This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If a debt is incurred by an owner of realty under such circumstances that it does not become a lien upon such realty by the operation of law, an oral agreement by such owner that such debt shall be a lien upon such realty is a contract for an interest in realty, and is accordingly within the statute.1 Thus an oral contract to give a mortgage,2 as by deposit of title deeds,3 to modify a mortgage already given so as to secure debts other than those for which it was given,4 to pledge land for advances,5 as for advances made by a third person to enable promisor to pay his grantor for the realty6 or for indemnity against a breach of the covenants of warranty of a deed conveying other realty,7 a contract creating a mechanic's lien in a manner not provided for by statute,8 and a contract to give to one who is to perform certain services a certain per cent of the increase in the value of promisor's realty as compensation therefor,9 are all within this clause of the statute.
17 Alemania, etc., Co. v. Franzreb, 56 0. S. 493; 47 N. E. 497.
1 Driver v. Broad (1893), 1 Q. B. 744; affirming (1893) 1 Q. B. 539; Spies v. Price, 91 Ala. 166; 8 So. 405; Merchant v. Cook, 7 App. D. C. 391; Pierce v. Parrish, 111 Ga. 725; 37 S. E. 79; Vose v. Strong, 144 111. 108; 33 N. E. 189; Slack v. Collins, 145 Ind. 569; 42 N. E. 910; McCue v. Smith, 9 Minn. 252; 86 Am. Dec. 100; Bender v. Zimmerman, 122 Mo. 194; 26 S. W. 973; Curie's Heirs v. Eddy, 24 Mo. 117; 66 Am. Dec. 699; Bloomfield State Bank v. Miller, 55 Neb. 243; 70 Am. St. Rep. 381; 44 L. R. A. 387; 75 N. W. 569.
2 To mortgage the fee, Hackett v. Watts, 138 Mo. 502; 40 S. W. 113; Bloomfield State Bank v. Miller, 55 Neb. 243; 70 Am. St. Rep. 381; 44 L. R. A. 387; 75 N. W. 569; Brown v. Drew, 67 N. H. 569; 42 Atl. 177; Boehl v. Wadgymar, 54 Tex. 589. Contra, Roberge v. Winne, 144 N. Y. 709; 39 N. E. 631. In this case A gave B a worthless mortgage as part of an executed contract to exchange realty. A subsequently agreed to give B another mortgage on other realty. This contract was held not to be within the statute. The case was decided by a divided court and is not reported in full.
3 Bloomfield State Bank v. Miller, 55 Neb. 243; 70 Am. St. Rep. 381; 44 L. R. A. 387; 75 N. W. 569.
4 Williams v. Hill, 19 How. (U. S.) 246; Pierce v. Parrish, 111 Ga. 725; 37 S. E. 79; Irwin v. Hubbard, 49 Ind. 350; 19 Am. Rep. 679. A contract that a satisfied judgment shall stand as a lien for future advances is within the statute. Trus-cott v. King, 6 N. Y. 147.
5 Curie's Heirs v. Eddy, 24 Mo. 117; 66 Am. Dec. 699.
6 Spies v. Price, 91 Ala. 166; 8 So. 405; McCue v. Smith, 9 Minn. 252; 86 Am. Dec. 100.
7 Bender v. Zimmerman, 122 Mo. 194; 26 S. W. 973.
Assuming, then, that a mortgage or lien can he created only in compliance with this clause of the statute, we find four other questions involving the application of the statute of frauds to mortgages: (1) if the instrument is a deed in form can oral evidence be used to show that it is really a mortgage? (2) Can the right of redemption be created or extended by oral contract? (3) Can the equity of redemption be released orally? and (4) Can the mortgage be released orally? In each of the last three cases the mortgage may be created by (1) an instrument in form a mortgage, or (2) an instrument in form an absolute deed.
