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Champ Lyons Jr., The Right of Redemption and the Equitable Mortgage, 17 ALA. L. REV.
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 COMMENTS

THE RIGHT OF REDEMPTION AND THE

EQUITABLE MORTGAGE

Introduction
The classic mortgage governs the situation wherein a debtor
is loaned money and he, in turn, conveys property to the creditor
for security. The creditor holds the title subject to the condition
subsequent that timely payment of the debt will revest title in
the debtor. The legal consequences of such a transaction are a
balancing of protective benefits. The creditor has a "secured"
position in the form of an encumbrance upon the property held
which can be enforced upon failure of the debtor to repay. The
debtor enjoys a right to redeem the property in the event it be-
comes necessary for the creditor to exercise his claim therein.
Quite often, various transactions are entered into, which,
for one reason or another, deviate from the standard form that
is readily identifiable as a classic mortgage. This situation might
arise because of ignorance of one or both parties or an advantage
by one party which enables his wishes to prevail as to the form of
the transaction. It may be that the creditor is in the position of
authority and it is his desire to prevent the debtor from being
able to assert a right of redemption. On the other hand, the deb-
tor may induce the creditor to lend the money without having
the advantage of an incumbrance upon the debtor's property.
It is in these transactions that the "pull and tug" of negotiations
give rise to ambiguous arrangements which:are later asserted to
be mortgages by the dissatisfied party. Equity has entered this
field and through various formulae has established processes in
order to determine when the umbrage of security law will be
afforded. The following comments analyze this exercise of equit-
able authority in construction of transactions where the manifes-
tation of security arrangements is ambiguous and redemptive
rights are asserted.
In a broad sense, the law regulating security transactions
balances its benefits between debtor and creditor in its allowance
of rights of redemption and preference, respectively.
Since security law is automatically brought into play when
the instrument bears the overt characteristics of a mortgage, de-
viation from the classical mortgage form has often resulted in
successful avoidance of the operation of these laws. The creditor
who desires to deny the debtor a right of redemption, even at the
 ALABAMA LAW REVIEW

risk of losing a preferred position as a creditor, has adopted

forms of instruments which sometimes are called a "bond for
title" or a "lease-sale." Instruments of this type can have the
effect of denying the debtor his right of redemption and preven-
tion of this result is sought by presentation of the instrument to
a court for construction. Certain standards which are used in the
construction of such instruments under Alabama law will here
be examined.
The early case of Eiland v. Radford' illustrates the type of
transaction that has been asserted to be an equitable mortgage.
A slave was conveyed for a sum of money and a defeasance in the
form of an agreement to reconvey was simultaneously given by
the grantee. The agreement was asserted to be a mortgage on
account of the similarity between the present transaction and a
typical mortgage wherein the grantor conveyed upon the condi-
tion that repayment within a certain time would extinguish the
effect of the conveyance. The court outlined factors which indi-
cate an intent to create a mortgage:
Did the relation of debtor, and creditor, exist before the alleged sale?
Did the transaction commence, by a proposition to lend, or borrow,
money? Did the vendor continue bound for the debt? Was there a great
disparity between the value of the property and the price agreed to be
given for it? When any of these facts are found to exist, they go far to
show, in a 2doubtful case, that a mortgage was intended, and not a condi-
tional sale.
It was then found that the vendor had originated negotiations,
that a fair price had been paid, that the vendor had not remained
bound for the price of this perishable property and that there-
fore the agreement was not a mortgage but a conditional sale.
Since the vendor of the slave had not performed his agreement to
repurchase within the specified time, all rights therein were
extinguished and there was no redemption permissible under
security law protection.
The leading U. S. Supreme Court case of Russell v. South-
3
ard also chose to weigh the presence of mortgage or sales char-
acteristics as the basis for allowing the protection of security
laws in a borderline case such as this. There the grantee of a fee
simple deed gave a modest sum in consideration to the grantor

1 7 Ala. 724 (1845).

