in equity, a trustee cannot contract with himself as he may with a third party. If he exercises in his own favor the powers he may rightfully exercise in favor of another, the court does not stop to inquire whether he gained or lost. It is enough that the beneficiary is dissatisfied with the transaction for the court to set the transaction aside, without requiring the beneficiary to prove actual loss or fraud."

The $1,000 taken out of this loan by Goldsmith as a compensation for going on the corporation note, in my judgment comes within the spirit of the rule laid down in these authorities. The transaction was in fact a dealing with a trust fund by a trustee a dealing with himself, that is liable to great abuse, and I think ought not to be tolerated. When Goldsmith went security for his corporation for a loan for the benefit of its business or creditors, it was so far proper and right that he should be indemnified by a mortgage of its property; but to take five per centum, or any other portion, of the loan as a compensation for an act which was voluntary, and for which he was secured against loss, appears to me to have been an unlawful appropriation of the trust fund. The great extent to which corporations have become the agency through which the business of the country is transacted, and its property is held and managed, makes it necessary that the salutary rules enforced by courts of equity in other cases of fiduciary relation should be rigidly applied to the numerous and important trusts held by the managers of these organizations. And in the case of insolvent corporations, like the Oregon Iron Works, there is every reason to exact the most scrupulous conduct at the hands of their directors when dealing with the trust property. As was well said in Bradley v. Farwell, supra: "Standing in a fiduciary relation as it were at the bedside of a dying friend, if they are subsequently found in possession of a portion of his effects, they must show title by a conveyance, untainted by the exercise of that power which the trust relation gave them to influence the disposition made by the decedent of his property in their favor to the prejudice of others having equal claims to the inheritance." Goldsmith also admits that at the time of making the mortgage he was under a liability for the corporation of $125, due the workmen on the vessel, which he had guarantied the payment of, and which was paid out of this loan, and expected to be. Standing by itself, the rule de minimis non curat lex might have applied to so small a matter as this, compared with the magnitude of the transaction, but as it is, it must be added to the other circumstances of the transaction which the law pronounces unlawful.

§ 647. A mortgage founded in part on a legal, and in part on an illegal, consideration.

Much has been said by counsel about the knowledge and purpose with which Goldsmith participated in this transaction. It is probable, as has been suggested, that he regarded his official relation to the subject as one of mere form, and did not stop to consider or was unaware that in law he was a director under the same obligation to the creditors of the corporation as if he had been actually engaged in the management of its affairs and familiar with its financial condition. So far as the payment of the Steffen note is concerned, the taking of the commission for signing the corporation note, and the payment of the sum guarantied to the workmen, I find that the consideration for this mortgage is unlawful, because the transaction was so far contrary to equity and the rules prescribed for the conduct of trustees; but I do not find a conscious purpose or actual intention upon the part of Goldsmith to gain an advantage for himself at the expense of the creditors of the corporation, although such was the effect

of his conduct, viewed in the light of all the circumstances, including the final result.

It remains to be considered what is the effect of this illegality upon the mortgage. Does it avoid it wholly or pro tanto, only so far as the illegal consideration extends? The matter is not free from doubt, and was not noticed by counsel. But I think the better rule is, that where the illegal consideration is clearly separable from the legal, that the contract is good for the latter, and only void as to the residue. In Denny v. Dana, 56 Mass., 161, it was held that a mortgage of personal property, which, as to some of the debt thereby secured, was contrary to the solvent laws, is wholly void. But in Bucknam v. Goss, 13 B. R., 343, the correctness of this rule is questioned, and Fox, J., expressed the opinion that where a certain part of a loan became part of the assets of the debtor's estate, that the assignee should not be allowed to avoid the security therefor; and in In re Stowe, etc., 6 B. R., 431, the same judge held that, when a mortgage is given for a debt which was an unlawful preference, and another that was not, it was valid as to the latter though void as to the former.

In United States v. Bradley, 10 Pet., 343, it was held that a deed may in many cases be good in part, and void for the residue, where the residue is founded in the illegality, but not malum in se. The illegal consideration in this case is the sum paid on the Steffen note, $2,149, the sum paid to a director as commissions, $1,000, and the wages guarantied by him, and paid by the corporation out of this loan, $125, making in all the sum of $3,274; which, deducted from $20,000, leaves $16,726, which sum, with interest at one per centum per month from the date of the mortgage, makes the amount $19,569.42, for which the complainant is entitled to a lien upon the premises from the date of the mortgage, and to a sale of them to satisfy the same; and there will be a decree accordingly.

