Central Law Journal

St. Louis, October 27, 1922

LIABILITY OF MORTGAGEE, UNDER DEED ABSOLUTE IN FORM, FOR CONVEYANCE OF PROPERTY

TO THIRD PERSON.

It is well settled that a deed conveying land, which is absolute and unconditional on its face, but which the parties intend to be merely security for the payment of a debt or for the performance of some other promise, can be shown by parol evidence in equity to be a mortgage. Equity will then treat the deed merely as a mortgage, and will give to the parties thereto only the relative rights and remedies of mortgagor and mortgagee (O'Dell v. Montross, 68 N. Y., 499).

Where an absolute conveyance of lands. is designed as a mortgage, it will retain its. character in the hands of each subsequent purchaser who takes the property with notice of the rights of the parties; and therefore if a purchaser from the original grantee had knowledge of the nature of the original transaction, or knowledge of facts sufficient to put him upon inquiry, he cannot claim to be the unconditional owner of the estate, but the mortgagor will have the same right to redeem from him as from the original grantee. But where a third person has in good faith purchased the property from the grantee in the original deed, for a valuable consideration, relying on the apparently perfect legal title of his vendor, and without any notice, actual or constructive, of the agreement or understanding between the original parties, he takes an indefeasible title, and as against him the original grantor has no right of redemption. Where a third person thus acquires an irredeemable title to the land, the remedy of the original grantor is by action against his grantee, for a breach of his

legal duty by the latter, in dealing as absolute owner with property which was only conveyed to him by way of pledge (27 Cyc. 1032-1033).

To discover what the intention of the parties was and whether the deed was intended as an absolute conveyance, a conditional sale or a mortgage, equity will inquire into all the circumstances surrounding the transaction, into their preceding negotiations, into the consideration and into all material facts which will help to determine the true nature of the instrument (Whittemore v. Fisher, 132 Ill., 243). Thus the existence of a debt between the apparent grantor and grantee (Locke v. Moulton, 96 Cal., 21); the inadequacy of price paid for the apparent conveyance (Rodgers v. Moore, 88 Ga., 88); the fact that the apparent grantor in the deed at the time of its execution was sorely pressed for money and therefore at the mercy of his creditor (Steel v. Black, 56 N. C., 427); the retention of the possession of the supposedly conveyed premises by the grantor in the deed (Luesenhop v. Einsfeld, 93 A. D., 68) are all evidence tending to prove that the deed, absolute on its face, was in fact intended as a mortgage. If the court determined from all the evidence that it was the intention of the parties that the deed was to be given only as security, this intention governs (Shields v. Russel, 142 N. Y., 290).

Since deeds and written contracts in general are deemed to express the true intention of the parties, very clear and convincing evidence is necessary for a party, alleging that a deed absolute in form is in fact a mortgage to succeed (Kellogg v. Northrup, 115 Mich. 327).

The grantor's remedy is in damages against the grantee for a breach of his equitable duty in having conveyed the premises to which, as between the parties, it was intended that he hold title only as mortgagee. The reasons for allowing a party to show that a deed, absolute in form,

is in fact a mortgage, being equitable, in most states parol evidence is inadmissible at law to show this fact (Benton v. Jones, 8 Conn. 186; contra, Jackson v. Lodge, 36 Cal. 28).

In the recent case of Harris v. Barnes City Sav. Bank (188 N. W. 862), the plaintiff had mortgaged certain land to the defendant and had subsequently given to him a quitclaim deed. The defendant thereafter conveyed the premises to a third party. The plaintiff then brought this action for damages, alleging that the conveyance had been a breach of duty upon the part of the defendant inasmuch as the quitclaim deed had only been intended as a mortgage. The Supreme Court of Iowa correctly held that the quitclaim deed, having been given by a mortgagor to a mortgagee, the transaction would be looked upon with suspicion. Although the action was at law the court held that the plaintiff could show by parol evidence that the quitclaim deed was in fact intended as a mortgage, and that, if it were, the plaintiff would be entitled to recover as damages the reasonable value of the land at the date of the conveyance by the defendant, less the amount of the debt owned to the defendant.

DID HE COLLECT?