2 Id. at 726. Cases such as this which deal with what would be classified as a chattel
transaction are of historical relevance only in light of legislative changes according re-
demptive rights in conditional sales of goods.
3 12 How. (U.S.) 139 (1851).
 COMMENTS .299

who happened to be in poor financial condition. The grantee

had been in the business of lending money. The grantor received
a written memorandum wherein the grantee agreed to reconvey
the land upon payment to him of a specified sum within a cer-
tain time.
The grantor brought a bill in equity to redeem on the
theory that the entire. transaction was a mortgage. In upholding
the grantor's contention, the court relied heavily on the grantee's
past practice of lending, the discrepancy between the value of the
land and the amount of the consideration, and the grantor's poor
financial condition. The court countered the grantee's conten-
tion that the grantor had consented to the conditional sale by
stating:
[T]he distress under which he (grantor) then was, places him in the same
condition as other borrowers, in numerous cases in the books, who have
submitted to the dictation of the lender under the pressure of their wants;
and a court of equity does not consider4 a consent, thus obtained, to be
sufficient to fix the rights of the parties.
The grantee also pointed to the absence of personal liability
on the part of the grantor as a factor negating a mortgage. The
court stated:
[I]t is not entirely consistent with the conclusion that a mortgage was
intended, but in a case where it was the design of the parties to clothe the
transaction with the forms of a sale, in order to cut off the right of re-
demption, it is not expected that the party would, by taking personal
security, effectually defeat his own attempt to avoid the appearance of a
loan.5
These two'early decisions indicate that the presence of a mort-
gage or sale intent is the basis of distinguishing between the right
to security or contract remedies. In both cases, evidence that
could support a mortgage intent was adduced. The absence of a
personal liability was a basis for holding the agreement to be a
conditional sale in Eiland v. Radford6 whereas this factor was
not deemed conclusive in Russell v. Southard.7 Hence, it will be
seen that a similarity in the form of such a test does not dictate
similarity of conclusion in parallel cases since the emphasis at-
tached to a particular factor, such as the presence of a debt, can
produce conflicting results.
The way in which the court views the evidence gives insight
4 Id. at 152.
r, Ibid.
6 Supra note 1.
7 Supra note 3.
 ALABAMA LAW REVIEW

to how the test of mortgage or sale intent is applied. Another

Alabama case, Rose v. Gandy' involved an absolute deed for the
conveyance of land coupled with an admission by the parties that
an oral agreement for right of repurchase had been made. The
court stated:
It will be observed that the case is not one involving the issue whether the
conveyances were intended as mortgages or unconditional sales. It is
whether from the understanding between the parties the complainant
should have the right to repurchase or to redeem. In other words, whether
the deeds were intended as mortgages or conditional sales. It is important
that this distinction should not be lost sight of since the degree of proof
required is different. For when the conveyance is absolute and the contro-
versy is whether the parties contemplated an unconditional sale or a
mortgage, the party claiming that it was intended as a mortgage must
show by clear and convincing evidence, that at the time of execution it
was intended and understood by both parties that it should operate as a
security for a debt. But where the writings must be departed from in order
to ascertain the true transaction between the parties, the rule is not so
stringent. 9
Since a court of equity admits parol evidence to show that less
than an absolute deed was intended, 10 the more stringent burden
of proof referred to above does not serve as an impediment in
many conveyances which appear absolute and unconditional on
their face. When an agreement is asserted to be less than an abso-
lute deed, there is also a presumption that a mortgage was
intended "for the reason, that an error which converted the
transaction into a mortgage would not be injurious, as a mistake
which changed a mortgage into a conditional sale.""-
Effect is given to this judicial leaning toward a mortgage
construction by the introduction of factors evidencing a mort-
gage. Numerous cases like Eiland v. Radford'2 and Russell v.
Southard 3 have arisen. Where the transaction "originated in a
loan of money; the possession of the premises remained with the
grantor, by the permission of the grantee; and the amount of
money advanced was little, if any, more than half the then mar-
ket value of the lands"'14 the agreement "furnished most of the
8 137 Ala. 329, 34 So. 239 (1902).
9 Id. at 330, 331.
10 Hooper v. Reed, 211 Ala. 451. 100 So. 875 (1924); Fowler v. Haggins, 209 Ala.
176, 95 So. 816 (1923); Corley v. Vizard, 203 Ala. 564, 84 So. 299 (1919); Richter v. Noll,
128 Ala. 198, 30 So. 740 (1901); Bryan v. Cowart, 21 Ala. 92 (1852).
11 Crews v. Threadgill, 35 Ala. 334, 343 (1859). See also Locke v. Palmer, 26 Ala.
312 (1855) and Turnipseed v. Cunningham, 16 Ala. 501 (1849).
12 Supra note 1.
13 Supra note 3.
14 Crews v. Threadgill, supra note 11, at 344.
 COMMENTS