§ 648. A mortgage founded on a past consideration is valid. Wright v. Shumway, 1 Biss., 23 (S$ 435-439).

§ 649. The fact that a mortgagor was unable to read, and that the mortgage was not read to him, does not enable him, in the absence of proof of fraud on the part of the mortgagee, to object that the instrument contains an unauthorized stipulation, especially when it was drawn by his own agent. Wilson v. Winter, 6 Fed. R., 16 (§§ 637–640).

§ 650. A mortgage covering a large amount of property, purporting to secure the sum of $90,000, but having no other foundation than a debt of $4.000, is fraudulent as against creditors, because it has the appearance of an attempt to place a large amount of property beyond the reach of creditors and with pretense of paying a small sum. Hubbard v. Turner,* 2

McL., 519.

§ 651. A conveyance in fraud of the law binds parties and privies, and is not a nullity. Randall v. Phillips,* 3 Mason, 378.

§ 652. Usurious interest by way of lease.- Where a mortgage was given to secure a loan of $3,000, without any agreement about interest, but the mortgagee, in accordance with an agreement made at the time, leased the mortgaged premises to the mortgagor at an annual rent of $270, it was held that the lease was made to secure usurious interest and was void; but legal interest was allowed for the whole period upon the mortgage. Gordon v. Hobart, 2 Story, 243, 262.

§ 653. Usurious interest must be proved.—Where a contract on its face is for legal interest only, a corrupt agreement must be proved to establish the fact that it is usurious. Hotel Co. v. Wade, 7 Otto, 13 (§§ 1440-46).

§ 654. What law governs.- Where a mortgage of land in Michigan was executed in New York, the mortgagee then residing there, where also the mortgage was made payable, and the rate of interest was ten per cent., which was usurious in the latter state, but was valid in the former, it was held that the mortgagee might elect to proceed to enforce the mortgage in Michigan; for it was to be presumed that the contract was made with reference to the interest laws of that state. Fitch v. Remer, 1 Flip., 15.

§ 655. In a suit in Oregon to enforce a mortgage made in that state on land situate there, it appeared that the plaintiff was a foreign corporation which had not complied with the Oregon law by appointing an attorney resident there; that through its agent at Portland, Oregon, it contracted with defendant to loan him $10,000 on his note, which was given, payable at Dundee, Scotland, and secured by mortgage. Only $9,800 was paid on the note. Default of payment having taken place, a bill was filed, and upon the hearing it was held that the contract was not usurious, but that, having been made in Oregon contrary to the laws thereof regulating foreign corporations, it was invalid. A rehearing was granted and a reargument had before the district judge. Upon the first hearing, it was held that a note made in Oregon to be paid in Scotland is subject to the laws of that country, but that the mortgage to secure such note on real estate in Oregon must be governed by the laws of Oregon. The case was then reargued again on the ground that the provisions in the statute of the state in regard to foreign corporations did not apply to the complainant corporation, because this statute by its title referred to "insurance, banking and express companies," and the complainant corporation was neither of these. The constitution of the state provides that every act shall embrace but one subject, which shall be expressed in the title. It was held that the act in question did not apply to the complainant corporation, which was, therefore, entitled to the relief sought. Oregon & W. T. & I. Co. v. Rathbun,* 5 Saw., 32.

§ 656. Although the law of the place of contract governs as to the question of usury, yet a law of the place of contract relating to the manner of enforcing the remedy is not binding upon the courts of another state. Thus a statute of the state of New York, authorizing a borrower to obtain a cancellation of securities without payment, upon the ground of usury, will not be enforced in Massachusetts. Matthews v. Warner, 6 Fed. R., 461 (§§ 735– 737).

XIII. MORTGAGOR'S RIGHTS AND LIABILITIES.

SUMMARY-In Oregon mortgagor entitled to possession until foreclosure, § 657.-Rents when receiver has been appointed, § 658.- Possession by grantor, § 659.— Mortgagor cannot deny seizin, § 660. — Acquiring outstanding title, § 661.— Acquiring outstanding title after discharge in bankruptcy, § 662.- Mortgagee may have action for injury to the security, § 663.