Senator Frank B. Kellogg, of Minnesota, says an honest old blacksmith in his State who had endeavored for many months to collect a bill from a customer, finally agreed to take a note for the amount. The debtor suggested going to a lawyer to have the instrument drawn up, but the man of the anvil, who hau been sherin years before, said he knew enough about law to draw up such a paper, and laboriously wrote out the following:

"On the first day of June I promise to pay Louis Warner the sum of seventeen dollars and forty-five cents, and if said note be not paid on the date aforesaid, then this instru ment is to be null and void and of no effect. Witness my hand, etc."-Chicago Legal News.

NOTES OF IMPORTANT DECISIONS

LIABILITY OF UNDISCLOSED PRINCIPAL -APPLICATION OF THE PAROL EVIDENCE RULE.-It has been said that since the contract is entered into between the agent and the plaintiff and since the defendant is in nowise a party to said written agreement, the rule excluding parol evidence prevents the plaintiff from holding the defendant, even conceding that the defendant was the principal.

That this, however, is un ound is apparent from the language of Andrews, J., in Coleman v. First National Bank of Elmira (53 N. Y., 388, p. 393):

"The rule (parol evidence rule) does not preclude a party who has entered into a written contract with an agent from maintaining an action against the principal upon parol proof that the contract was made in fact for the principal ** * and such proof does not contradict the written contract. It super-adds a liability against the principal to that existing against the agent. That parol evidence may be introduced in such a case to charge the principal, while it would be inadmissible to discharge the agent, is well settled by authority (Ford v. Williams, 21 How., U. S., 207; Higgins v. Senior, 8 M. & W., 834; Parker, J., Short v. Spoakman, 2 B. & Ad., 962; Tainton v. Prendergast, 3 Hill, 72; Gates v. Brower, 9 N. Y., 205).

"It is now settled law that the admission of parol evidence to show that a written contract made in the name of the agent was in fact made in behalf of an undisclosed or, if disclosed, unnamed principal, does not violate the rule against the admission of parol evidence to vary the terms of a written contract. Whatever the original merits of a rule that a party not mentioned in a simple contract in writing may be charged as principal upon oral evidence, even where the writing gives no indication of an intent to bind any other person than the signer, we cannot reopen it, for it is as well settled as any part of the Law of Agency. And this rule extends to contracts required by the Statute of Frauds to be in writing."

See, also, Ford v. Williams (21 How., U. S., 287), Huntington v. Knox (7 Cush., Mass., 371), Land Co. v. Levy (76 Minn., 364), Byington v. Simpson (134 Mass., 169), Lerned v. Johns (9 Allen, Mass., 419) and Kingsley v. Siebrecht (92 Me., 22).

Possibly the best exposition of this rule is found in the opinion of the United States Supreme Court in Ford v. Williams (supra):

"The contract of the agent is the contract of the principal, and he may sue or be sued thereon though not named therein. Notwithstanding the rule of law that an agreement reduced to writing may not be varied by parol, it is well settled that the principal may show that the agent who made the contract in his own name was acting for him."

The rule is otherwise, however, where the contract between the third party and the agent is under seal. In such a case, unless the seal is merely superfluous, the third party may only hold the agent and cannot hold the undisclosed principal. This proceeds from the strict rule of the common law that only the parties named or described in a sealed instrument can sue or be sued upon it (Briggs v. Partridge, 64 N. Y., 357).

Even where the contract is under seal, however, it would seem that where the principal has accepted its benefits or has been unjustly enriched at the third party's expense or has ratified, he may be held liable (Briggs v. Partridge, supra; Nash v. Tourne, 72 U. S., 703; Salmon Falls, &c., Co. v. Goduard, 55 U. S., 446). New York Law Journal.

RIGHT OF DEPOSITOR GIVING OWN CHECK FOR CASHIER'S CHECK TO RECOVER FROM SAID GUARANTY FUND ON INSOLVENCY OF BANK.-Where a depositor had an open, unsecured, noninterest-bearing account in a bank, and in exchange for the bank's cashier's check, he made and delivered to the bank his own check on his deposit for a like amount, it was held that a cashier's check being in its legal effect the same as a certificate of deposit or certified check, the depositor could recover the amount of the cashier's check, where the bank was declared insolvent, out of a guaranty fund created under the banking laws of the State. Middlekauff v. Banking Board, Texas, 242 S. W. 442. The following is quoted from the opinion of the Court:

"The transaction between relator and the bank negatives an intent by either party for the cashier's check to wipe out the bank's debt. Relator had put his money in the bank for safekeeping, being entitled to rely on the security afforded by the guaranty fund. He chose not to have the bank pay him $3,000, on his check, in discharge of its obligation in that amount. He sought to avoid the risk of carrying that much money on his person. He did not care to substitute another debtor for the bank. We cannot reasonably attribute to him the purpose to merely weaken his security. The certificates for relator's deposits, whether on slips or in a passbook, evidenced that he had an unsecured, noninterest-bearing debt against the bank, payable to him or his order on demand, for his unchecked and unpaid balance. The cashier's check evidenced the same obligation, save it specified the balance, and, in ordinary course, it would have enabled relator to utilize his balance with more facility. Had relator had his own $3,000 check certified, or had he taken the bank's formal certificate of deposit for that amount, no one could maintain that he meant such negotiable paper to extinguish the bank's

liability to him as a depositor. Yet it seems plain enough that we can ascribe no different intention to the parties with respect to discharge of bank's obligation, supported by the guaranty fund, than if their transaction had been consummated by means of formal certificate of deposit or by certified check. 5 R. C. L. 483, 484; Walker v. Sellers, 201 Ala. 189, 77 South. 715.

Referring to a cashier's check, which a depositor of a bank obtained by having the amount of the check entered on his passbook as a payment to him, the Supreme Court of Illinois said:

* * *

"The check was not drawn by a depositor, but was simply an acknowledgment of an indebtedness on the part of the bank to the payee of the order. As between the bank and appellant [the payee] it was, in legal effect, the same as a certificate of deposit or a certified check." Clark v. Chicago Title & Trust Co., 186 Ill. 444, 57 N. E. 1061, 53 L. R. A. 232, 78 Am. St. Rep. 294; Id., 85 Ill. App. 295.

To the same effect, see Lummus Cotton Gin Co. v. Walker, Supt., 195 Ala. 555, 70 South. 754.

Relator's check for $3,000 against his deposit has not been paid. He drew the check to get $3,000, not at that moment, but when he or his transferee might choose to present the cashier's check. The cashier's check was but the vehicle by which the payment of relator's check was to be accomplished. Upon the dishonor of the bank's check, relator's deposit stands as though he had never drawn his own $3,000 check, nor received the bank's worthless check. Western Brass Mfg. Co. v. Maverick, 4 Tex. Civ. App. 535, 23 S. W. 728; Anderson v. Owen, 112 Miss. 476, 73 South. 286; Bank of Greenville v. Kretschmar, 91 Miss. 615, 44 South. 930.

We are not inclined to hold that a cashier's check will ordinarily draw interest in advance of its presentment for payment. The essential understanding of the parties is that the principal only is to be paid whenever the holder may elect to present the check for payment. Duncan v. Magette 25 Tex. 248. However, having held that relator could repudiate the check, on the bank's insolvency, as he did, it is not necessary for us to determine the question.

Since it plainly appears that the transaction between relator and the bank did not discharge the bank's obligation to relator as a general depositor, entitled to the benefits of the guaranty fund, such transaction presents no obstacle to his maintenance of this suit."

BAKER HELD TO BE A MANUFACTURER. -In the case of State v. Lanasa, 92 So. 306, the Supreme Court of Louisiana holds that a baker, in whose establishment the various processes are conducted by electrically driven machinery, is a manufacturer, within the meaning of a constitutional provision exempting manufacturers from a license tax. We quote from the opinion of the Court as follows:

"The mechanical process of sifting, mixing, and manipulating the flour and other ingredients, all of which was done by electrically driven machinery, and the conversion of the combined ingredients into the finished product, is described, substantially, like the process that was declared "manufacturing" in the case of State v. American Biscuit Manufacturing Co.. 47 La. Ann. 160, 16 South. 750. The only difference is that the American Biscuit Manufacturing Company manufactured various kinds of biscuits, crackers, and Italian paste; whereas, the defendant in this case manufactured only bread. In State v. Eckendorf, 46 La. Ann. 131, 14 South. 518, it was held that one who baked and sold bread, on a comparatively small scale, was not a manufacturer. And so, in City of New Orleans v. Mannessier, 32 La. Ann. 1075, it was held that one who made and sold ice cream was not a manufacturer. But, 36 years later, in State Tax Collector v. Brown, 140 La. 928, 74 South. 253, we held that one who maue ice cream on a large scale and by machinery was a manufacturer.