evidences of a mortgage."'" A mortgage was declared where the

grantor under an absolute deed showed without denial or explan-
ation from the grantee that the conveyance was intended only
to secure the repayment of money, that the grantor continued to
reside on the premises, that he paid taxes thereon and erected
permanent improvements, that the grantee had stated to a pros-
pective purchaser that "he (grantee) thought he had a mortgage
on said premises." 16
The relatively recent case of Cousins v. Crawford17 indicates
that the evidentiary requirements for proof of a mortgage are
almost the same as that first enunciated in the early nineteenth
century. In that case, the grantor of a so-called "bond for title,"
which amounted to a conveyance with a written defeasance,
brought a bill seeking a declaration that the instrument was a
mortgage. The court spoke as follows in holding that there was
no mortgage:
Did the relation of debtor and creditor exist before and at the time of the
transaction? Or, if not, did the transaction commence in a negotiation
for a loan of money? Was there a great disparity between the value of the
property and the consideration paid for it? Is there a debt continuingfor
the payment of which the vendor is liable?'s (Emphasis supplied.)
Perhaps the most significant development in the evolution
of a test which differentiates between a mortgage and a sale is
found in the preceding italicized statement. In Turnipseed v.
Cunningham9 the grantee of bills of sale with a right in the
grantor to repurchase had surrendered notes evidencing a per-
sonal liability on the part of the grantor. It was held that such
surrender did not necessarily indicate that the obligation had
been extinguished. Here it was declared that "the absence of a
covenant to pay the debt may, in some cases, be important in
ascertaining whether a transaction is a mortgage or a conditional
sale, but within itself is not conclusive; the true question is
whether there is a subsisting debt between the parties capable of
being enforced in rem or in personam."' - It is worthy of note
that the court in Turnipseed v. Cunningham, decided in 1849
viewed the absence of a personal liability as being less than con-
15 Ibid.
10 Parks v. Parks, 66 Ala. 327 (1880).
17258 Ala. 590, 63 So.2d 670 (1953).
18 Id., at 599.
19 16 Ala. 501 (1849).
20 Id., at 508, 509.
 ALABAMIA LAW REVIEW

