
    No. 9339.
    Tuttle v. Churchman et al.
    Real Estate. — When Deed Absolute Treated as Mortgage. — Security.—A deed of realty, though absolute on its face, will be treated in equity as a mortgage only, if the purpose of its execution was to secure the payment or discharge of an existing debt or liability.
    
      Same. — Possession Constructive Notice. — As a general proposition, the possession of real estate is constructive notice to all the world of the rights of the party in possession.
    
      Same. — Exception to Buie. — Grantor's Possession after Conveyance. — The fact that a grantor remains in possession of his land after conveying it away by a deed absolute on its face is not constructive notice to purchasers of a judgment against the grantee, of the grantor’s right to have his deed treated as a mortgage.
    
      Same. — Innocent Purchasers of Judgment against Grantee. — Superior Bight.— Purchasers of a judgment against a grantee which, by the records, appears to have become a lien on land conveyed by a deed absolute on its face, having expended their money upon the faith of that appearance, paying the full amount thereof in ignorance and without notice of the fact that the deed was only a security, or claimed as such, acquire a right superior to the right of the grantor acquired by a re-conveyance of the lands and by actual continued occupation thereof.
    Prom the Marion Superior Court.
    
      
      D. V. Burns and C. S. Denny, for appellant.
    
      J. S. Tarkington, for appellees.
   Woods, J.

The appellant, Tuttle, brought an action to •quiet the title to real estate against a judgment lien asserted by the appellees, Churchman and Fletcher. The suit was begun in Johnson county, where the real estate is situate, and ■transferred by agreement to the superior court, wherein, at ■special term, there was a finding and judgment for the plaintiff, which was reversed at general term. This reversal is assigned as error. While some exceptions were saved in reference to the admission of some portions of the evidence, the real dispute is whether the decision and judgment of the court at special term, upon the proofs made, was right. We have, however, examined the evidence carefully, giving especial attention to the portions which were admitted over objection, and think the court committed no error in admitting any part thereof. But whether the court reached the right conclusion upon the whole case, is a question not free from difficulty, and involved in some conflict of authority.

The following summary of the facts proved, about which we may say there is little or no dispute, will be sufficient to afford an understanding of the questions presented, and of the conclusions of the court thereon.

On the 26th day of April, 1877, the plaintiff was the owner in fee and in possession of a certain tract of land in Johnson county, Indiana, subject to a mortgage to secure the payment of three promissory notes for one thousand two hundred dollars each, executed by the plaintiff, as principal debtor, and by Jacob Smock, the father-in-law of the plaintiff, as surety; and said Smock having paid two of said notes, and being still liable on the third, the plaintiff on said day made to him a •deed of said land, absolute on its face, and upon the consideration of $3,750, therein stated to have been paid, but intended by the parties only as a security against said liability, .and for the repayment of the money so paid on said notes. Said deed was duly recorded on the 28th day of April, 1877, and the title of record remained in said Jacob Smock until March 1st, 1878, when said Smock reconveyed a part of ■said land, to wit, the real estate now in suit, to the plaintiff, and the remainder thereof, the same being by the parties treated as a payment of said sums which said Smock had paid for the plaintiff, he conveyed to his son, J acob E. Smock, and the third note secured by said morgage was on the same day taken up, and said Jacob F. and the plaintiff made their note instead and executed a mortgage to secure the same on the whole of said tract of land which the plaintiff had owned. The plaintiff did not surrender possession upon the execution of his said deed to said Jacob Smock, but continued in the actual occupation of the whole of the land until March 1st, 1878, when said Jacob F. took possession of the portion ■conveyed to him, and has remained in possession thereof, and the plaintiff has continued to occupy the land in suit, so reconveyed to him. While Jacob Smock held the legal title under said deed from the plaintiff, to wit, on the 2d day of August, 1877, one Eliza E. Scott (since Espy) caused to be filed in the office of the clerk of the circuit court of Johnson county a duly certified transcript of a judgment which she had recovered in the Superior Court of Marion county against said Jacob Smock and others in the sum of |3,100, which thereby became an apparent lien on said land, and thereafter she caused an execution to issue on said judgment from said court, directed to the sheriff of Johnson county, who levied the' same on said real estate, and on the 4th day of October, 1877, returned said writ unsatisfied, but with the levy indorsed thereon as a part of the return*. Afterward, ;and after the date of said reconveyance to the plaintiff, to wit, on June 10th, 1879, said Eliza Espy duly assigned of record her said judgment to the appellees, who took the same, paying the full amount thereof, in ignorance and without notice of the fact that said deed from the plaintiff to said Smock was only a security, or that the plaintiff claimed it to be such, and in the belief that said judgment was a lien on the land from the date of the filing of said transcript.