"Without observing a distinction in law between the making of bread and the making of biscuits, we cannot distinguish this case from that of the American Biscuit Manufacturing Company. Such a distinction does not result from the fact-if it is a fact that biscuit making is a more complex process than bread making or that the biscuit manufacturers make more, and the bread manufacturers make less, than 57 varieties. For we have decided that coopers, making only such simple articles as barrels and hogsheads, are manufacturers. See City of New Orleans v. Le Blanc, 34 La. Ann. 596. And we have decided that the making of burlap bags, a process consisting merely of cutting the manufactured fabric into standard sizes, folding each piece once and sewing together the edges on two sides, is manufacturing. See State v. Bemis Bag Co., 135 La. 398, 65 South. 554."

ONE SELLING SECONDHAND AUTOMOBILE WITHOUT EXECUTING BILL OF SALE AND TRANSFER TAX RECEIPT, CANNOT RECOVER ON THE PURCHASE MONEYNOTE.-The case of Foster v. Beall, 242 S. W. 1117, decided by the Court of Civil Appeals of Texas, holds that when one sells a secondhand automobile without executing a bill of sale, and transferring the license fee receipt, as required by statute, he cannot recover on a purchase money-note given for the machine, although he innocently neglected to comply with the statute, and subsequent tendered full compliance. The case goes further and holds that the purchaser in such circumstances cannot tender back the machine and recover the amount paid because of the seller's failure to comply with the statute. Regarding the abovementioned points, the Court in part said:

"The statute quoted above was enacted, not simply for the purpose of regulating the trans

fer of the title to personal property, but as a method of suppressing automobile thefts, compliance with that law is not a formality which the parties may waive. The general public has an interest in its observance. When the appellee sold and delivered the car to the appellant without executing and delivering the necessary papers, he committed a penal offense, punishable by a fine. He knowingly did that which the law said he should not do. His alleged good intentions did not excuse him. He is charged with a knowledge of those legal requirements, and he knew that he had not performed them. He made no attempt to perform them till after this suit was filed, and after the sale had been repudiated by the purchaser. The law is mandatory, and cannot be evaded by innocent neglect. Overland Sales Co. v. Pierce (Tex. Civ. App.) 225 S. W. 284; Goode v. Martinez (Tex. Civ. App.) 237 S. W. 576. It is the fact of failure to comply with the statutory requirements, and not the evil intent, that constitutes the offense.

The courts will not enforce illegal contracts, but will leave the parties just where they have placed themselves. Wiggins v. Bisso, 92 Tex. 219, 47 S. W. 637, 71 Am. St. Rep. 837; Seeligson v. Lewis, 65 Tex. 215, 57 Am. Rep. 593. The judgment will therefore be reversed, and judgment here rendered that the appellee take nothing by his suit on the note. For the same reason the appellant is not entitled to the relief sought in his cross-action."

OWNER PERMITTING BEGINNER ΤΟ DRIVE AUTOMOBILE AS ACT OF NEGLIGENCE. In the case of Wilson v. Brauer, 117 Atl. 699, decided by the Court of Errors and Appeals of New Jersey, there was evidence tending to show that the owner of an automobile expressly authorizea a beginner who had no driver's permit, and who, to the knowledge of the owner, knew nothing of the operation of an automobile, to run it upon the streets of a populous city for the purpose of learning how to operate it. It was held that the liability of the owner for injury to a pedestrian caused by the operator's want of knowledge and skill, was a question for the jury. A portion of the opinion by Trenchard, J., follows:

"Of course it is quite true, as a general rule, that the owner of an automobile is not liable for an injury resulting from its operation by another, unless the person operating it is one for whose act the owner is responsible under the doctrine of respondeat superior. But this case does not depend entirely upon the appliIcation of that doctrine. Where, as here, the owner of an automobile expressly authorizes a beginner, who had no driver's permit, and who, to the knowledge of the owner, knows nothing of the operation of an automobile, to run it upon the streets of a populous city for the purpose of learning how to operate it, he may be responsible for an injury to a pedestrian caused by the operator's want of knowledge and skill. The liability of the owner would

rest, not alone upon the fact of ownership, but upon the combined negligence of the owner and driver, negligence of the one in authorizing the performance of a highly dangerous act with the machine, and of the other in its operation.