§ 657. In Oregon a mortgage is a mere security for the debt, and the mortgagor is the owner and entitled to possession until foreclosure and sale. The mortgagee has no right to take possession, though he can do so peaceably, without the consent of the mortgagor. Without such consent the mortgagee's entry is tortious and can avail him nothing. Witherell v. Wiberg. § 684-636.

§658. In Indiana the mortgagor is entitled to the rents of the mortgaged premises, though a receiver of the property has been appointed, until the rents are intercepted and applied to the mortgage debt by an order of court. Hunter v. Hays, § 667, 668.

$659. Where, in a deed of trust to secure a debt, it is provided that the grantor may remain in possession until default, when he shall surrender possession upon demand, it has been held that the grantor's interest is not an estate upon condition, but an estate upon a conditional limitation which terminates with the happening of the contingency, and the right of possession would cease without any entry or demand, except for the contract to make demand. The demand in such case is not a demand for the purpose of avoiding the estate, but in fact a mere notice to quit upon a tenant at will. If the grantor or his assignee wrongfully refuses to surrender possession after such demand, he is liable to the trustee in damages. Walker v. Teal,

669-672.

§ 650. A mortgagor is estopped by his deed from denying seizin. His only defenses are payment, want of consideration or fraud. Bush v. Marshall, SS 673-675.

§ 661. If the mortgage has been given in part payment of the purchase money to one of whom the mortgagor has purchased the property by deed of warranty, the mortgagor cannot defeat his mortgage by purchasing the outstanding title. Having purchased such title, he can only require the amount he has paid for the outstanding title to be refunded to him by his vendor. Ibid.

§ 662. A discharge in bankruptcy, obtained by the mortgagor, releases him from his personal debt, but does not destroy the covenant contained in his mortgage; and, therefore, if after his discharge he purchase the property at a sale under a prior incumbrance, he is still estopped to set up this title as superior to the title conferred by his mortgage. Bush v. Person, 676-679.

663. A mortgagee may have an action for an injury done to the mortgage security by a third person, if the mortgagor is insolvent. Morgan v. Gilbert, § 680.

[NOTES.-See §§ 681-687.]

WITHERELL v. WIBERG.

(Circuit Court for Oregon: 4 Sawyer, 232-240. 1877.)

Opinion by Deady, J.

STATEMENT OF FACTS.-This action is brought by the plaintiff, as a citizen of New Jersey, against the defendant, as a citizen of Oregon, to recover the possession of the undivided one-half of two hundred and twenty-two acres of land, situate in Multnomah county. Among other defenses, the answer contains a plea that the defendant "has a right to the possession" of the premises; "that the nature and duration of said right is that of a mortgagee in possession under a certain mortgage executed by H. F. Davis, the owner of said lands in fee, to I. A. Davenport, on January 11, 1859, of which defendant is assignee, and upon which there is now due the sum of $4,786; and that he is entitled to the possession of said property until the payment of said amount due upon said mortgage.

§ 664. A plea that defendant is in possession as assignee of an unsatisfied mortgage is frivolous. Sham and frivolous defenses considered.

The plaintiff moves to strike out this defense "because the same is sham, redundant and frivolous." The defense is neither sham nor redundant. A sham defense is one which is palpably false. Bachman v. Everding, 1 Saw., 72; Hadden v. N. Y. S. Man. Co., 1 Daly, 388. Nothing appears from which the court could even surmise, let alone declare, that this plea is false. If redundant matter be inserted in a pleading, it may be stricken out on motion. Sec. 84, Or. Civ. Code. But an answer or defense cannot be stricken out, as a whole, upon the ground of redundancy. Redundancy consists in irrelevant allegations or unnecessary repetitions, or perhaps prolixity of statement of such as are material; and the motion to strike out must be directed at such allegations, repetitions or statements. Bowman v. Sheldon, 5 Sandf., 657; Fasnacht v. Stehn, 53 Barb., 651. Section 74 of the code authorizes an answer or defense to be stricken out as a whole if it be frivolous. Under the New York Code (sec. 247) the plaintiff, in case of a frivolous answer or defense, is entitled on motion to judgment on the pleadings. An answer or defense is frivolous when it contains nothing which affects the plaintiff's case—when it denies no material averments of the complaint and sets up no defense thereto. Hall v. Smith, 1 Duer, 641. Counsel for the plaintiff maintains that this plea contains no defense to this action, because: 1. It does not comply with section 316 of the Civil Code, which provides that "the defendant shall not be allowed to give in evidence any estate in himself or another in the property, or any license or right to the possession thereof, unless the same be pleaded in his answer. If so pleaded, the nature and duration of such estate or license, or right to the possession, shall be set forth with the certainty and particularity required in the complaint;" and 2. It does not allege that the defendant took possession of the premises with the consent of the mortgagor.