(1) A deed of realty, absolute on its face, may be shown by extrinsic evidence to be in reality a mortgage as between the parties thereto in a suit in equity.10 This is an illustration of the principle already discussed,11 namely, that an implied trust may be proved orally. While the legal title may pass under the deed, the facts and circumstances of the transfer create the relation of mortgagor and mortgagee. This relationship grows out of the facts of the case and does not depend on the express oral agreement of the parties that the conveyance is a mortgage. Such agreement, of course, strengthens the case made by evidence of the circumstances of the conveyance. However, the holding of equity that an absolute conveyance is a mortgage when intended as security for a debt is so independent of the agreement between the parties that no effect will be given to an express contemporaneous oral contract which provides that if the debt is not paid when due no equity of redemption shall remain in the mortgagor,12 since such a provision is contrary to public policy and void.13 The question of the effect of the parol evidence rule on the right to show that a deed absolute on its face is in fact a mortgage is discussed elsewhere.14
8 Slack v. Collins, 145 Ind. 569; 42 N. E. 910.
9 Vose v. Strong, 144 111. 108; 33 N. E. 189 (where treated as an equitable lien on the realty).
10 Peugh v. Davis, 96 U. S. 332; Morris v. Nixon, 1 How. (U. S.) 118; Glass v. Heeronymus, 125 Ala. 140; 82 Am. St. Rep. 225; 28 So. 71; Reeves v. Abercrombie, 108 Ala. 535; 19 So. 41; Adams v. Hopkins (Cal.), 69 Pac. 228; Vance v. Anderson, 113 Cal. 532; 45 Pac. 816; Parsons v. Camp, 11 Conn. 525; Pitts v. Maier, 115 Ga. 281; 41 S. E. 570; German Ins. Co. v. Gibe, 162 111. 251; 44 N. E. 490; Brown v. Follette, 155 Ind. 316; 58 N. E. 197; Rogers v. Davis, 91 la. 730; 59 X. W. 265; Seiler v. Bank, 86 Ky. 128; 5 S. W. 536; Cullen v. Cary, 146 Mass. 50; 15 N. E. 131; Carveth v. Winegar, - Mich. -; 94 N. W. 381; Backus v. Burke, 63
Minn. 272; 65 N. W. 459; Gregg v. Kommers, 22 Mont. 511; 57 Pac. 92; Fahay v. Bank, 1 Neb. Unoff. 89; 95 N. W. 505; First National Bank v. Sargeant, 65 Neb. 594; 91 N. W. 595; Kemp v. Small, 32 Neb. 318; 49 N. W. 169; Stoddard v. Whiting, 46 N. Y. 627; Fuller v. Jenkins, 130 N. C. 554; 41 S. E. 706; Ying-ling v. Redwine, 12 Okla. 64; 69 Pac. 810; Lovejoy v. Chapman, 23 Or. 571; 32 Pac. 687; Hickman v. Cantrell, 9 Yerg. (Tenn.) 172; 30 Am. Dec. 396; Hexter v. Urwitz, 6 Tex. Civ. App. 580; 25 S. W. 1101; Herrick v. Teachout, 74 Vt. 196; 52 Atl. 432; Tuggle v. Berkeley, 101 Va. 83; 43 S. E. 199; Shank v. Groff, 43 W. Va. 337; 27 S. E. 340; Beebe v. Loan Co., 117 Wis. 328; 93 N. W. 1103; Jordan v. Warner, 107 Wis. 539; 83 N. W. 946.
Whether in jurisdiction where equitable defenses cannot be interposed in actions at law, a deed absolute on its face can be shown to be a mortgage in an action at law is another question. According to some authorities such evidence is inadmissible at law.15 Thus the grantor cannot sue the grantee at law for slander of title for saying that the grantor has, after the execution of such deed, no title to such realty.16 In a few jurisdictions such evidence was held to be admissible.17 The reasons for excluding this evidence at law are in part that such evidence violates the statute of frauds, and in part that it violates the parol evidence rule. The most forcible reason, however, is that such evidence at most tends to show only an equitable title, with which, in general, a court of law has nothing to do. Accordingly in jurisdictions where equitable defenses may be interposed in actions at law no trouble is found in admitting evidence of this sort.
11 See Sec. 641.
12Fahay v. Bank, 1 Neb. Unoff. 89; 95 N. W. 505.
13 See Sec. 192; and see Ch. XVII.
14 See Sec. 1199.
15 Bragg v. Massie, 38 Ala. 89; 79 Am. Dee. 82; Thomas v. McCor-mack, 9 Dana (Ky.) 108; Hurley v. Donovan, 182 Mass. 64; 64 N. E.
685; Harper v. Ross, 10 All. (Mass.) 332; Abbott v. Hanson, 24 N. J. L. 493.
16 Hurley v. Donovan, 182 Mass. 64; 64 N. E. 685.
17 Hayworth v. Worthington, 5 Blackf. (Ind.) 361; 35 Am. Dee. 126; Fuller v. Parrish, 3 Mich. 211.