"The underlying principle of the rule is stated in Van Winkle v. American Steam Boiler Co., 52 N. J. Law, 247, 19 Atl. 475, thus:

"'In all cases in which any person undertakes (or authorizes) the performance of an act which, if not done with care and skill, will be highly dangerous to the persons or lives of one or more persons, known or unknown, the law, ipso facto, imposes as a public duty the obligation to exercise such care and skill.'

"It is true, we believe, that automobiles are not generally held to be dangerous instrumentalities per se. Certainly, when carefully and intelligently handled, they are not usually dangerous to other persons using public highways with due care. But their great power, weight, and speed endow them with dangerous potentialities, and, when not handled carefully by competent persons, they become, under certain conditions, highly dangerous instrumentalities and a public menace, as this case illustrates.

"No one will deny that an automobile in the hands of a person having no knowledge of how to drive it would be a dangerous machine to turn loose on busy streets and would constitute a menace to travelers. Now, as we have pointed out, there is evidence in the present case tending to show that the defendant owner expressly authorized his chauffeur to use his car for the purpose of teaching Beck how to drive it. This authorization was given just as his chauffeur was about to take the car from the defendant's home to the garage through populous part of Jersey City. We think that the jury might fairly infer that the permission was to be presently exercised; that is to say, the authorization was to use the streets in the neighborhood of the defendant's home for the purpose of giving the lesson in driving. The result was that Beck actually ran the car up on the sidewalk and injured the plaintiff. We think that was a result which it was open to the jury to infer that the defendant, in the exercise of due care and foresight, should have anticipated as likely to occur. The motion for a direction of a verdict was therefore properly denied."

THEFT POLICY HELD TO COVER RECTIFIER AS "EQUIPMENT” OF AUTOMOBILE.A policy insuring an automobile owner against loss by theft, on the body, machinery, and equipment, is held by the Appellate Court of Indiana, in Old Colony Insurance Co. v. Koimer, 136 N. E. 51, to cover theft of a rectifier used in charging the batteries of the automobile with electric current; the term "equipment" meaning provision of whatever is needed for efficient action or service. We quote from the opinion as follows:

A few illustrations may prove helpful: Most owners of automobiles carry an emergency jack, when on the road, for use in the event of deflated casings. This is certainly a part of the equipment of the automobile. Some owners also have other jacks, which they keep in their garages, with which to raise and support their automobiles from the floor, when left standing for a considerable time. Can it be said with reason that the former is an equipment, while the latter are not, merely because one is carried with the automobile, while the others remain in the garage? Formerly all automobile owners, and even now most of them, carry small hand pumps for the purpose of inflating their casings when on the road. These are evidently a part of the equipment of such automobiles. Some may have larger and more efficient pumps for such purpose, which are not carried in or on their automobiles because of their size. But can it be successfully urged that because of the difference stated, the latter are not a part of the equipment of such automobiles? We are clearly of the opinion that it cannot be done, as to do so would give too much importance to a comparatively immaterial fact. Other illustrations might be drawn from the use of appliances for cleaning and lubricating, but more are unnecessary.

"As we have heretofore noted, the policy does not limit the equipment or the automobile covered thereby to such as may be attached thereto, or carried therein or thereon, or to such as might be so carried in a place provided therefor. To so limit the policy would be to write something into it which was omitted by the insurer when it prepared the same, a thing we are not permitted to do. We attach no importance to the fact that the rectifier was not purchased with the automobile, as a part of its equipment, as an appliance acquired subsequently, if of such a character and so used as to constitute an equipment, would be such notwithstanding that fact. As to the list price of the automobile, and the fact that rectifiers are not used for the sole purpose of charging electric automobiles, it suffices to say that, while such facts would constitute matters proper for the consideration of the trial court in reaching its conclusion, they are not conclusive.

"As bearing on the intention of the parties to the policy in suit, the trial court may have believed that appellant knew, as a matter of common knowledge, that an electric automobile cannot be operated without being charged with electricity, and that many owners of such automobiles had or might have appliances for that purpose, and may have given weight to the fact that, with such knowledge, appellant considered the equipment which it did not desire that the policy should cover, and only eliminated therefrom 'robes, wearing apparel, personal effects, extra bodies, * * tools and repair equipment,' as therein specifically enumerated. That such was the intention of appellant is a reasonable inference from the facts stated, since the policy was evidently prepared by it, and we must give effect to such inference on appeal."