clusive, a position also taken in Russell v. Southard, decided in

1851.1
However, a foundation was laid for the absolute require-
ment of a debt before a mortgage could exist in West v. Hen-
drix, 22 decided in 1856. The court prefaced its opinion with the
statement: "A mortgage is essentially a security for a debt. When
no debt exists, a mortgage is impossible. 2 3 Authority for the
foregoing proposition was derived from the U. S. Supreme Court
case of Conway v. Alexander 24 which rejected the contention
that the instrument at hand was an equitable mortgage. The
above quotation is a paraphrase of Justice Marshall's statement,
and interestingly, the following statement does appear in Con-
way v. Alexander. "The want of a covenant to repay the money
isnot complete evidence that a conditional sale was intended,
but it is of no inconsiderable importance." (Emphasis sup-
plied.)2 5 This interpretation of the meaning of debt in the se-
curity transaction is a source of confusion when compared with
the later, more relaxed construction of debt in Russell v. South-
ard.2' The confusion is compounded by the fact that Russell v.
Southard makes only slight reference to Conway v. Alexander
and, consistently enough, West v. Hendrix does not mention
Russell v. Southard. The more emphatic requirement of a debt
before an agreement is construed to be a mortgage is stated in
Conway v. A lexander as follows: "It is, therefore, a necessary in-
gredient in a mortgage, that the mortgagee should have a remedy
against the person of the debtor. 2 7 The continued vitality of this
proposition might have been impaired by the following state-
ment from Mobile Bldg. & Loan Assoc. v. Robertson:2 8 ".. . (I)t
is not to be understood that a remedy against the person of the
debtor is an indispensable ingredient of a mortgage." However,
subsequent decisions, as will be shown below, indicate a tendency
toward the views established in Conway v. Alexander.
Peeples v. Stolla29 appeared to place the stringent require-
ment for personal liability in the realm of established precedent:
21 Supra note 3.
22 28 Ala. 226 (1856).
23 Id., at 234.
24 7 Cranch (U.S.) 218 (1812).
25 Id., at 237.
26 Supra note 3.
27 Supra note 24, at 237.
28 65 Ala. 382, 389 (1880).
29 57 Ala. 53 (1876).
 COMMENTS

[O]ne of the tests by which to determine whether or not a mortgage was

intended, is the existence or not of a debt to uphold it. If there is no debt,
there can be no mortgage. On the other hand, security for a debt is incom-
patible with the idea of a conditional sale; and when shown to exist, is
conclusive that the transaction is a mortgage.3 0
Of course, much of the meaning of the requirement depends
upon the definition of the word "debt." Should the court adopt
the broad view that the debt is really a liability that can be en-
forced in rem or in personam as indicated in Turnipseed v. Cun-
ningham3 l the stringent requirement would not bar a mortgage
construction where the grantee can rely on the value of the
property conveyed as his security. The opinions of Chief Justice
Brickell present the last vestige of a less stringent approach to
the meaning of "debt." In Mobile Bldg. & Loan Assoc. v. Robert-
son,32 an agreement whereby the Association would advance
money to the shareholders for the purchase of lands and would
then take title to the property and allow them to live thereon as
lessees until the purchase price was satisfied, was held to be an
equitable mortgage. The court responded to the contention that
there could be no mortgage in the absence of a promise to pay by
stating:
Though there is no express promise to pay, yet, when from all the facts
and circumstances it is fairly collected that the relation of debtor and
creditor exists, and the amount which ought to be paid is ascertained, the
law implies the promise, and an action of assumpsit will lie; thus
33
afford-
ing the creditor, in all events, security, and a remedy for a debt.
In Turner v. Wilkinson 4 the grantee had all the property of the
grantor and yet had no personal obligation. The court stated:
(T)hat no evidence in writing of the debt is taken, is only a circumstance
-it is not conclusive. (citing cases). Obviously, it would seem to the par-
ties a rather useless ceremony, that a memorandum in writing of the debt
should be given, when in his own hands, and under his own control, Wil-
kinson (grantee) had all the property of the appellant (grantor) which
could be subjected to its payment.35
Of course, this broad analysis of the meaning- of the word debt
can be restricted to the facts of the case wherein the grantee had
30 Id., at 58.
31 Supra note 19.
32 Supra note 28.
33 Id., at 389.
34 72 Ala. 361, 367 (1882).
35 Id., at 367. See also Glass v. Hieronymus Bros., 125 Ala. 140, 28 So. 71 (1899)
citing Peeples v. Stolla, supra note 29, and Conway v. Alexander, supra note 24, where
much of the strict approach to the meaning of "debt" is found.
 ALABAMA LAW REVIEW

