Story Case

James Dupree owned a farm of two-hundred acres, known as Peace Grove Farm, worth $10,000. Dupree borrowed $2,000 of Henry Walker, giving Walker as security, a mortgage upon the farm for this amount. Walker did not record this mortgage with the county recorder. Two months later, Dupree borrowed $1,000 of Edward Hanna, giving him a mortgage on Peace Grove Farm for this amount. Having had knowledge of the mortgage to Walker, Hanna recorded his mortgage. In a year following this, Dupree's daughter, Helena, married Walter Spry. After the wedding, Dupree surprised Spry by giving him a deed to Peace Grove Farm. Spry went upon the farm to live, totally ignorant of the mortgages. When these became due, Dupree had failed to pay any of them. Litigation ensued to determine the rights of the parties. What will the court do?

Ruling Court Case. Jenks Vs. Shaiv, Volume 99 Iowa Reports, Page 604

Albert Shaw borrowed money from his wife, Mrs. Shaw, giving her as security a mortgage on his farm. Subsequent to this, he borrowed money of Walter Lane, giving him a note secured by a mortgage upon the same land. The mortgage held by Mrs. Shaw was recorded in the county records. Lane did not record his mortgage.

Sometime after the transaction with Lane, one Hartley purchased the land, and Mr. and Mrs. Shaw both joined in the deed. Hartley did not know of the mortgage to Lane.

Jenks purchased the mortgage of Lane, and when the notes were not paid, seeks to foreclose on the land bought by Hartley. Justice Given delivered the opinion of the court:

"The only mortgage on record was the one from Shaw to his wife. By the records Shaw and his wife held all the right, legal and equitable, and Hartley had the right to conclude that there were no other interests. The recording laws were to forestall secret conveyances and mortgages, and if the records do not disclose an incumbrance, it will not be valid as against a purchaser who has no knowledge thereof. Therefore, judgment should be against Jenks. He had no claim upon the land through an unrecorded mortgage.

Ruling Law. Story Case Answer

A mortgage is a conveyance of an estate by way of security for a debt. In form, it is an outright sale by deed of the mortgagee, subject to the condition that the deed is void if payment of the debt is made. Practically all the courts agree, however, that even though there is a conveyance, the mortgagee has only a lien on the property, and the mortgagor remains the actual owner. A trust deed, or trust mortgage, is a conveyance of the legal title to some third person to hold for the benefit of the mortgagee. Practically all bond holders are mortgagees whose security is in the name of some trust company.

A mortgage must be executed in the same manner as other deeds and immediately recorded. If not recorded it is void, like other unrecorded deeds, as against any subsequent purchaser who had no knowledge of the mortgage, or any subsequent mortgagee who makes his transaction in good faith. In the Story Case, Spry takes the farm, subject to both mortgages, because he was not a purchaser, since the farm was given to him. Had he paid a consideration, as for instance, if Dupree had said to him prior to the marriage, "In consideration that you promise to marry Helena, I will give you Peace Grove Farm," and Spry acted in reliance thereon, he would have taken free of "Walker's mortgage.

As the case stands, Walker has first claim, since Hanna knew of the first mortgage, and since Spry was not a purchaser. Hanna can, of course, enforce his mortgage against Spry's land.