« PreviousContinue »
gagee, at law, acquires and holds the legal estate, the mortgagor's equity of redemption being only an equitable estate. In this it is like the English view. At the same time, and in opposition to the English view, the mortgagor in possession is considered at law and in Equity as the legal owner as against everybody except the mortgagee and those persons claiming under him. By virtue of his legal estate the mortgagee, unless restrained by agreement, is immediately entitled to possession, though this right is in some States postponed until after breach of condition. In details there is, both by statute and judicial decision, considerable diversity as to the legal rights of mortgagor and mortgagee which cannot be touched upon here.
On the Equity side of the combined theory, the mortgage is everywhere regarded as a mere personal security; the mortgagor is the real owner, the mortgagee's title being held solely for the purpose of making his security effective. The States in which the combined legal and equitable theory prevails are Alabama, Arkansas, Connecticut, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and West Virginia. Massachusetts, New Hampshire, and Rhode Island hold more nearly to the English view than any other States. In New Jersey the mortgagee cannot obtain possession of the land until after default, and so in Ohio and Vermont. In the three States of Delaware, Mississippi, and Missouri, it is held that the mortgagee does not obtain a legal title by virtue of his mortgage until breach of the condition by the mortgagor. Subject to this modification, the combined theory prevails in these States.
In the remaining States the legal incidents of a mortgage have been abrogated by statute. In no case does the mortgagee, by force of his mortgage, obtain any interest in the nature of ownership, in the land mortgaged, but has simply a lien or charge upon the land, with the right to have the land by appropriate process converted into money and his
debt paid out of the proceeds. The States in which this latter or purely equitable theory is adopted are the following: California, Florida, Georgia, Indiana, Idaho, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, New York, North Dakota, Oregon, South Carolina, South Dakota, Texas, Utah, Washington, and Wisconsin.
It is not exactly clear when the States in this group adopted the equitable system. In some of the older ones the combined view was changed for the equitable by a process of growth not easily determined as to time, for some of the statutes seem to have been declaratory merely. South Carolina changed her policy in 1791, New York took the final step in 1828, Michigan and Indiana in 1843, Iowa as early as 1850, and Kentucky in 1889. In the others and the new States the equitable theory alone, or its substantial equivalent, has prevailed. Yet there are some anomalous views, as in Minnesota and some other States, where it is held that no title passes by the mortgage, yet, in exceptional cases, the mortgagee may by foreclosure obtain title and recover possession in ejectment.
In some of these States, as in New York, California, Wisconsin, and others, it is held that while the mortgagee cannot by legal process obtain possession by virtue of his mortgage, yet if he can once peaceably obtain lawful possession under it, he can then defend his possession until his claim is paid. The law of Louisiana, as already mentioned, is the civil law. By the Louisiana Code a mortgage by contract is thus defined: "The conventional mortgage is a contract by which a person binds the whole of his property, or a portion of it only, in favor of another, to secure the execution of some engagement, but without divesting himself of the possession."1 The California Civil Code, Section 2920, defines a mortgage as "a contract by which specific property is hypothecated for the performance of an act, without the necessity of a change of possession." The Code requires, however, the same for1 Merrick's Revised Code, sec. 3290.
malities for the creation, renewal, or extension of a mortgage as are required in case of a grant of real property (Sections 2922, 2948). In all the States of the second group the same substantial result is reached as in Louisiana under the civil law, and in California under the Code.
The development of the mortgage in the English system of law has, in its leading features, consisted of three distinct steps: the first, taken by the Court of Chancery The equitatwo hundred years ago and more, carried out the ble nature of real nature of the contract, as distinguished from contract. its form, by establishing the right of redemption, and a mortgage was, in Equity, considered as a mere lien and security collateral to the obligation secured; the second step, taken in this country, was the limitation and modification of the mortgagee's interest even in the law courts, courts of equity all the time enforcing fully the English chancery doctrine; the third step was the adoption by one after another of the States of the second group, of the Equity theory alone, and the practical wiping out of all the incidents of legal ownership in the mortgagee.