. On these facts, the appellant claims that Jacob Smock had no interest in the land on which the judgment became a lien, which the judgment plaintiff could enforce in preference to-the rights of the plaintiff, and that the appellees, by virtue of their purchase of the judgment, acquired no better right or lien than their assignor had ; and that if the latter proposition can not be maintained, still the plaintiff’s continued possession was notice of his rights which precluded the claim of the appellees that they purchased in good faith. As bearing on these, the counsel on either side have advanced in discussion a number of minor propositions, which need not be mentioned now, but, if necessary, will be considered in their proper connection as we proceed.

The doctrine is well settled that a deed of realty, though absolute on its face, will be treated in equity as a mortgage only, if the purpose of its execution was to secure the payment or discharge of an existing debt or liability. It is clear, therefore, that as between Tuttle and Smock, and as-to all who had notice of the facts, the deed of April 26th,, 1877, was only a mortgage.

It must be conceded, too, as a. general proposition, that the possession of real estate is constructive notice to all the world of the rights of the party in possession. There are, however, recognized exceptions to the rule. In Work v. Brayton, 5 Ind. 396, citing 3 Sandf. Ch. (N. Y.) 176, Scott v. Gallagher, 14 S. & R. 333, Woods v. Farmere, 7 Watts, 382, and Newhall v. Pierce, 5 Pick. 450, it was held that the possession of the vendor, who remained in possession after coixveying, was not notice of his right to a vendor’s lien. It was thcx’e said that, having remained in possession without any conti’act, so far as appeared, authorizing him to do so, he was a mere tenant at sufferance, with the title of such a. tenant and no other; and that the authorities seem sufficiently conclusive on the proposition, that, “where the deed of the grantor has been put upon record, acknowledging the receipt of the purchase-money, he will be estopped from relying on his continuance in possession as notice of a lien for purchase-money, as subsequent purchasers are not bound to go beyond, the recorded declarations of the parties and inquire into their-actual relations. ’ ’

The 17th section of an ‘ ‘Act concerning real property and the alienation thereof,” approved May 6th, 1852, 1 R. S. 1876, p. 365, is as follows : “When a deed purports to contain an absolute conveyance of any estate m- lands, but is made,or intended to be made, defeasible by force of a deed-of defeasance, bond, or other instrument for that purpose,, the original conveyance shall not thereby be defeated or affected as against any person other than the maker of the defeasance, or his heirs or devisees, or persons having actual notice thereof, unless the instrument of defeasance shall have been recorded, according to law, within ninety days after the-date of said deed.”

In Crassen v. Swoveland, 22 Ind. 427, after quoting this-section of the statute, the court says : “This statute, it will be seen, requires actual notice, to defeat a purchaser, where-the defeasance has not been duly recorded. Possession has never been held anything more than constructive notice. Such constructive notice does not come within the statute» This is in accordance with the authorities. Says an elementary writer : ‘Nor will the continued possession by the grant or of land, after the making of his deed, be notice of a defeasance held by him, which is not recorded. ’ 1 Wash. Real Prop., p. 495, sec. 22. The case of Hennessey v. Andrews, 6 Cush. 170, is directly in point, under a statute similar to our own.”