On the argument it was suggested by counsel for defendant that the phrase, "nature and duration of such estate," etc., was uncertain, and therefore it was difficult to say how much or how little particularity and detail is required in a defense of this kind. But the force of the suggestion is not perceived. The "duration" of an estate, whether it be in fee or at will, signifies the quantity or duration of the tenant's interest in the premises. The term is well known to the common law. 2 Black., 103; 1 Wash. St., 45. To set forth in a plea, then, the duration of the estate or right to the possession which a defendant

may claim in the premises, is simply to state the quantity of his interest therein, or the length of time he is entitled to the possession thereof. The "nature" of an estate signifies its qualities or incidents, without reference to its duration or extent, as that it is upon condition, or is held jointly or in severalty. This term is also well known to the common law. 2 Black., 152, 178; Wash. St., 406. To set forth this "nature" and duration, then, in an answer, "with the certainty and particularity required in a complaint," must ordinarily be a very simple matter. It is sufficient to allege that the party is the sole or part owner in fee-simple or upon condition, or for life or years, of the premises, as the case may be; or, in case of some special license or right to the possession for a limited time or special use, to state succinctly the license or right to the possession as claimed, with the necessary facts constituting it.

This defense may be insufficient on demurrer for not stating the fact directly with the circumstance of time that the mortgage or debt secured thereby was duly assigned to the defendant, instead of the allegation, "of which the defendant is the assignee." But it is not frivolous on that account. The fact is stated that the defendant is the assignee of the mortgage, and if that is deemed insufficient or too uncertain, the objection must be made by demurrer or motion to make more definite and certain." Secs. 66, 84, Civ. Code. But, if it is necessary that it should appear that the defendant is in possession with the consent of the mortgagor or his assignee, I suppose this defense is frivolous. This is a question upon which this court follows the law of the state, as expounded by its supreme court.

1

$665. The title of a mortgagee at common law. How modified by equity. At common law a mortgagee in fee of land is considered as absolutely entitled to the estate, subject to its being defeated by the grantor's performance of the condition in his deed as the payment of a sum of money in a prescribed time and manner; and also, if so provided, to the grantor's right to occupy until a failure to perform the condition. But upon such failure the mortgagee at once becomes the absolute and unconditional owner of the estate. Wash. St., 510; 4 Kent, 154. But this doctrine was long since modified by the courts of equity. In Osborn v. Scarf, 1 Atk., 603, Lord Hardwicke laid down the rule that the mortgagor in possession was the owner of the land; and in King v. St. Michael's, Doug., 602, Lord Mansfield held that the mortgage was only a security, saying: "It is an affront to common sense to say the mortgagor is not the real owner." The doctrines of equity on this subject have been gradually recognized by courts of law, so that a half century ago Chancellor Kent could exultingly say: "The case of mortgages is one of the most splendid instances in the history of our jurisprudence of the triumph of equitable principles over technical rules, and the homage which those principles have received by their adoption in the courts of law." 4 Kent, 158. At this day, in some of the states, notably New York, Wisconsin and California, the equitable doctrine has been followed to its logical results, so that a mortgage is there considered a mere chose in action, a security for the debt, while the mortgagor is considered the owner of the premises, subject only to the lien of the mortgage until a foreclosure and sale. Jackson v. Willard, 4 Johns., 42; Runyan v. Mersereau, 11 Johns., 538; Waring v. Smith, 2 Barb. Ch., 135; Jackson v. Bronson, 19 Johns., 325; Gardner v. Heartt, 3 Denio, 234; Kortright v. Cady, 21 N. Y., 363; Trim v. Marsh, 54 N. Y., 603; 4 Kent, 157; Russell v. Ely, 2 Black, 576; McMillan v. Richards, 9 Cal., 409; Fogarty v. Sawyer, 17 Cal., 592; Dutton v. War. schauer, 21 Cal., 621; Kidd v. Teeple, 22 Cal., 262; Bludworth v. Take, 33 Cal., 264.