It is to be noticed that all three phases of mortgage law are in force at the present time, and from this, together with the special peculiarities in each of our forty-five jurisdictions, it follows that the law of mortgages, as a distinct subdivision of law, is, when taken in its totality, inconsistent and confused, while perhaps there is no single jurisdiction where there are not anomalies and inconsistencies arising out of the transformation the mortgage has undergone and the tenacity with which old ideas, aided especially by the retention of the old terminology, still adhere to the notion of the mortgage. Confused as the law is as a whole upon this subject, no great practical inconvenience results, for whatever the system or combination or modification of systems, the purely equitable theory is the one ordinarily prevailing in practice, the legal rights of the mortgagee being rarely asserted even in the States holding the most nearly to the earlier English doctrines.
The result of the abrogation of the legal theory has led to an important change in the mortgagee's remedy. Under the old view the logical and natural remedy of the mortgagee was the strict foreclosure, by which the conditional legal title created by the mortgage was freed of its condition, so becoming absolute in the mortgagee; and the usual practice of the Court of Chancery in England was to decree a strict foreclosure, though it was considered that the court had the power to decree a sale. The decree of sale is now the usual form in England. In this country the decree of sale is the natural and ordinary method of foreclosure. It is generally provided for by statute, though, as in England, courts of equity have inherent power to order a sale. The earliest New York statute concerning sale was in 1801, the South Carolina statute was in 1791.
Modes of foreclosure.
The decree of strict foreclosure is becoming obsolete. In only two States, Connecticut and Vermont, is this the common form of decree. In Connecticut it was early held, contrary to the general rule, that courts of equity had no power to order a sale.1 In 1887 a statute was passed authorizing the court to grant a decree of sale on motion of any party,2 but this method is not yet generally adopted in practice. Vermont appears to be the only State where the remedy is limited to strict foreclosure. In rare cases, where there are special equities, strict foreclosure may be allowed in Alabama, California, Illinois, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Missouri, and Wisconsin. But in general the adoption of the equitable theory has resulted in changing the remedy from strict foreclosure, founded on the doctrine of title in the mortgagee, to foreclosure by decree of sale, founded on the doctrine that the mortgagee has only a lien.
The court, always in strict foreclosure, and ordinarily in foreclosure by sale, limits a time within which the mortgagor may redeem. If the mortgagor fails to redeem within the
1 Palmer v. Mead, 7 Connecticut Reports, 152 (1828).
time, title becomes absolute in the mortgagee or the sale takes place. Many States have increased this period by allowing a further statutory period of redemption after sale, varying from two years in Alabama and Tennessee to four months in Oregon. In about half the States no statutory period is allowed. In Maine, New Hampshire, Massachusetts, and Rhode Island, although foreclosure may be had by bill in equity, the usual mode, regulated by statute, is for the mortgagee to enter upon the premises, in virtue of his legal title, and if after such entry and possession the mortgagor does not redeem within the time limited by statute, the mortgagee's title becomes absolute, as upon a decree in equity for strict foreclosure.
The most modern method by which the mortgagee may realize upon his security is by selling the property under a power contained in the mortgage. In England, though such powers were considered of doubtful validity by Lord Eldon as late as 1825, yet about this time powers of sale in mortgages came into general use, and now every mortgage in England contains such a clause, and by Section 19 of the Conveyancing and Law of Property Act of 1881, every mortgage is in effect, as we have seen, a power of sale mortgage. In this country there is great diversity in this respect. In some States, as Indiana, Iowa, and Kansas, powers of sale are by statute invalid or of no practical advantage. In others, as New Hampshire, Delaware, and New Jersey, such powers are not in general use, though valid. In Connecticut they are not used, though their validity does not seem to have been passed upon. In Massachusetts mortgages with power of sale are almost exclusively used. Many States have elaborate statutory provisions regulating the exercise of powers of sale contained in the mortgage, so elaborate as to make their use of doubtful expediency. The only States in which there is a statutory power of sale are Virginia and West Virginia, though in these the usual form of mortgage is by deed of trust in the nature of a mortgage.
The form of the mortgage was originally that of a deed