It is claimed that there is conflict in this respect between, these cases and the case of Glidewell v. Spaugh, 26 Ind. 319. There the vendor did not remain in possession, nor the vendee take it, but immediately upon the execution of the conveyance a third party, Glidewell, who claimed that the grantee held only in trust for him, took and held the possession; and it was held that “the fact that immediately upon the conveyance of the property to Woehler, the appellant entered into possession of the same, and continued to hold that possession at the date of the sheriff’s sale, was constructive notice to the appellee of Glidewell’s rights and put. him upon inquiry,” etc. The cases are plainly distinguishable, and not at all at variance upon the doctrine under consideration. There is, however, conflict of authority on the subject. See 2 Lead. Cas. in Eq., p. 184, and the case of Pell v. McElroy, 36 Cal. 268, which is pressed upon our attention as unanswerably establishing a contrary doctrine to the one stated, supra. We do not deem it necessary or profitable to examine the reasoning of the court in that case, or to enter into a review and citation of the cases pro and con, but content ourselves with saying that the doctrine already substantially, if not directly, decided by this court in the cases cited, meets our approval, and is more in harmony than the contrary view, with the legislative policy of the State on the subject, as manifested in the section of the statute concerning conveyances which has been quoted.

It may be true, as counsel for the appellant contend, and as declared in the opinion of one of the judges of the superior court, that the subject is not controlled by said 17th section of the statute, because “It provides only that when a deed purports to be an absolute conveyance, it shall not be defeated or affected by force of a deed, bond, or other instrument, unless the same shall have been recorded, etc. Here the plaintiff does not set up or rely on a written evidence of the interest he asserts. His right rests in parol and can be proven only, as the whole case assumes, by oral testimony that the deed to Smock was in fact intended by the parties as a mortgage. He had the legal right to rest' on the oral promise to reconvey. No statute required the transaction to be evidenced by a writing. Not being required to take a writing, the plaintiff can not be charged with negligence in not placing a defeasance on record. The question of registry does not apply to the facts of the case ; and the statute quoted can have no application, inasmuch as; it does not inhibit the taking of a parol defeasance or provide that such a defeasance shall not affect the deed, but simply requires the registration of instruments in writing which are to so operate. The reports are full of cases where the agreement to reconvey has been shown by parol, and in no case, within toy knowledge, has this section of the statute-been arrayed against such proof, and the case in the 22 Ind.,. supra, does not so hold or intimate. An unrecorded written defeasance was there involved, and what was said as to the-application of the statute had reference to that fact.”

What is here said in reference to the admissibility of the proof of the defeasance, is aside from the question, because-, the proof is always admissible, whether parol or in writing, and whether the writing be recorded or unrecorded. The-statute does not exclude the evidence in any case, but only limits its effect to “the maker of the defeasance, his heirs or devisees, or persons having actual notice thereof, unless the instrument of defeasance shall have been recorded, according to law.” But if we adopt the doctrine of constructive-notice, by reason of the continued possession of the grantor,, after the making of his deed, as applicable to cases wherein the defeasance is provable by parol evidence only, we arrive-at the singular and anomalous conclusion, that the grantor of" land who takes back written evidence of his reserved right is in a worse position than one who reserves the same right,, but takes no written evidence thereof. The latter could enforce his right against all the world on the ground of constructive notice inferred from his continued possession; while= the former, who has maintained a like possession, and has ■better and indisputable proof of his right, can assert and enforce it only against such as he can prove to have had actual notice thereof. His instrument of defeasance, toó, by reason of not having been acknowledged, or having been improperly acknowledged, may have been as incapable of registration as though it had been a parol defeasance only. We •can not consent to adopt a doctrine which would place the •careful man in a worse plight than the less careful one ; and we therefore hold that the fact that Tuttle remained in possession of his land after conveying it away by a deed absolute on its face, under the circumstances stated as proven, was not constructive notice to the appellees of his right to have his said deed treated as a mortgage.

Opinion filed at November Term, 1880.

Petition for a rehearing overruled at May Term, 1881.

Whether Mrs. Espy, by filing a transcript of her judgment in the office of the clerk of Johnson county, and by causing an execution to be issued and levied, acquired a lien on the land, which she could have enforced in preference to the rights of the plaintiff, we need not, and do not, decide; but the appellees, having purchased the judgment which by the records appeared to have become a lien on the land, and having expended their money upon the faith of that appearance, did acquire such superior right, and were entitled on the evidence to a finding and judgment in their favor. Upon this phase of the case there is no serious dispute, resting, as it does, upon the authority of the following cases: Flanders v. O'Brien, 46 Ind. 284; Busenbarke v. Ramey, 53 Ind. 499; Wainwright v. Flanders, 64 Ind. 306.

The judgment of the superior court at general term, reversing that at the special term, is affirmed, with costs.  