recourse to all the grantor's property. It is submitted that the

grantor who is in financial distress, although not insolvent, is
entitled to similar judicial recognition of the effect of such trans-
fers to which he might be a party. But, a more narrow meaning
of the word debt is usually employed by the requirement of
proof of an obligation to pay money. For example, in Rogers v.
Butt 36 where the grantee had surrendered the note evidencing
grantor's personal liability, the court found that there could be
no mortgage.
In Morton v. A lien 37 the grantor had an outstanding indebt-
edness which the grantee agreed to assume. The grantor gave
what the parties called a "lease-sale" agreement whereby the
grantee, in exchange for a small recited consideration, received
what purported to be a fee simple. The grantor was to remain
on the property and make monthly payments for a specified
time, after which the grantee would re-convey. Should the
grantor fail to make said payments, the grantee could hold all
that had been paid in the past as rent and the right to a reconvey-
ance would be extinguished. Interestingly, the court found the
agreement to be a mortgage even though the only personal lia-
bility that existed was between the grantor and a third party:
For a recited cash consideration of $6.25 and the assumption of a debt
which was still, as between the grantor and the mortgage company, bind-
ing on the grantor, the grantee becomes the owner of what appears to be
the fee-simple title to the land, but which conveyance was not, according
to the admitted3 8 facts, intended to operate as an unconditional convey-
ance of the fee.

Hence, express personal liability was found between the grantor

and a third party but the indication is, that as between the
grantor and the grantee, the only liability is loss of the right to
repurchase and not the direct duty to pay.
It is clear today, however, that the requirement of a debt in
such transactions is applied stringently as shown by Duncan v.
Leonard.3 9 Citing Knaus v. Dreher40 the court stated:
(T)here must be a continuing binding debt from the mortgagor to the
mortgagee to uphold it; a debt in its fullest sense. Not a mere privilege
reserved in the grantor to pay or not at his election, but a debt which the
36 157 Ala. 91, 47 So. 226 (1908).
37 180 Ala. 279, 60 So. 866 (1912).
38 Id., at 286, 287.
39 251 Ala. 333, 37 So.2d 210 (1948). See also Nowell v. Pate, 2647 Ala. 644, 89 So.2d
170 (1956) where the presence of an obligation to pay a debt led the court to declare
an absolute deed to be an equitable mortgage.
40 84 Ala. 319, 4 So. 287 (1887).
 COMMENTS

