wis. 501, 124 N.W. 660; Coates v. Marsden, 142 Wis. 106, 124 N.W. 1057; Gutschenritter v. Hosterman, 201 Wis. 558, 230 N.W. 610."
2) "It was settled in those cases that, in order to sustain such a conveyance as valid, it must be established by clear and satisfactory proof, upon closely scrutinizing the transaction, that the conveyance was voluntary on the part of the mortgagor; based on an adequate consideration; untainted by fraud; made without advantage being taken of the debtor's necessity to drive a hard bargain; and that there was a discharge of the mortgage indebtedness or at least a binding agreement to consider that indebtedness paid and discharged."
3) "As was said in Lynch v. Ryan, supra:
- 'Such transactions will be closely scrutinized, and if the proof be clear and satisfactory that the requirements above named have been observed the transaction will be sustained, otherwise not. In doubtful cases the courts incline to hold that the mortgage relation still exists.'"
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Osipowicz v. Furland, 218 Wis. 568; 260 N.W. 482; (Wis. 1935)
1) "Because of that inadequate consideration, there was no compliance with the requirement that, in order to sustain such a conveyance as valid and indefeasible,
it must be based on an adequate consideration. That is as essential as the other requirements, which are stated in Paul v. Smith, 215 Wis. 613, 255 N.W. 919, and the cases there cited, and which must be established by clear and satisfactory evidence, upon closely scrutinizing the transaction, in order to sustain such a conveyance as a valid deed."
2) "The deed, though absolute in form, was a conveyance by way of security, and therefore necessarily a mortgage. The contract, although purporting to be a contract of purchase, was merely a defeasance of the contemporaneous deed. Plaintiff's rights in the premises are no greater than those of a mortgagee, and as such he must enforce them." Schierl v. Newburg, [102 Wis. 552, 557, 78 N.W. 761]
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Acme Brick Co. v. Jacobi-Erdman, Inc., 235 Wis. 539; 292 N.W. 453; (Wis. 1940)
1) "It is, of course, well established in this state that as between the parties to it, a deed absolute in form, if given to secure a loan or intended to be a mortgage, will be considered by the courts to be a mortgage. Broadbent v. Hutter, 163 Wis. 380, 157 N.W. 1095, and other cases hereinafter cited."
2) "It is also well established that a transaction involving a deed given by a mortgagor to his mortgagee will be carefully scrutinized by the court for the purpose of ascertaining whether the conveyance was voluntary on the part of the mortgagor, whether the conveyance was supported by an adequate consideration, whether it was untainted by fraud, whether made without advantage being taken of the debtor's necessity to drive a hard bargain, and whether there was a discharge of the mortgage indebtedness, or at least a binding agreement to consider it paid and discharged. Lynch v. Ryan, 132 Wis. 271, 111 N.W. 707, 112 N.W. 427; Paul v. Smith, 215 Wis. 613, 255 N.W. 919, and cases cited therein."
3) "It is also well established that if such a transaction is fairly made and no unconscionable advantage is taken of the mortgagor, the transaction will be sustained. Kunert v. Strong, 103 Wis. 70, 79 N.W. 32; Coates v. Marsden, 142 Wis. 106, 124 N.W. 1057. Such arrangements, clearly, are permissible arrangements that may properly be made by a mortgagor and a mortgagee, if understandingly entered into and without fraud or unconscionable advantage or overreaching."
4) "In Paul v. Smith, supra, it was said (p. 614):
- 'It was settled in those cases that, in order to sustain such a conveyance as valid, it must be established by clear and satisfactory proof, upon closely scrutinizing the transaction, that the conveyance was voluntary on the part of the mortgagor; based on an adequate consideration; untainted by fraud; made without advantage being taken of the debtor's necessity to drive a hard bargain; and that there was a discharge of the mortgage indebtedness or at least a binding agreement to consider that indebtedness paid and discharged.'"
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R. F. Gehrke Sheet Metal Works v. Mahl, 237 Wis. 414; 297 N.W. 373; (Wi. 1941)
(Note: This case is a "bonafide purchaser case" decided in the context of an equitable mortgage.)
1) "The deed from Claus Mahl to the bank having been given to secure obligations of Claus Mahl, it was under the authorities as between the parties and those having notice, a mortgage. Upon that proposition there is no disagreement. Brinkman v. Jones (1878), 44 Wis. 498; Schroeder v. Arcade Theater Co. (1921) 175 Wis. 79, 184 N.W. 542."
2) "As between the grantor and the grantee and those having actual notice, the legal title remained in the grantor, and in case of default would have to be enforced like an ordinary mortgage. Schroeder v. Arcade Theater Co., supra; Brinkman v. Jones, supra."
3) "Under any theory, whether under the statute or under the common law, the question in this case is whether Anna Ramthun had actual notice of the state of the title of Claus Mahl.
4) "The trial court found that she "knew or had knowledge of facts sufficient to put her on inquiry as to the interest of Claus Mahl in the property."
5) "That knowledge, under the doctrine laid down in Brinkman v. Jones, supra, amounts to actual notice."
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Maslowski v. Bitter, 12 Wis. 2d 337, 107 N.W.2d 197 (1961)
1) A deed, though absolute in form, may be shown by parol to have been intended as security and, between the parties, will have the effect of a mortgage. fn3
- fn3 Kent v. Agard (1869), 24 Wis. 378; Brinkman v. Jones (1878), 44 Wis. 498, 514; Acme Brick Co. v. Jacobi-Erdman, Inc. (1940), 235 Wis. 539, 292 N. W. 453.
2) The evidence that a deed was intended as security must be clear and convincing. fn4
- 4 M. C. Gehl Co. v. Brahm (1922), 177 Wis. 222, 230, 187 N. W. 1011.
3) In one opinion, this court explained that an intended mortgage will be given the effect of a mortgage whether there be one instrument with an absolute grant and a defeasance clause, two instruments, one an absolute grant and the other containing a defeasance clause, or an instrument making an absolute grant and an unwritten defeasance clause. fn6
- fn6 Brinkman v. Jones (1878), 44 Wis. 498, 514.
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