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equity, acting upon the principle of looking through the form to the real nature of the transaction, to hold that a mortgage, though in form and at law a conveyance upon condition, was really intended by the parties as a security only, and to give effect to the conveyance only so far as necessary for that purpose.
To give effect to this view of the mortgage, the doctrine of the equity of redemption in the mortgagor was established as early as the reign of James I. This equity of redemption, or right of the mortgagor, after default, to maintain a bill in equity to redeem, continued until cut off by foreclosure or laches. To prevent the evasion of this doctrine by contract of the parties, the rule "once a mortgage, always a mortgage, was adopted by Lord Chancellor Nottingham and Lord Keeper North.2 This rule means that the parties to a mortgage shall not be permitted to restrict the right to redeem by an agreement contained in the mortgage or which is part of the same transaction. By the adoption of these two doctrines, stamped, as it were, upon the face of the mortgage, inflexibly maintained and liberally construed in favor of the mortgagor, a conveyance upon condition was in Equity transformed into a security only, the legal rights attendant upon a conveyance upon condition being recognized for the purposes of security but no further. Thenceforth, if the creditor refused to receive payment after the day named in the condition, the debtor or mortgagor could by the aid of Equity redeem and compel a conveyance back to himself, and on the other hand, if the creditor, after default of his mortgagor, desired to perfect his title, he could resort to a court of equity upon a bill for foreclosure, and obtain a decree that the mortgagor pay the debt and costs by a day certain or lose his right to redeem. In a court of law, however, the mortgagee was recognized as the owner, in accordance with the literal terms of the mortgage, under a title defeasible on performance of the condition according to its
1 Jason's Case, 2 Chancery Cases, 33 (1680).
2 Howard v. Harris, 2 White & Tudor's Leading Cases in Equity, 1042 (1683).
terms. He was entitled to possession of the land even before default of the mortgagor. The mortgagor's estate was wholly equitable. But Equity recognized the mortgagee's legal title, for the decree on a bill to redeem was that on payment by the mortgagor the mortgagee re-convey. From all this it followed that the law of mortgage was a double system, the legal and equitable theories existing side by side, and "each administrated by its own tribunal as though the other had no existence."
Under this theory it was long doubtful whether the mortgagor's interest or equity of redemption was a mere right of action or in Equity an estate in the land. In 1737 it was settled by Lord Hardwicke that this right of the mortgagor was, in Equity, that of an owner in fee except as against the mortgagee, it was, in Equity, an estate in the land, which descended to the mortgagor's heirs and might be devised or granted, while on the other hand the mortgage in fee was personal assets of the mortgagee, the debt being regarded as the principal thing, the land as mere security.2
The English doctrine of "tacking," by which a third or subsequent mortgagee, without notice of an intervening incumbrance, may purchase the first mortgage and thus crowd out the intervening incumbrance, although established by Lord Keeper Bridgman,3 was formulated in a series of rules by Sir Joseph Jekyll, M. R., in 1728. This doctrine is founded on the notion that all mortgages after the first are equitable, the mortgagor having only an equitable estate, and if the later mortgagee could get in the legal title by purchase of the first mortgage, he would then, having both law and equity, come within the maxim "where the equities are equal the law will prevail," and so take precedence of
1 Pomeroy's Equity Jurisprudence, secs. 1179-1184; Jones on Mortgages, secs.
2 Casborne v. Scarfe, 2 White & Tudor's Leading Cases in Equity, 1035 (1737); Thornbrough v. Baker, 2 White & Tudor's Leading Cases in Equity, 1030 (1677).
8 Marsh v. Lee, 1 White & Tudor's Leading Cases in Equity, 611 (1670).
the intervening incumbrancers who had only an equitable interest. This doctrine was temporarily abolished by Act of Parliament in 1874, but was revived by the Land Transfer Act of 1875.