grantee can enforce as a debt, and for its collection may foreclose the con-
veyance as a mortgage; for if there is nothing to secure, there can be no
security. 41
Thus the requirement of clear proof of debt is firmly en-
trenched in light of the case cited above and the aforementioned
recent case of Cousins v. Crawford.42 This appears as somewhat
of a departure from the less critical scrutiny as evidenced by the
approaches of Russell v. Southard,43 Turnipseed v. Cunning-
ham, 44 and possibly Morton v. Allen.45
Judicial emphasis on the necessity for a debt in the narrow
sense has given rise to numerous transactions wherein the cred-
itor can manipulate the type of forms used and thereby deprive a
debtor of his rights to redeem and at the same time deny himself
a preferred position as a creditor. It has been urged that the word
"debt" as applied to the security context does not have the same
meaning as that derived from the context of debt as a legal 46
remedy. It is stated in the New York case of Holmes v. Grant
that a distinction exists in that the word as used for security
purposes means "a debt quoad the redemption, but not in re-
spect to the personal remedy." 47 This approach defines debt in
the historic idea of what the debtor owed for redemption and not
what the creditor could claim as his protection.
The oft-repeated statement "no debt, no mortgage" is ques-
tionable when viewed in light of cases upholding a mortgage
where personal liability is patently lacking.48 It is considered that
"the debt (is) regarded due by the land itself. ' 49 The running of
the statute of limitations on the personal liability has been held
not to affect the validity of the mortgage.50 The same is true
5
when the debt has been discharged by bankruptcy proceedings. '
Obviously, much confusion then reigns in the application of a
judicial test for the purpose of determining when and if a given
transaction is governed by security laws. Analysis of the meaning
41 Duncan v. Leonard, 251 Ala. 333, 335, 37 So.2d 210 (1948).
42 Supra note 17.
43 Supra note 3.
44 Supra note 19.
45 Supra note 37.
46 8 raige (N.Y.) 243 (1850).
47id. at 251.
48 Rice v. Rice, 21 Mass. 349 (1826); Seiroe v. First Nat'1 Bank of Kearney, 50
Neb. 612, 70 N.W. 220 (1897); Weikel v. Davis, 109 Wash. 97, 186 Pac. 323 (1919).
49 3 TIFFANY, REAL PRoraRTY §607, p. 2407 (2d ed. 1920).
50 Shockley v. Christopher, 180 Ala. 140, 60 So. 317 (1912); Braun v. Pettyjohn,
176 Ala. 592, 58 So. 907 (1912); Bailey v. Butler, 138 Ala. 153, 35 So. 311 (1902).
1 Wilson v. Russell, 13 Md. 494, 71 Am. Dec. 645 (1859); Bush v. Cooper, 26 Miss.
599, 59 Am. Dec. 270, afrd., 59 U.S. 82 (1853); Brown v. Hoover, 77 N.C. 40 (1877).
 ALABAMIA LAW REVIEW

of mortgage and sale at the time of the original use of this distinc-
tion as a test furnishes reason to doubt the present utility of the
distinction. The sale transaction traditionally involved an imme-
diate exchange of full consideration for property and the idea
that the vendor could redeem that which he had conveyed is
unthinkable. The mortgage transaction, on the other hand, con-
sisted originally of the transfer of an interest coupled with pro-
tection of that transferred. This latter type of transaction was
made possible because of the divisible nature of title into the
legal and equitable. This created an inequality of position that
was not found as a consequence of the classic sale; hence the
right of redemption was devised as a means of regulation of this
potentially oppressive arrangement. This transaction was based
on the proposition that the mortgagor must pay, or lose an in-
terest in property and the exercise of this mandate was qualified
by a right of redemption.
This distinction would still be valid as the standard for
application of mortgage law protections had the transactions
upon which the test is based remained static. Yet it is common
knowledge that today we often find the same inequality of posi-
tion as a consequence of the transaction in the modem sale as
well as mortgage. It is suggested that the original premise that
gave rise to the existence of security law is a product of the dan-
ger of abuse that might flow from the manipulation of the
system of bifurcated title.
The pay-or-lose concept, once unique to the mortgage, is
presently found in the sales transaction. There, a bifurcated title
is used as a vehicle for insuring performance such as in the now
common conditional sale. The fact that a transaction was moti-
vated by an intent to bargain or sell, as opposed to an intent to
lend or borrow, should be an irrelevant characteristic when a
court is called upon to enforce security law. The judicial policy
that stimulated formulation of security protections can be far
better served by recognition of the concept that the responsi-
bilities imposed thereunder are concomitant with the privileges
that flow from the manipulation of bifurcated title.
Much of our present commerce is made possible by the use
of divisible legal and equitable title under the guise of "sale" so
that the pay-or-lose feature might be utilized, as in a mortgage.
The present immunity of this type of land transaction from the
laws relating to mortgages is perhaps an explanation for the
 COM IENTS 307

prevalence of such arrangements. Its frequency of occurrence

and the accompanying frustration of the policy of security law
shall continue so long as the factor of intent of the parties is the
controlling yardstick in the administration of justice to these
transactions. Should the changes that these transactions have
undergone be recognized, the basis for the test would be de-
stroyed; and the controlling factor of whether or not the bifur-
cated system of title has been utilized as a protective device would
become paramount in their construction.
Champ Lyons, Jr.