J. W. Pierson Co. v. Freeman

• Decision Date: 15 May 1933
• Docket Number: No. 140.,140.
• Citation: 166 A. 121
• Parties: J. W. PIERSON CO. v. FREEMAN et al.
• Court: New Jersey Supreme Court

166 A. 121

J. W. PIERSON CO.

v. FREEMAN et al.

No. 140.

Court of Errors and Appeals of New Jersey.

May 15, 1933.

Appeal from Court of Chancery.

Bill by the J. W. Pierson Company against Elizabeth B. Freeman and another. Decree for defendants, and complainant appeals.

Affirmed.

Harry Phillipson, of Newark, for appellant.

Will C. Headley, of Newark, for respondent Elizabeth B. Freeman.

W. Bradford Smith, of Newark, for respondent Orange Building & Loan Ass'n.

HEHER, Justice.

On December 8, 1922, one Lyman G. Rowe was indebted to appellant in the sum of $798.90, for building materials sold and delivered. On that day, by a contract in writing (in the execution of which his wife joined), Rowe agreed, in consideration of the payment of that sum, receipt of which was acknowledged, to convey to appellant, on or before March 8, 1923, by deed of warranty, subject to two mortgages totalling $4,400, the tract of land described in the bill of complaint. The vendee was granted the right of possession on March 8, 1923, and it was stipulated that the deed of conveyance should be delivered and received at a designated hour and place on that day. It was further provided that if within ninety days of the making of the contract, the vendors should desire to withdraw therefrom, they might do so upon the repayment to appellant of the consideration price; otherwise the contract was to remain in full force and effect. Rowe did not exercise the option thus granted, nor did he make conveyance of the lands to appellant.

On July 27, 1932, appellant filed a bill, praying specific performance, or, in the alternative, that the agreement be decreed to be an equitable mortgage, and the lands sold to raise and pay the moneys due thereon. It was therein alleged that on March 8, 1923, appellant "became entitled by the terms of the aforesaid agreement to a deed of conveyance" of the lands, and that Rowe and his wife "held legal title to the said premises as trustees for this complainant." On May 1, 1923, Rowe and his wife conveyed the land to defendant Freeman, and on January 5, 1931, the latter executed and delivered to the corporate defendant a mortgage thereon to secure the payment of $3,000. The bill alleged that these defendants had notice or knowledge of appellant's agreement, and prayed that it be decreed that the defendant Freeman holds the lands in trust for appellant, and that the mortgage of the building and loan association is void and of no effect. Appellant's accountant testified that, subsequent to the making of the agreement, the sum of $369.09 was paid on account of Rowe's indebtedness, and that at the time of the final hearing the balance due, including interest, was $600.99. Neither the source nor the date of the stated payment on account was proved. This witness testified that Rowe died "within a year or two" of the making of the agreement.

The Vice Chancellor held that the agreement was a contract for the sale of lands, and that it was void as to subsequent judgment purchasers and mortgagees for value. He rejected the theory of mortgage. Appellant concedes that if this was an agreement for the sale of land, as distinguished from a mortgage, it is void as to defendants. (2 Comp. St, 1910, p. 1573, § 116). It now insists that the parties intended by this transaction to pledge the lands as security for a debt, and that the instrument should be treated as an equitable mortgage.

The term "mortgage" has a technical significance in the law. It imports a defeasance and an equity of redemption. The transfer of title must be made to secure the payment of a debt, or the performance of a duty, and the right of redemption must exist in the mortgagor. Clinton Hill Lumber & Mfg. Company v. Strieby, 52 N. J. Eq. 576, 29 A. 589; Wilbur v. Jones, 80 N. J. Eq. 520, 86 A. 769; Peugh v. Davis, 96 U. S. 332, 336, 24 L. Ed. 775.

If a transaction resolves itself into a security, whatever may be its form and whatever name the parties may choose to give it, it is, in equity, a mortgage. If a deed or contract, lacking the characteristics of a common-law mortgage, is used for the purpose of pledging real property, or some interest therein, as security for a debt or obligation, and with the intention that it shall have effect as a mortgage, equity will give effect to the intention of the parties. Such is an equitable mortgage. Cummings v. Jackson, 55 N. J. Eq. 805, 809, 38 A. 763; Peugh v. Davis, supra. To prevent undue advantage through inadequacy of consideration, courts of equity are steadfast in holding that a conveyance, whatever its form, if in fact given to secure a debt, is neither an absolute nor conditional sale, but a mortgage, and that the grantor and grantee have merely the rights, and are subject only to the obligations, of the mortgagor and mortgagee. Mooney v. Byrne, 163 N. Y. 86, 57 N. E. 163, 165. The character of the instrument is determined by the intention of the parties at the time of its execution. Frink v. Adams, 36 N. J. Eq. 485; Doughty v. Miller, 50 N. J. Eq. 529, 25 A. 153; Guilford-Chester Water Co. v. Guilford, 107 Conn. 519, 141 A. 880, 883; 19 R. C. L. 266. While it is true that it does not require express words to create an equitable mortgage, where the intention to create such a lien is evident, yet it must clearly appear from the instrument or the surrounding circumstances, at the time of entering into the same, that the maker of the instrument intended that the property therein described is to be held, given, or transferred as security for the obligation. Monagas v. Albertucci Alvarez, 235 U. S. 81, 35 S. Ct. 95, 59 L. Ed. 139; New Orleans National Banking Association v. Adams, 109 U. S. 211. 3 S. Ct. 161. 27 L. Ed. 910; Hibernian Banking Association v. Davis, 295 Ill. 537, 129 N. E. 540. An equitable mortgage, therefore, is created by the agreement of the parties.

There is a well-defined distinction between a...