Opinion
(December Term, 1840.)
1. A deed, absolute on its face, but intended as a mortgage only, is fraudulent and void against creditors and purchasers, and against subsequent as well as prior creditors.
2. Such a deed cannot be rendered valid by any subsequent agreement between the grantor and grantee, that the grantee should have all the interest of the grantor in the premises, and by the actual payment by the grantee, in pursuance of such agreement, of the full value of the land to the grantor's creditors.
3. Nor even where the deed is redelivered subsequently to and in pursuance of such agreement. Having taken effect, as between the parties, on the first delivery, the deed could not be surrendered to be redelivered.
EJECTMENT, tried at Fall Term, 1840, of YANCEY, before Bailey, J. The jury found a verdict for the plaintiff, and judgment was rendered thereon, from which the defendant appealed to the Supreme Court.
Francis for plaintiff.
Hoke and Saunders for defendant.
The facts of the case are stated by the Court in the opinion.
Robert P. Tredway purchased the premises in controversy from one Bailey, and took a conveyance in fee, on 25 September, 1835; and both of the parties to this suit claim under Tredway. The price he was to give Bailey was $1,000; of which $500 was secured by Tredway's own bond, and the other $500 by the bond of Tredway and the defendant Ray as his surety. At the time Ray executed the bonds it was understood between those three persons that Ray was to (341) be indemnified from loss by a conveyance of the land as a counter-security; and he and Tredway requested Bailey to make his conveyance directly to Ray, instead of Tredway. But Bailey declined doing so, and Ray, who was father-in-law of Tredway, then became surety, upon an agreement of Tredway to secure him by a mortgage of the land.
On 28 September, 1835, Ray took from Tredway conveyances for the lands purchased from Bailey, and also for all his other property, real and personal, all which were absolute and unconditional in their terms, but were really given upon an agreement between the parties that they should operate as a counter-security to Ray, in the manner above mentioned. In March, 1836, Halcombe, the lessor of the plaintiff, and one Love and other creditors, brought actions against Tredway; and he, in April following, having remained in possession of all the property he had conveyed to Ray, and being still indebted to those persons, and also to Bailey for the land, and to others, made a contract to sell to Ray all his remaining interest or right of redemption in the land, and removed from the State. All those debts existed at or before the execution of the deed to Ray of 28 September, 1835, unless it might be the debt to the lessor of the plaintiff; and it did not appear whether that was contracted before or after that day. The land is of the value of $1,000; and after Tredway left this State the defendant paid $400, in part of the debt to Bailey, for which he was surety; and there remains due thereon $100, for which he is still liable. He also paid the further sum of $500 to Love and other creditors of Tredway, and assumed to pay $200 more for him. In June, 1836, judgment was recovered in the action brought by Halcombe against Tredway, and under a fieri facias thereon the land was sold and purchased by the lessor of the plaintiff.
On the trial, the counsel for the defendant moved the court to instruct the jury that the conveyance to the defendant was good, and vested the land in the defendant, although it was absolute in form, and although it was intended it should only be a security in the nature of a mortgage, to indemnify the defendant from loss as Tredway's security, (342) provided the deed, in the opinion of the jury, was executed with the bona fide purpose that it should be used or operate only as such counter-security, and with no actual intent to deceive and hinder Tredway's creditors. And the counsel moved for the further instruction, that if the foregoing proposition were not true in respect to Tredway's creditors, whose debts existed at the time he conveyed to Ray, yet it was, at least, true in respect to the debt to the lessor of the plaintiff, who did not show when he became a creditor. And the counsel for the defendant moved the court further to instruct the jury that the purchase by the defendant, in April, 1836, of the remaining or absolute interest of Tredway confirmed and made effectual the deed of September, 1835, as an absolute conveyance, although intended, at first, only as a mortgage; especially, if the jury should believe there was redelivery thereof in April, 1836.
Upon those several points his Honor gave his opinion: that the deed, being absolute, but intended at the time as a mortgage, was void as against Tredway's creditors; and the lessor of the plaintiff was such a creditor as could avail himself thereof; and that the subsequent purchase by the defendant could not give effect to the prior deed, unless it was upon such purchase redelivered; in which case the title would pass from the redelivery.
There was a verdict and judgment for the plaintiff, and the defendant appealed.