Other statutes have been passed in England in recent years affecting mortgages, the most important being the Conveyancing and Law of Property Act, 1881.1 This Act makes certain leases by the mortgagor in possession valid against every incumbrancer, and similar leases by the mortgagee in possession valid against prior incumbrancers and the mortgagor (Section 18); gives the mortgagee the power to insure not to exceed two-thirds in value and add premiums to the debt (Section 19 (1), (ii)); gives the court power to order a sale on foreclosure instead of redemption (Section 25); gives the mortgagor, entitled to redeem, the power to require the mortgagee to assign the mortgage debt and convey the property to a third person (Section 15); gives the mortgagee the power of sale under certain conditions, though no such power is contained in the deed (Section 19 (1), (i), ); and abrogates the principle of consolidation of mortgages as to all mortgages executed after December 31, 1881 (Section 17). The Act further provides a statutory short form of mortgage, and enumerates the covenants it shall be deemed to include (Section 26), and also modifies the law of mortgages in other particulars. The Real Property Amendment Act of 1874 limits the time within which an action to recover a mortgage debt or to foreclose must be brought, to twelve years after the right of action accrues or an acknowledgment or payment on account thereof. In like manner the time within which a mortgagor may redeem as against a mortgagee in possession is limited to twelve years after possession by the mortgagee adverse to the mortgagor. Subject to these statutory changes, the mortgage law in England is still that of the earlier double theory, legal and equitable, as above described. It would seem, however, that, under the clause of the Judicature Act of 1873, which declares that "in all matters in 1 44-45 Vict. c. 41.
which there is any conflict or variance between the rules of equity and the rules of common law with reference to the same matter, the rules of equity shall prevail," a mortgagee could not enforce his right, arising out of his legal title. At least this is Mr. Pomeroy's inference.1 But Section 25 (5) of the Judicature Act provides that a mortgagor in possession, without notice from the mortgagee of his intention to take possession, shall be dealt with as owner and entitled to sue as such, etc. This would imply that the legal rights of the mortgagee might still be enforced.2
There is no distinctive, consistent American doctrine of the mortgage. No State has fully adopted the English doctrine that at law a mortgagee holds the complete The American legal title subject to be defeated only by strict doctrine. performance of the condition. Many States have, however, adopted the English doctrine in a more or less modified form, while many other States have abrogated the legal view of the mortgage and have given full effect to the equitable theory alone. With forty-five States, constituting forty-five distinct jurisdictions, each determining the law for itself, it is evident that a detailed examination of the theory in each State within the limits of this chapter is impossible. For practical purposes it will be sufficient to group the States holding to similar views, with little attempt to trace the successive steps by which the present status of the mortgage has been reached.3
In the original thirteen colonies, except New York, the mortgage, in the main, was regarded at law in the same way as in England, i. e., as a conveyance of a legal estate upon condition; while in Equity, so far as the English equity jurisprudence was adopted, it was held that the mortgage was but a security, and early statutes, before courts of equity were
1 Equity Jurisprudence, sec. 1179, note 1.
2 Griffith's Practice under Judicature Act, 2d ed., p. 41.
3 Pomeroy's Equity Jurisprudence and Jones on Mortgages are, once for all, referred to as the leading authorities on the complicated law of mortgages.
established, frequently gave the law courts special power to give relief, if the party holding it endeavored to make use of his title to accomplish other ends.1 There was, however, this important difference, that while in England the mortgagee held the legal title as against the world, in the colonies the mortgagee held the legal title only as against the mortgagor and for the purpose of security. For the purpose of conveyance to third parties and for all other purposes the mortgagor in possession remained the legal owner. The legal title in the mortgagee was available only for the purpose of gaining possession and as the basis of a perfect title upon strict foreclosure. In New York, on the contrary, the common-law rule was never fully adopted. The mortgagor has always, both in law and Equity, been regarded as owner of the fee, and the mortgage as a mere chose in action, a mere security of a personal nature. But even in New York it was held that upon forfeiture of the condition the mortgagee had an interest in the land and could recover possession in an action of ejectment. A statute however, passed in 1828, withdrew the right to take possession, even upon breach of condition, and completed the change in the nature of the mortgage by removing the last remaining common-law attribute and establishing the purely equitable theory of the mortgage.
Speaking broadly there are, at the present time, two distinct theories of the mortgage in this country, the combined legal and equitable theory and the equitable theory alone; the former based upon the modified English view of the mortgage taken by most of the colonies, and the latter based upon the equitable view adopted in New York, and no doubt to some extent upon the civil-law view in Louisiana derived from the Code Napoleon, which in substance is not widely variant from the equitable view.
The distinctive feature of the combined theory on its legal side is that as between mortgagor and mortgagee the mort
1 See Chapter VI.
2 Phyfe v. Riley, 15 Wendell's Reports (N. Y.), 248 (1836); Trimm et al v. Marsh, 54 New York Reports, 599 (1874).