The first part of the instructions is, doubtless, founded on the case of Gregory v. Perkins, 15 N.C. 50, and is supported by that decision. The taking absolute conveyances, where only a mortgage was intended and where the possession remains unchanged, has ever been regarded as a strong badge or circumstance of fraud at common law or under the statute 13 Eliz. But, independent of that consideration, we thought the rule laid down in Gregory v. Perkins the necessary consequence of the recent acts of the General Assembly, denying an operation to mortgages and deeds of trust until they are registered, and declaring them (343) void as against creditors and purchasers, unless registered within a prescribed time. There may be, in many cases, difficulties in ascertaining, as a matter of fact, the true nature of the transaction intended by the parties, and in coming to the conclusion whether a mortgage or mere security in the nature of it was designed. But in this case there is no doubt upon that point, as the real character of this transaction is manifest, and, indeed, is admitted in the instruction as prayed. To sustain an absolute deed, thus acknowledged to have been intended by the parties to be only a mortgage, would, in truth, be to defeat the policy of the Legislature and make the laws of 1820 and 1829 a dead letter. But, it is said, the parties may have put their contract into this form ignorantly, and, therefore, innocently; and that thereof the jury should inquire. Not so; for the same thing may be said in regard to the omission to register a mortgage, appearing on its face to be a mortgage. That may also arise from want of knowledge, and not from a purpose actually deceptive and fraudulent. Yet the effect to a creditor or purchaser is the same: He is deceived, and, therefore, the statute is express and positive that, at all events, the unregistered mortgage shall be void. By a necessary construction, the law must mean the same thing in regard to an absolute deed, intended to be only a mortgage; since although registered, it imparts to creditors and purchasers no more knowledge of the truth and of their rights than they would derive from a deed, in its terms a mortgage, which the party keeps in his pocket unregistered. If the deed had truly expressed the contract of the parties, the mortgagor's creditors would have a plain legal remedy against his equity of redemption in lands, and in equity against that in chattels; and the Legislature, by the acts under consideration, intended to provide for the creditors such means of knowledge as would enable them to avail themselves promptly and cheaply of those remedies. Our duty is to receive and administer the statutes in a sense which will advance the remedies and secure to creditors the whole benefit intended for them; and, therefore, we are obliged to hold such a deed void, because it obstructs and baffles the creditor in the pursuit of his debts by those remedies the law intended to afford him; and, if allowed to stand, the creditor (344) would be in the same condition as if no such law had ever passed.
We also think the lessor of the plaintiff is a creditor within the acts, though he may have become so after the execution of the deed to the defendant. His debts certainly arose as early as March, 1836; and, therefore, existed before the second contract between Tredway and Ray and while the former had an equity of redemption in the premises. As respects this question, that second contract makes no difference. If valid, it would defeat this creditor, and also all others, though their debts existed before September, 1835, unless ripened into judgment and execution, so as to create a lien before the final and absolute sale. But supposing the second contract not to be effectual in itself, or in confirmation of the deeds before made, then, we think, the lessor of the plaintiff may impeach the deed upon the ground he does; because if the deed had been a mortgage in terms, he could, under the act of 1812, have sold the equity of redemption existing in the mortgagor at the time he recovered his judgment.
The deed can derive no aid from the subsequent transactions of April, 1836. In the first place, if it had been in fact redelivered, there are authorities that deed is not made good thereby; because it was good between the parties, and so, had taken some effect from the first delivery, and, therefore, could not be surrendered, to be delivered a second time. In the next place, that question ought not to have been left to the jury, for there was no evidence whatever on the point. But no stress is laid upon either of those matters, since the jury has found that there was not a second delivery. Then, the case stands merely on the second contract and the payments made by the defendant under it; and it has been contended that the deed, though originally fraudulent and void, is rendered valid by this ex post facto purchase at a fair price. It is not denied that conveyances may become good, to some purposes, by matter ex post facto. If a father give land to his son, and the latter, being about to marry, settle it on the intended wife and the issue; or if a fraudulent vendee sell to a bona fide purchaser, the creditors of (345) the first grantor are bound, because the wife and the other purchaser are persons protected by the statute. Martin v. Cowles, 18 N.C. 29. But a fraudulent grantee can by no subsequent act confirm the deed or purge it of its vice, so as to render it effectual as a conveyance to vest a title in himself. He can only become the owner of the property by a new and independent contract and conveyance.
PER CURIAM. No error.
Cited: Doak v. Bank, 28 N.C. 326; Womble v. Battle, 38 N.C. 197; Benton v. Saunders, 44 N.C. 363, 364; DeCourcy v. Barr, 45 N.C. 187; Johnson v. Murchison, 60 N.C. 290; Sharp v. Pearce, 74 N.C. 602; Gulley v. Macy, 84 N.C. 439, 440; Gorrell v. Alspaugh, 120 N.C. 372; Poston v. Jones, 122 N.C. 540; Gorrell v. Alspaugh, ib., 561.